Tuesday, July 15, 2008
Tackling The Real Issues of The Fuel Debate - Malaysiakini
It's a foregone conclusion. Who will be the winner in the 'Great Fuel Debate" between Datuk Seri Anwar Ibrahim and Information Minister Datuk Ahmad Shaberi Cheek to be held tonight? The winner may be the two debaters as they improve their public standing and the loser will probably be the rakyat for being less enlightened than before.
Amid much hype, my guess is that the TV debate will turn out to be less of an intelligent discussion about oil economics and, instead, be more of an exercise in rhetorical skills among the two suitors of public opinion. However, I may be proven wrong if tonight's debaters address the following issues facing the future of oil in Malaysia and the world:
- Poser 1 to BN: Oil resources are Malaysia's national asset and should be properly managed to take advantage of the rising trend in prices. As such, the government should disclose who are the six option holders and at what fixed prices do they obtain the oil supply from Petronas at below market prices.
- Poser 2 to BN: What is the government's view of global oil prices? Does either debater believe in Peak Oil theory? If oil is heading towards US$200/barrel in the next two to three years (regardless of a possible near term correction), what would be Petronas's reserves and production strategy? The Rakyat should know these issues because every citizen has a stake in the country's resources.
- Poser 3 to BN: The move to raise oil prices is economically sound as it discourages excessive consumption and conserves the nation's long-term resources. However, Malaysians's standard of living has always been reduced by the high cost of owning quality cars as a result of high import duties which were put in place to protect Proton. A move to liberalise the petroleuem market for the government's coffers should be accompanied by a similar move to liberalise the imported car market for consumers.
- Poser 1 to PR: How will PR deal with a ballooning budget deficit problem if petrol continues to be subsidised while spot prices increase? The question of setting petrol prices and subsidies depends very much on whether the country has a budget surplus or deficit rather than whether the country is a net exporter or importer of oil. Msia's petrol prices at current levels of RM2.70 per litre are about 23%-25% below prices in the U.S., which should be considered a benchark for market prices even though the US is a net oil importer. Our retail petrol prices are much higher than net oil exporters such as Saudi Arabia and Venezuela, but these countries are enjoying budget surpluses of 26.2% and 2.4% respectively versus Msia's budget deficit of 3.1%.
- Poser 2 to PR: Any adjustment mechanism for setting retail pump prices should be transparent and market-based, i.e. dependent on international oil prices.
- Poser 3 to PR: If PR is so concerned about the welfare of all Malaysians, why continue to encourage them to consume petrol by lowering petrol prices. Is this wise economics?
- Poser 4 to PR: What are PR's policy proposals to enhance the public transport system and proposals regarding the protected car market?
To both debaters, the related key question is what are the economic implications of their petroleum policies (market-based fuel prices versus lower subsidised prices) on the general level of inflation? Anwar has stated his skepticism of the official inflation rate. Lowering petroleum prices may provide some short-term relief to inflation but in the long-term, will the nation have to pay for even higher inflation when the country's budget deficit balloons or we become a net oil importer?
Finally, it would be good if both debaters focus on economics, policy issues, trade offs between short term and long-term priorities and cite academic research/experience from various countries.
Postscript: As expected, the debate was lively and to some extent, a civilised discourse despite some potshots at Anwar's credibility. Even my toddler could predict Anwar will win after watching the first half hour! The quality of economic discussion could be improved as facts and figures were presented without further analysis. Venezuela is facing major economic problems of hyperinflation because of its currency peg, price controls and years of unbridled monetary expansion thanks to high oil revenues and fiscal spending.
Next debate: Tony Pua/Lim Kit Siang versus Tan Sri Nor/Khairil on "What Is Malaysia's True Inflation Rate?" And have it broadcast in English.