There is no such thing as subsidy for the oil

There is no such thing as subsidy for the oil that is produced in Malaysia. The term ‘subsidy’ has been royally used left, right and centre but no one is really sitting down and thinking hard and asking themselves, what is there to subsidise? Who is paying whom?

In actual fact, the hike in petrol price in Malaysia has nothing to do with a subsidy because we produce our own oil. An analogy - if you produce your own rambutans in your backyard, you are free to enjoy your own fruits. How can you tell people you are subsidising your rambutans or eating it at a subsidised rate?

In actual fact, there is no subsidy at all. It is called opportunity cost. Dr Mahathir Mohamad, being the Petronas Adviser and probably the only person who really knows the accounts, production and profit of Petronas, states that Malaysia produces 650,000 barrels a day of crude oil.

A total of 400,000 is used for local consumption in Malaysia (ie, the petrol we use), leaving 250,000 barrels to be exported. He further claims that these 250,000 barrels alone produced daily will bring Petronas about RM27 billion profit annually.

And this is assuming global oil price is US$130. If it goes up to US$200, you can imagine how much Petronas will make. And mind you, this is just the exported portion, in other words, this is just the excess 250,000 barrels exported alone.

So, what subsidy is there? There is no subsidy at all. The 400,000 barrels used in Malaysia is produced by Malaysia in the first place. We are producing our own rambutan ie, oil. What all the drama is about is the fact that Petronas wants to sell all the 650,000 barrels it produces per day at the global market rates of US$130 per barrel.

They want to reap even more profits. This is called opportunity cost and not subsidy. The 400,000 barrels per day consumed by Malaysians and sold at a cheaper rate can be sold at full market price to the global market.

To put is clearly, ‘opportunity cost’ - which would be the revenue that is being lost because the oil is being sold locally at less than the global market price. In other words, extra revenue that could have been earned - has been lost.

Unlike other oil producing countries which sell their oil cheaply to their rakyat, we on the other hand, are not bothered about our rakyat. Our petrol prices are either one of the highest or the highest in the world amongst all the oil-producing countries.

Don't forget that we have one of the highest car prices in the world too, after Singapore. I think it is even higher than Singapore because the purchasing power of Singaporeans is much higher than Malaysians.

So a S$60, 000 Honda City in Singapore is not a big deal to a Singaporean earning about three times a Malaysian earns.

Please be reminded, too, that Petronas is government-owned so, again, what subsidy is there? Rakyat is not stupid lah; use proper terms, the correct term is ‘opportunity cost’. How are the young economics graduates from the local universities going to become good international economists when simple terms like ‘subsidy’ are confused as ‘opportunity cost’?

From SAPP's blog.
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