PKR dubs RM19b annual gas subsidies as lost income

By Lee Wei Lian

February 05, 2011

PKR strategy director Rafizi Ramli called the dependence on subsidies “an artificial competitiveness for the country”.

KUALA LUMPUR, Feb 5 – PKR focused on the RM19 billion annual gas subsidy in a forum on national TV last night, saying it should be stopped as it was lost revenue although a government strategist said it helped create jobs.

PKR strategy director Rafizi Ramli cited the study by Stanford University professor Jeff Rector in 2005 which purportedly showed that 81 per cent of the gas subsidies went to industries and businesses and only 19 per cent to the general public and the benefits of the gas subsidies ended up being “exported out” by industries.

“The dependence on gas subsidies has to be stopped,” said Rafizi in the forum televised by RTM1 at 10pm. “It is artificial competitiveness for the country.”

The abolishment of gas subsidies is one of the reforms proposed by Pakatan Rakyat (PR) if it takes over Putrajaya.

The proposed reforms are listed in its “Buku Jingga” document and include the abolishment of tolls and the repeal of the Internal Security Act.

Prime Minister Datuk Seri Najib Razak had called the reforms “too good to be true” and claimed that it would bankrupt the country.

Rafizi said, however, that the abolishment of the gas subsidy would help pay for the reforms.

“The government would get RM19 billion in revenue if there is no subsidy,” he added. The government was represented by Hulu Selangor MP P. Kamalanathan

Another panellist on the forum, chief executive of the Institute of Strategic and International Studies (ISIS), Datuk Mahani Zainal Abidin argued, however, that the gas subsidies helped create jobs.

“Even if 81 per cent of gas subsidies goes to export-oriented industries, it is still jobs,” she said. “If exports are affected, then jobs are lost.”

Mahani, who is also one of the authors of the Najib administration’s New Economic Model, admitted, however, that gas subsidies were undesirable in the long term but it was not something that could be changed overnight.

“Yes, we want higher gas prices but a sudden change is tough,” she said. “It is a complex issue.”

National oil company Petronas, which has to bear the subsidies via fixed gas prices, said last November that it is seeking a review of gas prices.

In the 2009 financial year, Petronas’ gas subsidy bill reached RM19 billion, or nine per cent of total revenue while in the first half the 2010 financial year, the amount stood at RM10.2 billion.

Cumulative subsidies borne by Petronas up till November 2010 since the gas price was fixed to the power sector in 1997 and the non-power sector in 2002 amounted to RM126.6 billion.

The issue of gas subsidies is also a controversial one as the prime beneficiaries are seen to be the independent power producers (IPPs), many of which are highly profitable and perceived to be controlled by politically favoured parties.

Gas demand in Malaysia is primarily driven by the power sector, with about 55 per cent of gas sales coming from the sector.

The non-power sector accounts for about 38 per cent of total sales while the remainder is exported.

Government strategist Performance Management and Delivery Unit (Pemandu) has come up with a gas subsidy rationalisation plan whereby the price of natural gas will be first raised by RM4.65 per mmbtu (million British Thermal Unit) for the power sector and RM2.52 per mmbtu for the non-power sector.

The electricity tariff will then be raised by 2.4 sen per kW/h and thereafter, the price of natural gas will be increased by RM3 per mmbtu every six months and the price of electricity will also go up by 1.6 sen per kW/h every six months. - Malaysian Insider