JAN 7 – One sure way to gain someone’s attention these days is to use a few key phrases – petrol price, falling oil prices, rising costs, economic slowdown.
There has been much debate, media coverage and also coffee shop talk on the recent dramatic plunge in crude oil prices.
Perhaps the most pressing issue to most Malaysian consumers is: why hasn’t the pump price for fuel dropped as significantly as the global oil prices?
When they were soaring not so long ago, prices of just about everything also surged in tandem.
So, the reasoning goes, if they have dropped nearly two thirds in just a few months, why have prices of other goods and services been so reluctant to climb down?
There’s also the worldwide financial meltdown. Tune in to any radio or TV station or pick up any newspaper and there is bound to be something on retrenchment, absences of bonuses, closure of shops or factories, sharp drop in demand, volatile exchange rate, plunge in commodities prices, and the list goes on.
Aren’t all these factors further incentives to cut prices? Demand and supply and all that?
The latest Consumer Price Index (CPI) inflation figure is 5.7 per cent for October 2008, compared to the average inflation of approximately 3 per cent yearly.
Since the CPI measures inflation based on a “basket” of goods and services, there has been much debate on the relevance of the index to the man on the street. For now, I would rather avoid discussing the relevance of the CPI.
Efforts to reduce the prices of goods have been made – amid considerable fanfare and publicity – by various authorities and suppliers. There is some ongoing hypermarket discount campaign covering a wide range of daily necessities that is widely reported and advertised daily. Also there is a slight drop in some of the mamak restaurants food pricing.
We wonder if the low-price campaign by the hypermarkets will endure or is it just hype?
There are some newspaper reports showing that certain shops are selling food at reduced prices. But, the very fact that this is deemed newsworthy would also mean that the drive to reduce prices have not caught on with most suppliers, traders and providers.
From the suppliers’ and traders’ side comes a long list of reasons – or excuses – to explain why prices have not come down.
Looking at the perspective of those who rely on public transport and also motorcycles to get around, the reduction in fuel prices has not been much relief except for a marginal drop in overall transport expenditure.
The main beneficiaries of the price reduction are owners of four-wheeled vehicles, especially petrol-guzzling luxury cars, as petrol prices have dropped below RM1.92, even lower than they had been before the shocking surge.
In summary, the prices of many goods and services seem to be “sticky” and the decrease in pump prices has so long so far yielded minimal results.
In fact, it is expected that prices of some goods actually go up during the festive periods.
Even the Ministry of Domestic Trade has shown sign of tiredness since the results of the campaign to drive prices down are not palpable to the public. Often it is more shout than bite since legally there is nothing in the provision of law that could be enforced to ensure reduction in price when petrol price decreases. Free market, what?
The issue is compounded when the public is aware that the government is now earning revenue from the sale of petrol to the public.
There are also comments from a minister criticising consumers for being unfair, arguing that the government had been subsidising fuel for 10 months but all the good work was forgotten when the government earned some revenue from petrol for one month. In fact, many countries, including Singapore, tax petrol sold to the public as a source of revenue.
The main issue, however, is the lack of transparency on the amount of profit made from selling fuel, and accountability in how the revenue is utilised.
Currently, there are different reports on the estimated profit made from the sale of petrol in Malaysia. There was a report by an analyst that the Government has made RM500 million from sale of RON97 for the past six months.
This has been refuted by Datuk Sharir, who said that, based on November’s average price of US$58 per barrel, the price of RON 97 would be RM1.50 instead of the figure of RM1.30 computed by the analyst.
Still, the profit made by the government from the sale of petrol remains unknown.
The public wants more transparency and demands convincing details on how the revenue will be utilised or disbursed. General statements, such as vague promises that the funds “will be spent on improving public transport”, are no longer enough to placate the irate public.
Previously, when the Government raised the petrol price to RM1.92, the estimated savings from subsidy reductions was reported to be RM4.4 billion, which would be used for upgrading the public transport system.
Unfortunately the figure of RM4.4 billion was merely an illusion. With no price stability during that period and the price of crude oil soaring skywards, any savings would have been minimal.
However, the absence of clear and credible information has enabled the opposition to discredit the government on this point.
The Government has not done well in explaining to the public why the “savings” was insufficient to revamp and improve the public transport system.
Meanwhile the “improvement in public transport” remains a political statement with a lot of talk but no concrete action.
There is no denying that public transport system is urgently in need of massive improvement in the Klang Valley, followed by Penang, Johor and other major towns.
Nine months have passed since the March 2008 election and the public is still awaiting a draft master plan for an integrated public transport system.
Rather than allowing unhappiness over petrol prices to fuel continued political dissent, the government should just provide credible information on the profits and/or losses it made as a result of adjusting pump prices to reflect global oil prices.
Disclosure of the information would demonstrate transparency and accountability by the government.
One way to ensure that the nation’s petroleum wealth benefits the people, especially lower and middle income groups, is to distribute oil revenue directly to them.
Based on available statistics, there are 5.6million households in the country. The breakdown of the income level per month for these households is as follows:
8.6% - earning below RM1,000
29.4% - RM1,001 to RM2,000
19.8% - RM2,001 to RM3,000
12.9% - Earning between RM3,001 to RM4,000
8.6% - Earning between RM4,001 to RM5,000
15.8% - Earning between RM5001 to RM10,000
4.9% - Earning above RM10,000
Direct cash subsidies should be distributed directly to these families according to their monthly income, especially those with a family income of less than RM2,000 per month.
With direct cash subsidies, families will be able to plan their expenditure more efficiently. Such a move will generate a lot of goodwill.
This would also create a multiplier effect due from increased consumption which is important to spur domestic growth. There will also be no worries about abuses or profiteering by middlemen.
Of course, there is also worry that the constant drops in petrol prices might ultimately be counterproductive. The concern is valid because crude oil prices might increase again, along with the predictable impact on the prices of goods and services.
No one can guarantee how long crude oil price will remain low. An increase in crude oil price is bound to affect the pricing of goods and services thereby hitting the public twice.
Some of those feeling the pain may then call for the re-introduction of petrol subsidies but, as should be clear by now, it is not be best solution. Subsidies are inefficient and inequitable, especially to motorcyclists and those relying on public transport, and is prone to abuse and arbitrage profiteering.
On the other hand, if the government intends to maintain the petrol price at the current levels, the distribution of the revenue to the intended families according to income per month should be implemented.
The information on distribution and accountability of revenue must be disseminated to the public to avoid any doubt, suspicion or manipulation of the issue for political reasons.
Other stakeholders like school bus and interstate express bus operators and fishermen should also be the target group for the distribution receive their fair share of the oil revenue so that, hopefully, the people who rely on their goods and services will be the ultimate beneficiaries.
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