Tuesday, June 10, 2008

Anwar Ibrahim:Talking Cock

Hantu Laut

Many governments have to face the unpleasant fallout of the fuel crisis with prices of goods spiralling out of control festering discontent and labour unrest in the country.

In Spain and France thousands of truckers blocked roads over the rising prices of petrol and diesel.In Portugal and Spain long queues formed at supermarkets for fear of shops running out of fresh food due to truckers strike.The story were the same at petrol stations where long lines of motorists were waiting to fill up.In Madrid around 15% of petrol stations were dry a few days ago.

French truck drivers joined the protest and sealed off their side of the border and gridlocked with a go slow that caused 20 miles of tailbacks.In Britain 300 lorries are expected to converge on central London on 2nd July to protest the high price of fuel.There were protests and demonstrations in other parts the world over the high prices of petrol and diesel. Most governments have no choice but to increase prices.

Experts warned that the escalation in price has not ended and may climb to US$200 per barrel if there were no drastic reduction in consumptions.With the exception of OPEC members who can provide cheap fuel to the people, other countries including those highly developed economies, are worried that keeping the price low through subsidies would encourage consumers not to conserve and would lead to wastage and further price escalation and more money flowing to oil-producing countries with serious negative impact on the global economy.Increased consumption and some speculations had been the reasons behind the sharp rise in price.

Was speculation the cause of the unstoppable rise in the price of crude oil? Not so according to Adrians Binks of Argus Media Group, the largest independent energy news and price reporting agency.Binks may be right to certain extent but may not be exactly on the dot.Any commodity with futures market will attract some form of speculation and crude oil has futures for hedging just like many other commodities and would definitely attract some speculators with big appetite for big bucks.

One lucky investor who had, after a lot of research and a lot of thinking, eleven years ago decided that the long decline of oil price in the 1980s was about to end and acted on his conviction.Richard Rainwater of Texas plunked down $300 million of his own money on energy-company stocks and oil and gas futures.At the end of 1998 , the price of oil fell below US$10. per barrel and petrol sold for 90 c per gallon. Rainwater was getting poorer by the day while the Internet and dotcom were making billionaires.Then the dotcom bubble bursted and the price of oil climbed,climbed and climbed.A few weeks ago when the price of oil was at $129. Rainwater liquidated all his energy stocks and netted US$2 billion.He rises from No. 200 on Forbes 400 richest to No.91 with net worth of US$3.5 billion.

In the United States where people are more adapt to changing oil prices and are quick to change their lifestyle, the price of petrol hit the $4.00 per gallon or $0.95 per litre two days ago.Many Americans have abandoned their gas-guzzling SUVs in favour of smaller fuel-saving vehicles.The sales of SUVs and big capacity engine are expected to fall drastically in favour of hybrid and smaller cars.

In UK the price of petrol is around 117.9 p per litre, one of the highest in Europe. To top up a full tank,depending on size of cars, one would require between 100 to 130 pounds.For many Malaysians that's two-month petrol bill.

The most amazing country is Norway, the third largest exporter of crude oil in the world also has one of the highest price of petrol and diesel in the world.Its exports around 3 million barrel of crude oil per day.Since the discovery of oil and gas in the 1960s the country has been saving it oil and gas budget surpluses in a Government Petroleum Fund invested overseas now valued at over US$300 billion which is a whopping RM990 billion at current exchange and is still growing.Conservative estimates predicted the funds may reach US$800-900 billion by 2017.It is a net external creditor and has the second highest per capita in the world at US$53,037. (IMF).A nation once dependent only on its fishing industry and shipping fleet is now the richest nation on earth due to its prudent financial management and a government that stays clear of corruption.

Malaysians who used to be pampered by subsidised petrol and diesel were shocked and angry when the government announced a hefty increase in the prices of petrol and diesel last week. Long queues at petrol stations were seen throughout the nation as motorists rushed to top up their tanks before the midnight dateline.There were huge public outcry accusing the government of Abdullah Badawi as being uncaring and irresponsible.The oppositions political parties and former Prime Minister Mahathir Mohammad were quick to jump on the bandwagon and sent a flurry of attacks on Abdullah. Small and peaceful street protests were seen in the capital city, Kuala Lumpur.

The much touted prime minister in waiting Anwar Ibrahim said the price hike has made the prospect of Pakatan Rakyat taking over the federal government looking much brighter than before and oil price will be reduced as soon as Pakatan took over the government.He also said they will reduce the pump price for petrol even if the price of crude went above US$200 per barrel.

A very brave promise indeed, how is he going to do it and for how long is one big question mark.Is he a man of many words and would have little to offer when the time comes.I dreaded the day Anwar become prime minister and failed in his promises to the Malaysian people in general and Sabahans in particular.Say I am a pessimist but I can't foresee Anwar being able to deliver what he promised the Sabahans. You can't just give Sabah the 20% and ignore the other two states,Sarawak and Trengganu.

With the current price of oil Sabah would become a very rich state if it gets 20% royalty.Let's assume the production from Sabah is around 300,000 barrels per day.At current price of US$130 bbl the total sale a day would be US$39 million and annual gross sale of US$14.23 billion and at 20% on gross sale Sabah would be getting US$2.84 billion in royalties and at current exchange rate it worked out to be RM9.37 billion annually.

Malaysia consumes about 530,000 bbl/day of crude oil.Assuming the volume of petrol and diesel obtained after refining is 60%, its daily consumption is 50.5 million litre a day (see conversion table below).

If Anwar brings the price of petrol and diesel down to its former level of RM 1.92 and RM1.58 per litre respectively and at consumption of 50.5 million litre a day, the Malaysian government would have to fork out subsidy at various level as shown below:

Unit---- Per-------- Per
Sub---- Day --------Annum
sidy---- RM --------RM
--------------------------------
1.00---- 50.5 million 18.4 billion
1.50---- 75.7-------- 27.6
2.00---101.0--------36.8
2.50--- 126.2------- 46.0
3.00----151.5------- 55.3

After the recent price increase the government would still be subsidising about RM1.50 per litre which is around RM27 billion a year.

The consolidated profit of Petronas for the year ended 31 March 2007 was RM46.4 billion and shareholder's fund stood at RM170.9.Where is Anwar going to get his money to subsidise fuel to make fuel thirsty Malaysians happy.

The total Malaysia budget for 2008 was RM176.9 billion.Abdullah expects the budget deficit to narrow down to 3.1 % for the year.With higher energy price there would be some contraction in GDP growth in 2008 where manufacturers have to struggle with higher costs of production due to higher energy costs.

He boldly says he would continue the subsidy even if the price is above US$200 a barrel.A smart man that many Malaysians are very much in love with but who cares not about the nation as long as he stays popular. If the price of oil were to be at US$200 per barrel, it would roughly costs US$1.26 or RM4.10 to buy a litre of crude before adding cost of freight and refining costs.Has Anwar any idea what would be the eventual cost of the refined products.A table below shows the main products and other derivatives that a barrel of oil produces. Anwar promise could just be a pie in the sky.His act of mendacity to the Malaysian people is just abominable.

The lightning increase in the price of crude had taken many governments by surprise where the fundamentals of economic forecasts have gone out of the window leaving government planners flustered and in disarry.

The increases in price of petrol and diesel(2004-2008) in Malaysia is shown in the table below:


There were gradual increase between May 2004 and February 2006. The drastic increase between Feb 2006 and June 2008 was probably due to the sharp increase in the price of crude during the same period.

Between Feb 2006 to Oct 2006 the price of crude was fluctuating between US$54-68, breached the US$100 in April 2008 and climbed to over US$130 in May/June 2008.The government should have done one adjustment between Feb and Oct 2006 and a second adjustment in June this year.

Anwar wanted his Pakatan Rakyat to take over the federal government, if possible, through the back door.

Take a look at his Pakatan Rakyat in Selangor and Penang.They seemed more interested in witch hunting than getting down to serious work to administer the states.They delighted in digging into the sins of the previous administration rather than leaving it to discover in the course of doing their duty.

Facts and figures about crude oil:

1 barrel of crude = 42 U.S.gallon = 34.9 Imperial gallon = 158.9 litre

The table below shows what a typical barrel
of crude produces:

Product Percent of Total
Finished Motor Gasoline 51.4%
Distillate Fuel Oil 15.3%
Jet Fuel 12.3%
Still Gas 5.4%
Marketable Coke 5.0%
Residual Fuel Oil 3.3%
Liquefied Refinery Gas 2.8%
Asphalt and Road Oil 1.7%
Other Refined Products 1.5%
Lubricants 0.9%

Bringing the price of petrol and diesel down would certainly endear the people to him but what price the nation would have to pay to make the people happy, Anwar popular and the nation broke.


9 comments:

Pok Kam said...

Dear Hantu Laut,

I wish I could call you better than the above but since it's your nome de cleur, I hope you don't mind.

I have slowly began to adapt to the recent development in the country and one being the sudden steep hike in the fuel price.

Mind you it's not easy to 'rimbas' some of the unnecessary expenses but yet I am confident I and my family will be able to adapt. I am learning now and surely other Sabahans will be able to do it too.

One last thing about this Anwar promises, I never took them seriously. I don't see how he will be able to fulfill them.

galadriel said...

Dear Hantu,

I love what I read here. Enlightening an non-partisan. I agree with u on Anwar and Abdullah.

It is not the time for populist decisions that strangle the nation.

We must learn to adapt and we must stress good governnance

zorro said...

Sir, I am in KK ans staying at Marina Court Resort Condo. Any chance of meeting up before I leave for KL Sunday. Call me at 016-6319973.

Anonymous said...

Rite you are entiled to your own opinion.

But that does not mean we are all not going to throw you ass lickers out together with the politicians.

Talk cork is better that a Mathius Chang sucking a mamak cork.

Rite!

kittykat46 said...

There's a lot of similarity between the Dotcom bubble and the current crude oil price trends. Granted, were are never going to go back to cheap oil, but price above US $ 100 per barrel truly is driven by speculation.
The futures market are really bets driven by the expectation that prices are going to go up indefinitely. So far it has proven true because the demand really does go up almost regardless of price.

It will need an actual reduction in oil demand to burst this bubble, but unlike true demand price increases, it does not need a massive reduction to stop this herd stampede.
Unfortunately, it will take a global recession to cause this demand reduction. The medicine is going to be very painful to millions.

Hantu Laut said...

Pok Kom and galadriel,

I don't think we have much choice but to tighten our belt a bit more.I don't think Anwar will be PM so soon .
I heard some people in PAS is toying with the idea of joining the BN to strengthen Malay unity.How true is it I have no idea.

Hantu Laut said...

anonymous,

Don't get all riled up.If you have read the header of my blog you wouldn't have made those silly comment.

No need to use expletives to express your anger.The whole idea about blogging is to exchange ideas and sensible discourses, not a place for people like you to vend your anger using unacceptable language.

For your information this blog is not aligned to any political party or politicians.

Since you love Anwar so much, would that make you an arselicker?

Anonymous said...

HL,

Sorry bro but I don't agree with you here (well not entirely anyway). DSAI said he would reduce the Price of Petrol (he did not say he will reduce it to the RM1.92 original level).
Next, as for being popular but broke, I don't think it's fair to "predict" this. DSAI & PR needs to be given a chance. BN had 50 years & they have managed to make Malaysia a divided country like never before with their corrupted practices.
Even if you do not believe DSAI, just look at the altrenative...Pak Lah...who has proven he is a compulsive liar & idiot! He has challanged the Opposition Satets to reduce the Price of Petrol!!!!! How can they do that without Federal Permission?
The other alternative is Najib (or should I say Rosmah Mansor!). God help us!

SM said...

HL, the comments above (Anonymous 8:32PM) were mine. I forgot to put my "SM" initials.