Diesel shortage: Govt intervention to blame

The Ministry of Domestic Trades, Cooperative and Consumerism is only buying time with its decision to increase quotas on diesel shortage.

COMMENT

By James M Alin
Existing price controls give petrol stations a profit margin that is paper thin therefore reducing both the incentives to immediately refill their empty storage tanks and for new gas stations to be opened.

Now you know why gas stations are operating convenience stores (sometime rental space to ATM machines) as well.

When there is a shortage, panic buying will make the long queue longer. It is the gas stations who suffer from the brunt of the angry consumers.

The Ministry of Domestic Trades, Cooperative and Consumerism (MDTCC) directives (orders) to impose rations or quota does not solve artificial shortage; all it does is buy time until the additional supply arrives.

In the meantime consumers will have to pay a higher cost for waiting and driving around looking the fuels.

Whose fault is this then? Is it the officials at the MDTCC?

Yes, if you are the gas station owner.

The first question is why are the officials, who are not in the business of selling fuel, deciding on how much supply each station gets each month?

Coercive laws

Price controls are unfair to the gas stations. If gas stations (retailers) cannot easily get their supply from domestic depos, why are they not importing?

What kind of existing government ‘inventions’ are we talking about?

Firstly, price control in which coercive law imposes price ceilings by forcing producers to sell below market price.

The section 4 of the Federal Act 121- Price Control 1946 (incorporating amendments 1994) gives power to the price controller (MDTCC) to fix prices and charges. It states that the price controller may, with the approval of the minister, from time to time made do so by an order published in the gazette.

Secondly, government imposes quota on quantity supplied to vendors and quota on quantity purchase by consumers, as specified by the Control of Supplies Act 1961.

Third kind of intervention is the subsidies (price discrimination) and tax exemptions.

Market distortions

By now I think you can guess how these coercive regulations can cause distortions in the market for essential goods and service.

In time of high demand, markets are not allowed to adjust; restrains of the laws cause the domestic production to be inelastic.

If gas stations need more fuels, malls want more sugars or cooking oil or booming real estate industry required more construction materials but domestic producers has no incentive to increase production, they cannot get supplies from other countries.

It is the ministry who gets to decide how many importers should exist at any given time.

The consultation process between ministry and industry will take lengthy time.

Time is money is it not?

More often than not, the import permit holders have no previous experience with that particular industry.

How do they decide on the needs and wants of the industry? Who are those permits holders? Who actually decides who get how many permits?

Only God, minister and his top officials know.

The write is an economist and associate professor in the School of Business and Economics, Universiti Malaysia Sabah)