Constraints of fuel rationing

OUR writer Tony Yew was in the office pacing up and down and talking on the handphone. He seemed to be more busy than usual and looked quite excited. What's up? I asked.

"I'm hunting for a BMW 740iL. You can get a good condition unit, the V8 3,000cc model, for about RM28,000," he said.

Yes, that’s the fallout from the soon-to-be introduced rationing of subsidised petrol as announced by Domestic Trade, Co-operatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob.

Many used car dealers are going to grit their teeth because their stock of this kind of cars is devaluing overnight. Pity them because they have taken so many haircuts already. 

Now is the best time to get a good secondhand luxury automobile at giveaway prices. This is one of the most exciting aspects of what’s going to happen soon in Malaysia.

Before we go further, congratulations to the minister for discussing his principle that fuel will be subsidised for target groups. At least the Malaysian motoring public can now have their say. 

Obviously, one of the targets is cars with big engines, say over 2,000cc.

We’ll have to wait for more details from the minister but it’s well established that subsidies and rationing are about the least efficient ways to achieve better social welfare for those who are less well off.

Countries that ration fuel are almost always economic basket cases or probably on their way to being one. Show me any advanced nation that has fuel rationing? The United States, Britain, Norway or Holland? Except for the US, the rest of the nations are net hydrocarbon exporters.

There are other tools to provide social welfare besides such a leaky mechanism as rationing. What about food coupons, since food is not such a smugglable commodity? What about more low-cost housing? What about more aquaculture projects like reefballs for the coastal fishermen? What about hostels for children from poor families, single parent families, orphans?

What about re-making the economy to be more competitive so that foreigners want to invest in factories and service enterprises in Malaysia, thus creating more employment.

Really want to give a jump start to the economy? Remove the stifling policy of approved permits (APs) for cars. It’s so outdated that executives of foreign car companies who understand it for what it really is, just shake their heads and walk away.

On the positive side, incentives for alternative energy cars have been promised in the review of the National Automotive Policy.

Government leaders should engage with car company bosses to promote the sector with greater enthusiasm than just printing a policy and leaving it to gain momentum by itself.

Returning to the issue of a double tier fuel scheme, we must see it for what it is, which is to free petrol and diesel prices to float according to global levels. 

This will save the government many billions of ringgit and the government should return the savings by reducing taxes on low carbon footprint cars.

It could make a policy where low carbon cars (say 130gm of carbon per km) would be imported duty free on condition that the car company would have 30 per cent local content in four years.

With batteries costing about 20 per cent of an electric car, it would be possible for a car company to meet this goal.

And with Panasonic and Continental AG being in Malaysia, although making different products, it would not be difficult to gear up an electric car component manufacturing industry in Malaysia.

Both these companies are among the top world manufacturers in electrical components, charging/energy regeneration systems.

Panasonic makes batteries for electric cars. Malaysia also has Eti-Tech, a Malaysian company producing lithium polymer batteries using Sony cells.

Subsidy removal

We reprint here a passionate appeal from an industry leader, who prefers to remain anonymous:

“Why does the government repeatedly talk about removing subsidies for petrol but keeps silent on car buyers subsidising government coffers via high import taxes, excise duties and high road taxes on cars with engines above 2,000cc.

"High capacity cars already pay abnormally higher annual road tax. If they want to remove the subsidy for petrol then likewise reduce the import, excise duties on cars and road tax. Then, not many will complain and those who drive big capacity cars will pay more if they drive more. 

“Government ministers are always talking about how petrol subsidies are abused via pilferage, smuggling, etc but there is no mention of how government departments mismanage their funds and how much can be saved if the government is lean and mean. Isn’t there already enough evidence of this yearly in the Auditor General’s reports? How about giving the government a KPI? If the Auditor General reports progressively become thinner every year (read better management of government funds, cutting off rent seekers at all levels), then the government can start talking about reducing subsidies on essential goods, petrol included.

"Otherwise, they have no locus standi to talk about subsidy removals.

“Whatever happened to the Infrastructure Fund announced during former Prime Minister Tun Abdullah Badawi’s tenure? Remember – something like RM500 million was supposed to come from the higher fuel prices passed to the public. Who is monitoring this, how much was collected? Where is the public transport infrastructure promised? Without proper public transport infrastructure, any discussion on increased fuel prices is bound to have negative implications on the people/economy. 

“Why isn’t there a discussion on efficient petrol or diesel or for that matter low carbon footprint cars that are coming to be the norm in all major car manufacturers' strategy going forward.

"Where is the clean technology that the government wants to promote? If it wants to, then the petrol price element has to reflect this clean energy drive. The car engine size may be more than 2,000cc but what matters more is the km/litre consumption and CO2 emissions. Where is this factor in all their  discussions?

“Has the government done a study to see how much luxury vehicles benefit from the current subsidy of fuel? What proportion of cars over 2,000cc in relation to total TIV (total industy volume)?

"Conservatively, less than 20 per cent of the TIV of about 500,000 vehicles are above 2,000cc.

“The cost of operating the rationing system might be more than the savings. Has a study of this been done and is the methodology correct?”

LAND PUBLIC TRANSPORT COMMISSION

THis new body will take over from the Commercial Vehicle Licensing Board by May. It will report to the Prime Minister's Department, said Minister in the Prime Minister's Department, Datuk Seri Nazri Aziz.

This is another step in the right direction and let's hope it sorts out the taxi problems first, including improving the taxi system at KLIA. For Malaysians, the evidence of improvement will be when there are no more touts at the airport and no more CVLB/police checkpoint on the road exiting the airport.