As expected, oil prices climbed to a fresh high with the light sweet crude for October delivery rose as high as $81.18 a barrel in Asian electronic trading on the New York Mercantile Exchange, before retreating slightly to $81.04, midmorning in Singapore. Basically the stocks markets across the globe have been quiet with most of the indexes in the red awaiting the result of the Fed meeting today.
I’ve actually left out one of the reasons why oil price will remain bullish from my recent article “Reasons Why Oil Price might spikes to $90 and beyond”. That factor is the coming winter season which at this point is still uncertain in terms of its severity. Really it’s an annual event as the winter season comes without a miss every year. What is the difference is whether the blizzards will create havocs this time around, not that the U.S. inventories are anything that can comfort the people of U.S., going by the recent announce figure.
To be precise it’s the heating oil futures that investors should watch out but generally when the winter season is super-cool, almost all energy-related commodities will go up. While U.S. has to face the uncertainty of higher fuel price and heating gas due to the winter season and natural disaster such as hurricanes, something quite difference is haunting the people of a nation thousands of miles away.
Instead of natural disaster, Malaysia is a country blessed with numerous natural resources and the most precious of all at this particular moment is oil. The country doesn’t have winter season so the only thing required besides petrol for cars is gas for cooking and generating electricity. It was reported that Petronas, the oil and gas company wholly owned by the government, is whinning about the huge subsidies it’s paying for the gas and is asking for a raise.
Government claimed Petronas paid out subsidies close to RM50bil in the last 10 years for gas and the time has come for it to raise the rate considering the global oil prices hitting above US$80 per barrel. As a wholly owned government business entity, the government Minister is helping in echoing the needs to raise the price of gas when the Cabinet committee meets next Monday. So a raise is imminent.
But the question remains if Petronas can actually continue subsidizing the gas. While Petronas sold subsidised gas at RM6.40 per mmBtu (Million British Thermal Units) when the unsubsidised gas cost about RM40 per mmBtu, the fact that Petronas’ accounting figures’ continuous secrecy has given impression that the massive profits have been abused. If it’s clean, why not disclose it to the public since the natural resources belongs to every individual citizen, goes the argument.
The critics have complained for decades that elected politicians have siphoned the profits to finance un-sustainable ventures or to bail out politically connected companies with funds that could have been better used for national development. The infamous bail-out with Petronas profits happened in 1998 when Petronas, through its shipping carrier Malaysian International Shipping Corp Berhad (KLSE: MISC, stock-code 3816), inexplicably acquired a debt-laden (debts estimated at RM1.8 billion) shipping company, Konsortium Perkapalan Bhd (KPB) which owned by former premier Mahathir’s son, Mirzan Mahathir.
The government was criticized for sponsoring cronies in terms of heavily subsidized processed gas to companies such as Tenaga Nasional Berhad and a handful of IPPs (independent power producers). Petronas once said over RM25 billion of subsides were extended to IPPs such as Genting Sanyen Power, YTL Power, Malakoff Bhd and Tanjong Plc/Powertek Bhd, thus created instant tycoons associated with politicians. So why the people should suffers with price hike when these cronies are enjoying their massive profits from the subsidies?
Despite Petronas being the special entity created by Parliament via the Petroleum Development Act (144) 1974, it has a strange clause which amongst other stated that the Corporation shall be subject to the control and direction of the Prime Minister who may, from time to time, issue such direction as he may deem fit. Hence even Parliament has no power over Petronas. In another words Petronas belongs to the Prime Minister of Malaysia. And to see people cracking their heads wondering why former premier Mahathir appointed himself as the “Advisor” to Petronas after passed the baton to Badawi – it’s a gold mine, mind you.
Anyways, the hike in gas price will definitely bring in another round of price hike in other consumer products or finished goods and the chain-reaction will push up the inflation. Can the government take the heat of grumbling voters with the general election so near? Maybe the benefits of having the extra billions of dollars released from the subsidies outweight the unhappy people on-the-street. Furthermore the government can always gives another carrot to the people a week before election is announced.
On the side note, don’t you dream of the day when the Petronas finally list its’ shares in the local stock market? But considering Petronas does not need to raise money, it might just remains as the personal corporate of the Prime Minister.
Other Articles That May Interest You …
- Oil price hike – Badawi’s greatest Economic Challenge
- Reasons Why Oil Price might spikes to $90 and beyond
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September 18th, 2007 by financetwitter
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