Saturday, June 21, 2008

The mystery of our vanising oil money

When common folks talked about our oil revenues we usually think of Petronas and the government as being the same entity. That was my perception when I wrote my last article: The 56 billion ringgit questions, but little did I suspect that I would have to completely reconsider my understanding almost the moment I posted the article.

I posted the article on 3:45pm June 4, and moments later I received an SMS that petrol price is going to go up. I was about the chuck the SMS away until I logon to Malysiakini and confirmed that the news was true indeed.

I was shocked by the suddenness and quantum of the increase as Najib’s reassurance of no price hike was still fresh in memory, and Shahrir was only hinting of a price adjustment in August the day before. My first reaction was that Pak Lah has just hammered the last nail in his own coffin.

I am not an economist by any means, but I came from a poor family and I have been through the years where every cent counts. It was completely baffling to me why Pak Lah would make such a sharp increase in petrol prices while the whole country was still reeling from the pain of the recent hike in the prices of food and other essential items. The combined effects are going to cause so much hardship to so many people that I seriously doubt Pak Lah is going to survive the fallout of it. And it got me thinking hard...

The Mystery of Our Oil Money

Let’s get back to the mystery of our oil money. After many hours of research and considerations – I came to realize that the relationship between Petronas and the government is much more complicated that it looks on the surface. The two are not the same entity after all; and by some recent announcements I think there could even be open hostilities between them. Read:
One key understanding is that although Malaysia is a net exporter of crude oil, our products are of very high quality and are primarily for export while we consume lower grade oils that are mainly imported from the Middle East.

While the exploration, production and export our crude oil are handled almost exclusively by Petronas, the import side is a bit more complicated. The importing and retailing of petroleum products are carried out by companies like Shell, Exxon, Petronas, etc. These companies are mandated by the government to sell below cost, thus they are compensated for their losses by the Government in the form of subsidy.

Yes – our government does subsidize our petrol. But it also receives money from Petronas in the form of royalty, taxes and dividends. Petronas is reported to have contributed 52.3 billion ringgit to the government for the financial year ended March 2007.

Is that a fair contribution to the government? I will be eagerly waiting for Petronas supposedly full disclosure. I don’t give much hope that the full disclosure will reveal details like why some big shots get to live like a king with private jet and helicopters, but it should give some basis for some intelligent guess-nalysis.

How much is the Government getting from Petronas?
The graph above shows Petronas contribution to the government over the past few years. I plotted it along with the yearly average crude oil price. The yearly contribution was obtained from Hassan Marican interview in RTM1 reported in Guang Ming Daily and the average oil price from EIA. As you can see Petronas contributions go up nicely with the price of crude oil, as most of us would expect.

What will be Petronas contribution for this year? That will be everybody’s guess. Would it be 70 billion? 80 billions? Whatever it is, it seems that Petronas is mightily reluctant to cough out its profits to the government.

How much is the petrol subsidy costing our government?

Our daily crude oil consumption is 501,000 barrels, or 183 million barrels per year. Each barrel is 158 liters, and typically yields 73.8 liters of petrol, diesel and other by products after refining (data from EIA).

Our yearly petroleum consumption is thus:
183 million barrels X 73.8 liters/barrels = 13.5 billion liters.

At the current crude oil price of 130 USD per barrel, the market price is RM 3 per liter for petrol (according to Shahrir).

Our government’s yearly subsidy on petroleum can be calculated as follows. For lack of data I will assume that the cost price of petrol and diesel is the same.

Before Price hike:
The average price of petrol and diesel =
(RM1.98 + RM1.52) /2 = RM 1.75

Subsidy per liter = RM 3 – RM 1.75 = RM 1.25
Total Subsidy = RM 1.25/liter X 13.5 billion liters
= RM 16.9 billion

After Price hike:
Average price of petrol and diesel =
(RM 2.7 + RM 2.52) / 2 = RM 2.61
Subsidy per liter = RM 3 – RM 2.61 = RM 0.39
Total Subsidy = RM 0.39/liter X 13.5 billion liters
= RM 4.0 billion


What do all these figures means?

Firstly, since Pak Lah took helm, Petronas has contributed RM 146.5 billion to the government. Petronas has been in operation since 1974 and contributed a total of RM 336 billion to the government. Pak Lah’s first 4 years in office received 43.6% of Petronas 35 years of total contributions. It is more than what Mahathir received in 20 years, inflation adjusted. And it does not even include this year’s contributions!

Is your reaction that of disbelieve? Are you wondering where have all these money gone to?

Mahathir is known for his opulence and extravagance and have created monsters like Twin Towers and F1 circuits to match his distorted ego. But what have Pak Lah done that is worthy of being mentioned? To give you a perspective, it costs RM 11 billion to build Putrajaya, and the order of RM 20 billion to build all our toll roads. Whatever happened to this mind boggling 147 billion ringgit? It seems to have just vanished in thin air. Something must be seriously wrong somewhere.

Now the 56 billions petrol subsidy quoted by Shahrir. My own calculations indicate that it should cost the government RM 16.9 billion. My calculations do not include subsidy for gas, but would it amounts to the RM 39 billions difference? Either my calculations are completely wrong or Shahrir is bullshitting. I would appreciate if somebody can verify my calculations.

My calculations show that with RM 52.3 billion contribution from Petronas the government should still be making a net profit of RM 30+ billions. And the recent price hike is going to bring extra RM 17 billions to Pak Lah’s coffer. Is it conscionable for the government to make such an obscene amount of money at the expense of such widespread suffering of the people?

I am shock beyond words by what I discovered today. The level of corruption and mismanagement by the Barisan Nasional government is way way beyond than my wildest imagination. It sickens and disgusts me to the point that I just want to cast the whole Barisan Nasional government to hell right away. Right now I will not hesitate for a moment to lend my support for Pakatan Rakyat to step in to take over the government.

Do I believe that Anwar is able to bring down the price of petrol and give Sabah and Sarawak 20% oil royalty? I have no doubt that he can, if he managed to gain back the control of the oil money. I do not agree with his oil policy, but that's a separate issue altogether. At least with Pakatan Rakyat there is hope that ordinary people like us is able to participate to bring about the right changes.

This is the time for us all to wake up. If the level of suffering and darkness of the current moment is not enough to wake you up, I don’t know what will.

Look who is suffering now? We all are. Does the 50 years of racial politics bring about the supremacy of any race? I hope our sad state of affairs is convincing enough to show us that racial politics can not work. It never will.

We have to forget about race, religion and other trivial differences and stand united as one. This is the time to exercise our collective power, our makal shakti, this is the only strength that we have to cast out the slime bag power mongers that are hell bent to destroy each other and bringing down the whole country with them.

More comments in Malaysia-Today

12 comments:

Ronson said...

This is the answer to your question.
http://biz.thestar.com.my/archives/2008/6/2/business/b_tables.jpg

From http://biz.thestar.com.my/news/story.asp?file=/2008/6/2/business/21404695&sec=business

Ronson said...

Drats. It has been truncated.
I'll chop the url to fit, please rejoin to access.

http://biz.thestar.com.my/archives/2008/6/2/business
/b_tables.jpg

http://biz.thestar.com.my/news/story.asp?file=
/2008/6/2/business/21404695&sec=business

Ronson said...

Please bear in mind domestic oil consumption at a lower price carries with it an opportunity cost which is profit foregone if the same oil was exported.

This opportunity cost of course increases as the oil price increases hence why the subsidy amount also balloons.

Anonymous said...

Excellent analysis. Loved it.

At least your article leads to more questions.

You're getting tons of comments on the MT website.

Keep doing this.

Also check International Organizations for Malaysian data (Earth Trends, International Labor Organization, UN Stats). The numbers there, though older, allow you to put analysis in comparative perspective.

Look at the grants and transfers to state governments in the Federal budget. Barely 3-4%. All fiscal power rests in Putrajaya. No wonder Sabah, Trengganu and now Kelantan are complaining.

rm

desiderata said...

humble voice: came here via MT: excellent article. Can I Cut&Paste for my Blog's use as I have been tracking Petronas' annually whenever its FY ended March(05, 06, 07) are announced.

But I think tis yaers (FY08) has been DELAYED -- I wonder why? Cheers, Desi

PS: I also plan to put this up at a new civil society website at www.cpiasia.org where I freelance as Editor.

Humble Voice said...

Dear Desi,

Please feel free to reproduce the article. Please help to spread it far and wide.

Best wishes.
Humble Voice

mob1900 said...

Thank you for your contribution in fighting Lies and Half-truths generated by our MSM. People at helm kept issuing denial and write off the common man's analysis.

Dollah kept harping on Savings on the Oil subsidies will free up resources for the Gov to 'develop the country'. What development?

The author is correct in pointing out there's A FEW sources of revenues the Gov are receiving from PETROLAH in the form of royalty, taxes and dividends and not to forget TAXES from the common folk. Where has it all gone to?

ronson, thanks for the CIMB article, I find it unbiased and focus on addressing the oil price hike unlike our 1/2 Six ruling regime.

As for the author, keep up the good work as we need more 'revelations' from the common folks, rather than the bureaucrats.

Malay Women in Malaysia said...

Congratulations!

Malay Women in Malaysia blog has voted your post as the most thought provoking article concerning Petronas and the government!

Well done and keep it up!

Malay Women in Malaysia

Humble Voice said...

From comments from Malaysia-Today:
"Is that a fair contribution to the government? I will be eagerly waiting for Petronas' supposedly full disclosure. I don't give much hope that the full disclosure will reveal details like why some big shots get to live like kings with private jets and helicopters, but it should give some basis for some intelligent guess-nalysis."

I don't think you should take Lim Guang Eng's word as the truth. That is the impression I'm getting by the way you presented the sentence above. I posted this comment that I get from lester chan blog. Its from Aiman Ismail. It's worth considering that what has been said is slander and is unfair to the victim. (see part2)


Dear amat2amin,

Thanks for pointing this out. I think YB Lim Guan Eng owes the rakyat an explanation. Others politicians are also making similar allegations as well, not just from the Pakatan Rakyat camp. For example Khairy's call for Petronas to open its account has the effect of shifting the blame of Petrol price increase to Petronas.

It is not easy for normal people to see the different roles the Petronas and the government play. Since I started my probing I am beginning to see things in a very different light. My impression is that Petronas CEO Tan Sri Hassan Marican is a highly respectable man. I also just did some gross calculations and it shows that Petronas' profitability is amongst the highest in the world.

The questions on whatever happened to our HUGE amount of oil revenues is getting even more dubious. I am of the impression that the BN government is intentionally shifting the blame to Petronas.

Frankly I don't believe in Anwar anymore than the current bunch of BN politicians. But I do trust the good intentions of YB Lim Guan Eng and Nik Aziz for whatever shortcomings they have. Furthermore Pakatan Rakyat is born out of the collective voices of the people. As such it is also the platform where the rakyat can exercise our collective strength. We have to keep it that way, otherwise it will be the same old bullshit again.

This article only represents one person quest for the truth. I apologize for any mistakes and misconceptions that I conveyed.

AL said...

Saudara,

TQ for an interesting post to aid citizenry thinking.

May I publish an extract of your post in my website
http://mylivingwall.com and direct my readers to read your full post.

fyi, we publish selected blog posts of the day to help give multi perspective viewpoints to our readers.

Thank you.

mylivingwall.com

Humble Voice said...

Dear al,

Please feel free to reproduce my blog.

Best regards,

alioh said...

I don't think you should take Lim Guang Eng's word as the truth. That is the impression I'm getting by the way you presented the sentence above. I posted this comment that I get from lester chan blog. Its from Aiman Ismail. It's worth considering that what has been said is slander and is unfair to the victim. (see part2)

Dear amat2amin,

Thanks for pointing this out. I think YB Lim Guan Eng owes the rakyat an explanation. Others politicians are also making similar allegations as well, not just from the Pakatan Rakyat camp

Dear humblevoice and amat2amin,

Thank you for posting the conversation between the two of you. It sort of making me feels better knowing that I'm not the only one feeling disillusioned with Anwar and lim Guang eng. After reading the posting by Aimin Ismail in lesterchan blog I do agree that its a bit slanderous and i agree with you that LGE owes the rakyat an explainations. Yes he may have good intention but I think good intention should be followed by good conduct.

Talking about Anwar's good intention to reduce oil price I am increasingly annoyed with his intention. Until today he has yet to explain how is he going to do it. How is he going to defy market forces? At least Husam Musa has explained how is he going to do it rather than talk and talk and talk the way Anwar rattling on now.