A live one hour debate between Dato Seri Anwar Ibrahim and Dato Seri Ahmad Shabery Cheek was held on the 15th of July in Dewan Bahasa dan Pustaka(DBP), Kuala Lumpur on Fuel Subsidies where Anwar proposed reducing the fuel price by 50 cents/litre whereas Shabery stands by the government’s decision in reducing fuel subsidies.
In order to reduce each litre by 50 cents, the government needs to provide an additional total subsidy of RM5billion. According to Anwar, contribution of Petronas to the government must be used for this purpose. On top of that, he touched upon renegotiating the contracts with the Independent Power Producers(IPPs), which I totally agree. The energy supply contract that TNB did with the IPPs has very bad terms for TNB in the long run and this results in higher electricity price for consumers. Another point that Anwar raised was to reduce the spare capacity that TNB owns. Allegedly, they have about 40% excess capacity(this is higher than most countries who only have about 20-30%). This is a very valid point. However, according to Anwar, cutting the spare capacity by half saves the government RM2 billion for capacity and fuel. I agree with him that 40% is a bit too much of a capacity. However, I do not agree with reducing the capacity to 20%. The power plants have been built and ‘unbuilding’ it would not save money. Another point to note is that these spare capacity do not consume any fuel(maybe slightly for maintenance or occasional start ups); hence I do not see a huge reduction of RM 2 billion here. What TNB can aim to do is to utilise that excess 20% to generate and maybe export electricity to neighbouring countries(i.e.Thailand and Singapore), bearing in mind contracts should be short term so that future increases in prices/cost of fuel can be taken into account and contracts can be revised. Therefore we should redistribute our capacity and not try to disable perfectly capable power plants.
Another interesting point raised by Shabery is that countries with very low fuel prices have really high inflation rates. This is a very interesting and valid point – nations with highly subsidised petrol have excess money to spend; hence they demand more of other goods which leads to increase in price, given that supply stays constant. On the other hand, nations that reflect the market price tend to keep their inflation under control, e.g. western and developed countries.
Drawing from the debate, there are good points from both parties. As I pointed out in one of my previous articles, the aim of reducing subsidies and providing rebates is so that everyone benefits equally, i.e. if you drive more, you don’t gain more subsidies(as would be the case in the past). Therefore, hopefully people will optimise their vehicle usage and reduce time on the road. If you look at things objectively, most higher income earners drive a lot; hence would have benefited a lot from government’s subsidies(tax payers’ money). However, I do hope the government will channel this excess saving for fiscal expenditure in improving public transportation systems and helping the poor.
Since the increase has been done, there is no point turning back. The people will get used to the new lifestyle. The government however, should help those who are really in need of financial backing in the midst of this crisis.
