Petronas Forgoes RM133 Billion To Keep Gas Prices Low

June 22, 2011

PUTRAJAYA, June 22 (Bernama) -- Petronas should have saved almost RM133 billion between 1997 and end-March 2011 if gas prices were not fixed by the government to the power and non power generation industry.

Gas prices have been capped for almost 10 years at RM6.40 per million metric British thermal unit (mmBtU) since 1997 as an interim measure to alleviate the rakyat's burden.

The decision to cap prices had to be extended beyond the original schedule as the region faced the Asian financial crisis.

"It was an attempt to help with the economic recovery process," said Minister of Energy, Green Technology and Water Datuk Seri Peter Chin at a press conference here today to explain the gas subsidy to the power generation industry.

He said the decision to fix the price resulted in Petronas having to forego a certain percentage of its revenue based on the difference in gas prices being sold in the international market.

"The price cap on the industry is also to ensure the electricity tariff paid by the rakyat is kept low," he said.

The gas price was increased by RM3 per mmBtU to RM13.70 per mmBtU on June 1, resulting in an increase of 1.6 sen in electricity tariffs.

And, if gas prices are not adjusted by RM3 per mmBtU, every six months as proposed by the Performance Management and Delivery Unit or PEMANDU, it would result in Petronas forgoing another RM2 billion.

Chin reiterated that no funds were being transferred to either Independent Power Producers (IPPs) or Tenaga Nasional Bhd (TNB).

He said that the fuel cost for electricity generation by both TNB and IPPs was a pass-through component which would be reflected in the end-tariff to consumers.

"It is, however, subject to government approval," the minister said.

Gas accounts for 54.2 per cent of the main fuel used for electricity generation in the Peninsula and the generation cost increases in tandem with every increase in gas prices," he said.

If the gas to the power generation sector had been allowed to increase according to market price, he said the average electricity tariff would be increased by 16 sen per kilowatt hour (kWh) to 47.31 sen/kWh.

"It is still lower than Singapore's tariff of about 57.5 sen/kWh where the country's gas prices is floated in tandem with the international market," he said.

The international market price for gas is currently at about RM40.70 per mmBtU.

The government had earlier decided to gradually increase gas prices as it recognised the implications of the policy on future generations and to allow Petronas to redeploy its revenue for other activities such as exploration in new areas to ensure sustainable gas supply to the nation.

Chin also slammed opposition parties who were unable to grasp simple concepts such as the subsidy scheme and chose to misrepresent the details for political mileage.

Denying recent allegations that the gas subsidy was being handed out to benefit IPPs and TNB, the minister said:"I am surprised at such allegations...it is inaccurate and grossly misleading.

-- BERNAMA

Fuel Subsidy To Be Reviewed If Oil Prices Reach US$110-US$120 Per Barrel

May 26, 2011

PETALING JAYA, May 26 (Bernama) -- The government will review the fuel subsidy if oil prices reaches between US$110 and US$120 per barrel, says Deputy Finance Minister Datuk Donald Lim Siang Chai.

The government yesterday decided to maintain the prices of RON95 petrol, diesel and liquefied petroleum gas (LPG) for the time-being.

"We know at this juncture, a lot of other things have also increased, including food prices and housing. So the government decided not to increase (fuel prices," he told reporters after opening Standard Financial Planner Sdn Bhd's new office here Thursday.

Besides, the decision was also based on declining oil prices from US$110 per barrel, as of April, to just above US$100 per barrel, at present, Lim said, adding that the government was closely monitoring the crude oil market.

He said if oil prices continued to spiral, the government would have to spend more on subsidies, which in turn, could lead to a higher deficit and affect economic growth.

"When we (the government) planned the budget for this year, we were looking at oil prices hovering between US$85 and US$90 per barrel.

"Of course if it (oil price) drops below US$100 per barrel, then the government is not likely do anything because we can still find ways to overcome it. But if it goes beyond US$110, then we have to consider (some measures) as it could affect economic growth," Lim said.

Although, people can continue enjoying the fuel subsidy, Lim also advised then to be prudent.

Asked whether there could be an increase in electricity tariff rates, Lim said the National Economic Action Council would meet tomorrow to discuss and decide on the issue.

On Malaysia's economic outlook in the second quarter, Lim believed the country would be able to register a better growth of 4.6 per cent amid rising foreign direct investments.

-- BERNAMA

No Price Increase For RON95, Diesel And LPG

May 25, 2011 17:33 PM

PUTRAJAYA, May 25 (Bernama) -- In a move that will please many Malaysians, the government has decided to maintain the prices of RON95 petrol, diesel and liquefied petroleum gas for the time being.

Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said the decision was made after an in-depth discussion on subsidy rationalisation at today's weekly cabinet meeting.

"The decision was made taking into consideration the interest of the people," he told a news conference at his ministry, here Wednesday.

The government would however continue to study the need for subsidy rationalisations in view of the increase in the prices of oil and gas in the global market.

Asked whether there was any discussion on the time frame for the prices to remain, Ismail Sabri said there was no discussion about time frame.

The price of RON95 petrol is now RM1.90 per litre and diesel at RM1.80 per litre. LPG is priced at RM1.90 per kg.

The last time the prices for these three items were adjusted was in December last year.

Ismail Sabri said the decision to retain the prices of the three items meant that the government had to bear fuel subsidy totalling RM18 billion.

Last year, the fuel subsidy was RM8.15 billion.

Ismail also called on the public not to listen to rumours being spread by the opposition.

"I saw in blogs, in Facebook postings, in pamphlets distributed by opposition parties, that the government will increase prices. Some say by 20 sen, 30 sen. These are all lies, not the truth," he said, expressing regret "because people seem to believe these lies."

"Believe in the government because the government listens to the views of the people. The government will consider every angle before making any decision.

"The decision today clearly shows that the government cares for the people. Enough of opposition's lies," he said.

Asked whether the decision had anything to do with the likelihood of a general election, Ismail said, "This has nothing to do with election."

"Subsidies have been in place for so long. If this is about the election, then we can increase (prices) only in certain months we want it to increase. No one knows when the election is going to be called," he said.

He also dismissed the notion that the decision was due to the pressure from the opposition.

"We don't listen to the opposition. Umno Youth has also been against (price increases). This is not because of the opposition," he said.

-- BERNAMA

Review Of Heavily Subsidised Gas Price Long Overdue

May 22, 2011 15:01 PM

A News Commentary By Siti Hawa Othman

KUALA LUMPUR, May 22 (Bernama) -- A long-overdue review of the heavily subsidised natural gas price is crucial as demand for cheap gas in Malaysia is far outstripping supply.

Analysts said that if this market-distorting situation is not corrected by the government soon, then Malaysia will run out of gas reserves which will jeopardise future generations.

As it is now, the government continues to subsidise gas by as much as 71-77 per cent, which means lost opportunities for the country and the economy not being cost efficient.

This is because the billions of ringgit used to heavily subsidise gas could have been used for socio-economic development projects such as public amenities, roads, schools and other services.

For gas alone, Petronas paid out a massive amount of subsidies amounting to RM131.3 billion between 1997 and 2010.

This being the case, there is a need to gradually move gas prices to reflect international market prices as gas prices in Malaysia are among the cheapest in the region and cheaper compared with alternative fuels.

As a result, a large number of consumers have shifted their consumption of energy from other fuels such as diesel, liquefied petroleum gas and fuel oil to natural gas.

This has resulted in an imbalance with demand outstripping supply at a rapid pace.

There is also a misconception among the people that Malaysia has lots of gas reserves to be used for power when the actual situation is that there is real concern over gas reserves as they are finite.

Malaysia is now getting 36 per cent of its natural gas supply outside Malaysia at a higher price which continues to increase, but sold to the power and non-power sectors and industries at highly reduced prices.

These price distortions to the economy which are taking a toll on the country's finances needs to be rectified soon by rationalising and reducing subsidies as the situation is increasingly untenable.

The local supply of natural gas is insufficient as demand has escalated 400 per cent over the past 10 years from 2000 for customers using less than 2.0 million standard cubic feet per day (mmscfd) and about 160 per cent for customers using more than 2.0 mmscfd while the country's gas reserves are fast depleting at an annual rate of 12 per cent.

The last gas price revision by the government was in March 2009, at a discount of 50 per cent, the prices ranged from RM15.35 per million British thermal units (mmBtu) to RM10.70 per mmBtu, with the obligation to review every six months but that did not happen.

Since the last revision, the price of medium fuel oil (MFO), a reference index from which gas is priced on, had risen over 100 per cent.

This has led the government to bear the cost of heavier subsidies as the price of energy continues to increase in global markets.

On the local scene, the power sector which has been subsidised since 1997, consumes about 55 per cent of the gas needs and a large part of the balance by the industry which had been subsidised since 2002.

The government has subsidised the price of gas to the power sector by as much as 77 per cent or RM10.70 per mmBtu and that to the industries at an average 73 per cent or between RM15.35 to RM11.05.

Based on a simple calculation, for every RM10, the government will have to subsidise between RM7.70 to RM7.30, which is already a burden, bearing in mind the fact that imported gas is bought at international market prices.

The Malaysian public and industries have been enjoying the benefits of subsidies for so long but the world scenario has changed and the days of cheap energy are gone.

From another perspective, Malaysia was subsidising the cost of products of other countries manufactured by their multinational companies based here.

The government will now have to adapt to strategies it knows best to sustain the economy and Malaysians must learn to accept changes and ride the global economic storm to be at the forefront of the competition.

Like it or not, oil and gas prices have increased and the subsidies which have become a burden to the government are very much due for a relook.

Industries have benefitted immensely enjoying double subsidies in the form of cheap gas and subsidised electricity, while receiving other government incentives.

Having relied on cheap gas for their production, there is no incentive for companies to adopt and adapt to new technologies and find new ways to become efficient.

But a gradual removal of subsidies is expected to induce industries to seek more efficient technologies for their processes.

It is understood that some of the industry players do not mind the market rates but expect any move towards that end to be undertaken in a gradual manner.

Since 1997, the government had spent RM131 billion in oil and gas subsidies and the amount is increasing since the gas usage gets bigger while higher MFO prices had caused the situation to be not sustainable in the long run.

As of now, Malaysia is getting supply of natural gas from the Natuna field in Indonesia, the Malaysia-Thailand Joint Development Area (JDA) and also from Vietnam.

Malaysia's share of gas supply from Vietnam is almost exhausted, which means an additional burden on the government to look for new sources.

It is understood that Petronas would also be importing liquefied petroleum gas (LPG) by 2012 to cater to increasing demand, which is rather costly at about RM40 per mmBtu.

The people have to dispel the misconception that gas is always there and readily available.

In reality, Malaysia is a small player and the country's oil and gas reserves are small.

If gas continues to be subsidised, then Malaysia is not optimising its resources when the reserves should be kept for future generations.

Ideally, the price of gas should be at market rates which would then attract other potential companies to import gas and liberalise the market.

By spurring the gas trade, players could import cheaper gas from abroad compared to the current situation, where players are not willing to come onboard as they would not be making any money competing against subsidised gas.

It is understood that Petronas will have its regasification plant ready by 2012 whereby other companies could import LNG and regasify to sell to the industries.

Malaysia, eventually, will attract investors who can add higher value to the gas industry and generate greater income and spur the economy in the process.

-- BERNAMA