The retail prices of RON95 and RON97 have been adjusted downward by 4 sen and 9 sen respectively.
However, Malaysians in general are not really excited about it because petrol prices have only been marginally lower while diesel has gone up by 3 sen instead, despite the fact that international oil prices have fallen below US$70 per barrel.
Many people remain doubtful how our retail fuel prices have been calculated. Brent oil has plummeted by approximately 40% from around US$115 per barrel in September to below US$70 now, while our fuel prices have only inched down slightly by 4 sen per liter or a pathetic 1.7%.
Under the government's subsidy rationalisation programme, fuel prices went up by 20 sen per liter in October following a similar margin of increase in September. In other words, motorists would have to fork out additional RM8 for every refill of 20 liters.
After December 1, the saving they can look forward to is a meager 80 sen. In the meantime, diesel has become dearer now, and we have no idea at all how the government has come up with the retail prices.
The government calls this "managed float" mechanism whereby retail fuel prices do not directly reflect the fluctuation of the international oil prices.
According to Singapore's Mean of Platts (MOP) model, retail fuel prices will also factor in operating cost, 5 cents profit for oil companies, 12.19 cents profit for gas station operators, 5 cents of Alpha (price difference between MOPS and actual retail prices) for a total of 31.77 cents. However, the lack of transparency in calculating the retail prices continues to cause confusion among consumers.
Moreover, the government is adopting a monthly average system to calculate the retail prices. Since OPEC decided to maintain production levels in end-November, oil prices have tumbled and as such, monthly averages are no longer versatile.
When our foreign competitors are enjoying the bonus of low oil prices, Malaysian manufacturers have to struggle through "relatively high" fuel prices. Consequently, it will be more practical for the government to adopt weekly or even daily averages instead, in calculating the retail prices.
A floating mechanism entails effectiveness in execution and adaptation. If the relevant departments are inefficient, the country's economic competitiveness will be at stake.
Malaysians have yet to enjoy the benefits of drastically lower oil prices while the government has yet to brace itself for shrinking oil revenue come next year.
Petronas announced recently that its third quarter net profit ended September 30, 2014 had dived 12% to RM15.1 billion.
Petronas president Tan Sri Shamsul Azhar Abbas pointed out that the company could distribute RM29 billion in dividends to the government this year while the total payout to the government stood at RM68 billion.
If the international oil prices average US$75 per barrel next year, the total payout will likely be reduced by 37%. As a result, Shamsul urged the government to get ready to "tighten its belt".
Oil revenue constitutes about 30% of the government's total income, and if this revenue is slashed by 37%, it will translate into RM25.2 billion less for the national coffers. This is based on an average of US$75 per barrel, but according to Tom Kloza estimates, if crude supply outstrips daily demands by 1 to 1.5 million barrels during the second half of next year, crude prices could sink below US$35!
If this level is eventually breached, it is likely for the country's debts to surpass the dangerous 55% level.
The government tabled the 2015 Budget based on US$100 and US$150 per barrel of crude prices for this year and next year respectively. The government estimated that its revenue would increase by RM10.2 billion to RM235.2 billion next year. But given the drastic fall of international oil prices, perhaps the government should look into reviewing next year's budget or be prepared to see further widening of the budgetary deficit.
It is not hard to gauge the impact of falling crude prices on oil-dependent Malaysia from market reactions. Foreign investors have rushed to pull out from the country, resulting in sharp declines in the local share prices and the ringgit.
The ringgit has traded at a 5-year low against the greenback, making imported goods pricier and less affordable, hence inflation.
Unfortunately, Malaysians appear to be unperturbed by the potential sharp decline in the treasury. MPs are unhappy with the 69% salary hike offered to them, demanding more, while Umno delegates looked to more government handouts for bumiputras during the recent general assembly.
Neither has the government sensed the crisis of excessive spending. For instance, there are more than 50,000 people on the payroll of the Prime Minister's Department, collectively drawing RM8.97 billion in salaries annually. The government will have to raise more debts if this workforce is maintained. – mysinchew.com
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