money

PUTRAJAYA, Feb 26 – Production and operations costs of most of the industries in Malaysia can be adduced as “artificial cost” as a big chunk of the cost element is the subsidy borne by the government, according to experts.

Actually, manufacturers should feel “embarrassed” when announcing that they have made a profit when the reality is that a major portion of their costs had been absorbed by the government. They should be ashamed if they lose money even with the government subsidies.

Take gas, for instance. A good number of industries are now switching to gas to power their manufacturing processes due to the lower price of gas (compared with diesel) while both fuels are subsidised by the government. The only difference is the amount of total subsidy.

The subsidised gas price for the power sector is RM10.70 for per Million British Thermal Unit (MMbtu), heavy consumers RM15.35 per MMbtu and Gas Malaysia Sdn Bhd RM11.05 per MMbtu. Unsubsidised price or current market price for gas for the energy sector is RM41.16 per MMbtu, heavy consumers RM56.20 per MMbtu and Gas Malaysia RM42.35 per MMbtu.

Subsidised diesel price for public transport and fishermen is RM38.65 per MMbtu or RM1.43 a litre and pump price RM45.95 per MMbtu or RM1.70 a litre. Market price for diesel is RM55 per MMbtu.

Looking at the figures, the industrial sector can surely differentiate the subsidised gas price they have been enjoying all these while.

Government subsidy target groups like fishermen will surely “shake their heads” upon seeing the very low subsidy they are receiving, compared with the industrial sector.

The government is estimated to bear over RM20 million in financial burden this year for gas subsidy alone and this “hidden cost” will continue to surge in years to come if gas prices are subsidised continuously.

Unfortunately, cumulative subsidy at around RM7 billion initially five years ago was enjoyed only by certain segments of the indutrial sector but not the people from all strata of society.

The bulk of the industries may pretend to be unaware that they have been actually inefficient in gas and diesel consumption. They seem to take the easy way out by switching to gas to take advantage of the cheaper energy, thanks to government subsidy.

Buying gas at market prices should jolt them up to boost energy efficiency and maximise their resources to minimise costs and improve competitive edge.

Under the Gas Sales Agreement, the gas supplied by Petronas, the national oil corporation, is based on medium fuel oil (MFO) price.

It is public knowledge that global oil price in the world market was on the upward trend throughout last year, resulting the same trend for MFO. MFO was sold around US$72 per barrel in December last year as compared with US$37 per barrel in March last year.

The higher the MFO price, the higher is the subsidy apportioned by the government for gas-powered industries.

Hence, the government is further burdened to increase the subsidy amount following spiralling demand from certain industries.

Petronas is said to be facing “supply hitches” following abrupt rise in demand for gas to the extent of exceeding its supply capacity.

Tenaga Nasional Bhd is also facing problems getting gas supply from Petronas, compelling the power utility giant to convert some of its electricity generation plants to be coal-powered.

Maybe it is time for the government to set prices of MFO, gas, diesel and coal based on market prices in order for local industries to have more choices for their fuel supply.

With that, reliance on gas will not be that high and hence, there will not be much difference in fuel price. This will pave the way for industries to opt for other sources of fuel if the demand for gas cannot be met.

A wide range of fuel will ease the “pressure” on the burgeoning demand for gas whose reserves are fast depleting. In conclusion, a prudent policy and pre-emptive measures adopted by the government and Petronas will help sustain the nation’s gas reserves for the future generation. – Bernama

GENTING Plantations Bhd has reported a pre-tax profit of RM301.9 million for its financial year ended Dec 31, 2009, down 37 per cent from the previous year's record level of RM482.88 million.

Revenue declined 27 per cent to RM755.6 million while earnings per share was 37 per cent lower at 31.1 sen, the company said in a statement Wednesday.

The weaker results in 2009 were mainly due to a six per cent year-on-year decline in the production of fresh fruit bunches (FFB) and softer prices of palm products amid a downturn in the global economy, it said.

The average crude palm oil (CPO) and palm kernel prices achieved in 2009 were RM2,236/mt and RM1,063/mt respectively compared with RM2,822/mt and RM1,595/mt in 2008, said Genting Plantations.

Contribution from the Property Division was also lower in 2009, down 45 per cent from the previous year to RM6.8 million due to the unfavourable economic conditions, the company said.

Expenditure incurred for the Biotechnology Division increased slightly in 2009 compared to 2008, but this was mitigated by the lower deficit recorded for the Plantation-Indonesia Division.

"Barring any unforeseen circumstances, the performance of the group for the coming financial year is expected to be satisfactory," Genting Plantations said.

The board of directors recommended a final dividend of 5.25 sen per ordinary share of 50 sen each, less 25 per cent tax, for the 2009 financial year.

This is higher than the final dividend of 5.0 sen per ordinary share, less 25 per cent tax, recommended for the previous year. - BERNAMA

KOTA KINABALU: The Sabah Fisheries and Fishermen's Development Corporation (Ko-Nelayan) recorded a gross profit of RM4.8 million, said Deputy Chief Minister Datuk Yahya Hussin.

BERLIN, Feb 21 – Germany’s finance ministry has sketched out a plan in which countries using the euro currency will provide aid worth between 20 billion and 25 billion euros ($27-$33.7 billion) for Greece, a magazine reported on Saturday.

Citing “initial considerations” by the ministry, German weekly Der Spiegel said the share of financial aid for Greece would be calculated according to the proportion of capital each country holds in the European Central Bank.

A spokesman for the German finance ministry said he would not comment on the report, which stated that the financial assistance should take the form of loans and guarantees.

The report said all euro countries would shoulder the burden and that Germany’s share in the package would amount to 4-5 billion euros, and be handled by state-owned bank KfW.

According to the German planning, the aid should be tied to strict conditions, the magazine said, adding that loan tranches should only be paid out once these are met.

Spokesmen for both the Greek finance ministry and the European Commission declined to comment on the report.

Chancellor Angela Merkel’s government has so far resolutely deflected appeals to promise Greece aid despite fears that failure to help Athens could threaten the euro.

Germany in public argues that leniency would take pressure off Athens and other euro zone debtors to cut their budget deficits. Behind the scenes, lawmakers acknowledge that Berlin has prepared measures if a rescue becomes inevitable.

Merkel’s position has been complicated by the fact the country is embroiled in a highly charged debate on the sustainability of Germany’s welfare state.

This has helped to galvanise public opposition to Berlin funding a bailout just as her centre-right coalition braces for a big test of its popularity in May, when voters go to the polls in Germany’s most populous state, North Rhine-Westphalia.

TRANSPARENCY

Speaking to Der Spiegel, Greek Prime Minister George Papandreou told Germany he was not seeking aid, and criticised the Commission for failing to ensure member states adhered to the EU’s Stability and Growth Pact that limits budget deficits.

“The union could in the past have more rigorously policed whether the stability pact was being observed – with us too,” he said. “In future we should allow the European statistics office direct access to individual member states’ data.”

“We suggested that, but not all countries wanted to have so much transparency,” Papandreou said.

Greece’s deficit swelled to 12.7 per cent of gross domestic product in 2009, way above the EU’s cap of 3 per cent, and Athens needs to sell some 53 billion euros of debt this year, including at least 20 billion euros in April and May.

In case demand should falter, German lawmakers have been quietly thinking about how Greece could be helped.

A senior financial official in the ruling coalition told Reuters last week Germany was considering using the KfW to buy Greek government bonds. A separate proposal saw the KfW issuing guarantees to German banks that bought the Greek bonds.

Separately, Der Spiegel said that an internal report by Germany’s financial market watchdog BaFin concluded that German banks could be seriously threatened if Greece or other countries including Spain, Portugal and Italy become insolvent. – Reuters