Oil Prices: $75 Crude, Here We Come

By Russell Gold,

Wall Street Journal

Oil prices are on the march, again, surprising many observers by reaching $66 a barrel in the midst of a global downturn.

Next stop? Respected oil-market analyst Paul Horsnell of Barclays says $75. “When the market as a whole starts to believe that $75 is pretty much inevitable, then it might as well go straight to it,” he says.

Oil prices aren’t rising because demand is recovering or because record-setting oil inventories are being burned off. Rather, Mr. Horsnell says, the market believes OPEC is coordinated enough to defend a price floor, presumably through acting together and keeping production in check. Add in a growing belief that the economy could be regaining its footing and oil prices will climb to the price that OPEC is willing and able to defend.

With the growing belief in OPEC and a coming financial recovery, “there would be no reason why the current price rally could not extend to $75 within a fairly rapid timeframe,” Mr. Horsnell wrote in his weekly overview of oil-market conditions.

Believers in oil-market fundamentals are left scratching their heads. Exxon Mobil Corp. chairman and chief executive Rex Tillerson told reporters earlier this week that he couldn’t see any reasons involving supply and demand to push up oil prices. He attributed the recent oil rally to fluctuations in the U.S. dollar and people trying to get in front of a perceived economic recovery. “But it’s just a bet on their part as to whether the green shoots have roots or not. And none of us really know yet,” he said.

Of course, the price of oil has made significant moves independent of the supply-demand equation. This is what many people think was responsible for the price rally on 2008, when crude topped $145 a barrel in July.

So what happens if Mr. Horsnell is right and oil hits $75 a barrel? There will be a period of adjustment, with downward pressure until storage and demand fundamental figures catch up. And there’s no guarantee the fundamentals will catch up, setting up the potential for a dramatic drop.

And if oil does jump much higher, it might actually postpone the price spike everybody seems to be worrying about. Oil at $75 could stunt some of the green shoots now sprouting in the global economy, reinforce newfound oil frugality, and push back any serious recovery in oil demand.

An appraisal of Malaysia’s industrialization

A lot of people credited Mahatir, justifiably, as the prime minister who brought Malaysia into the industrial age. His predecessors started the ball rolling and Mahathir carried the fight forward, aided by petrol money, a generally hard working and intelligent population, stable political environment and good legislative background left by the British colonists. We are rightly proud of our country being able to transform its economic structure and we must also review the pros and cons of this sustained and continuing effort.

Every school going children can recite the FDI and job creation slogan, a boast rightly used by BN in election and other rallying calls. Manufacturers are bigger employers than say, traders and farmers so job creation is definitely an upside impact of industrialization.

However, one must question 2 issues here: 1) high percentage of jobs created are mostly low paying operator positions and 2) a very high percentages of these jobs are taken up by foreign workers.

I wrote earlier that Malaysia is not creating enough jobs were people are willing to pay top dollars for. Trying to remain competitive in the FDI market as a low cost manufacturing destination actually means holding back the advancement of benefit and welfare of the population. Employing a high number of foreign labourers also mean that general wage levels are down. Labour union movements, for historical reasons and also because of high foreign content, remained under developed.

As a result, Malaysia may have and still creating plenty of job opportunities but while quantity may be there, quality of jobs created may have much room for improvement. A telling sight is the housing area near Senawang Industrial Park where a lot of terrace houses suitable for middle level income demography are either unsold, left vacant or cramped with foreign workers. This would put a strain on banks’ profitability and ultimately interest rates available to diligent savers and retired Malaysian citizens.

Another development is the mushrooming of illegal factories. Around Selangor alone, I read somewhere in one of the Chinese newspapers that there were as many as 3,000 illegal factories. These factories could have an adverse impact on environment as well as human/workers’ right issues. One must question why so many people resort to operating illegal factories. Is the licensing process too much of a hindrance? Or are Malaysians too much of a profiteer and disregard their social responsibilities?

There are many successful industrial parks in Shah Alam and Penang populated by renowned international brands. There are also less formidable areas such as Silibin, Sungai Gadut, Alor Gajah Industrial Parks populated by lesser presence. This is no disrespect to the hard working SMI owners but one wonders that after about 30 years of industrialization, where is the renowned Malaysian brand? South Korea, devastated in the 1950’s by civil war while Malaysia prospered by tin demand as a result of that war, have come up with their Hyundai and Samsung.

It would be great if Malaysia can boast of renowned international brands and we can actually see these brands scatter among the various Malaysian states. People do not need to leave their home town to find employment opportunities and this represent less strain on national resources on traffic and logistic matters especially during festive seasons.

After the failure of Malaysia Electric Corporation, Proton and Badawi’s nasi kandar stall in Perth, I raised my fingers and count the renowned brand by Malaysians: 3 in 1 Old Town White Coffee (seen this in Hong Kong supermarkets), Jimmy Choo (exclaimed by Sarah Jessica Parker in Sex and the City) and Air Asia (by sponsoring BPL’s referee who until AA shows up, never had or seem to need a sponsor before).

Yes, we have moved forward in terms of changing Malaysia’s economic structure for the better but there are few key areas that we can improve on to raise the general level of living standards.

Malaysia's workforce

Source: Dept of Statistics

1)As at Q3 2008, Malaysia has 11.1 million workers of which 10.8 million are working.

2)Out of the 10.8 million workers. 6.6% fall in the 55-64 age group. That 6.6% is considered 'old' by some parties.

3)Out of the 10.8 million, only about 10% are paying income tax. The remaining balance of the workforce has salaries below the tax band of RM2,500 per annum.

4)Total Government revenue in 2007 was RM140 billion. 50% (RM70 billion) of that revenue came from direct taxes. Out of that RM70 billion, RM20.5 billion (17%) comprise of individuals' income tax. The rest are companies' income tax (46%), petroleum income tax (29%) and miscellaneous types of taxes (8%).

5)About slightly over 1 million workers contribute to RM20.5 billion income tax.

It is not only a question of the aging workforce as reported by The Women, Family and Community Development Ministry here. My former employer, now aged 60, earns up to RM2 million a year, excluding bonuses. Try beating that. Salary, we assume, is proportionate to skill set and demand for that skill set. The question is not of age alone, nor salary, nor skill set. Barking up the wrong tree.

The Women, Family and Community Development Ministry should drill down as to why the rest of the nearly 10 million are not contributing tax. Well, we all it's the tax band for sure, but what are their training needs? Are these 10 million people doing alright or not? Analyze that data properly and see if they tell a story. From there identify what's really wrong.

2008- a year of change

Badawi: 'Headache doing last minute jobs, you know.'

Regional economy

Year 2008 has come and gone....just like that. It was a year of major ups and downs where paradoxically 'up' did not necessarily mean a good thing. Inflation was up at its record highest (8.5%) ever in the span of 26 years; the last time it ever hit  the level of  8.5% was somewhere back in 1981. Raised electricity tariffs and transport costs as a result of a Cabinet decision to increase the retail petrol price in May 2008 drove consumer prices to its peak in August 2008. Yes. it's true that global oil prices affected everyone, especially ASEAN countries. Vietnam reached peak inflation at 29%; Indonesia 12+%; Thailand 6+%; Singapore 6+%. Malaysia hit that high simply because the Cabinet decided to increase the petrol price at a single go. Malaysia could have planned better, done better.

The General Elections

2008 was also the year where BN was beaten to the pulp in the March general elections. This 'correction' is direct result the Malaysian citizens' pent-up frustration of the BN-government's racist practices, display of corruption and ill-management of the country.

Great show, Bank Negara

With Bank Negara's steady hand at the wheel, a housing loan crisis was avoided by simply, erm, doing nothing, to increase the Overnight Policy Rate; which otherwise would increase interest rates. If Bank Negara had followed the conventional way of controlling inflation by increasing interest rates  (the OPR, in this case) like its ASEAN neighbors, home-owners with home loans would have been done for. The highest ever Malaysia had for BLR was 12.27% (1998) and 12.25% (1985).

Banks in Malaysia maintained a steady BLR plus minus 6.5% throughout 2008. Thank goodness Zeti ran her outfit better than the reckless Abdullah Badawi. Ok, for 2009, can we drop that tiered pricing structure for credit card users in order to stimulate some consumer spending.

Unfair politics

2008 was the year of human rights abuse. Anwar Ibrahim's arrest in July over the Saiful-sodomy case drew international condemnation; strong press statements particularly from US Secretary of State Rice Condelezza,  former Canadian PM Paul Martin, ex-World Bank chief James Wolfensohn, and Michel Camdessus, the former head of the International Monetary Fund. A few months later in September, Raja Petra, Teresa Kok and Tan Hoon Cheng was arrested under ISA, an act originally formulated to curb communist insurgents in the 1950's.

What's in store for 2009

More job losses. A receeding economy. Higher crime rates. More time-wasting internal PR bickering while BN strengthens at the helm. Probably the implementation of Goods Services Tax.

On a personal level, 2008 was a turning point for me- for the first time in my life blogging socio-politically; witnessing the GE2008 'first-hand', and thankfully going through the high-inflation unscathed. I'm also glad for making new blogger friends- they helped me a lot in my informal socio-political education. Also thanks for my family members standing thick and thin with me.

Now on with 2009...

Mahathir: 'You just need two jokers to spoil the show...'

Claim that petrol rebate online!

Crude oil price is USD68 per tong as I write. I have been procastinating the fuel rebate for a long time now so I had just made my claim awhile ago- online. Better claim it fast before lowering oil prices change this flip-flop Government's decision right?

The link is https://www.posonline.com.my/ecommerce/. Just register online and follow instructions.

Petrol prices reduced

KUALA LUMPUR: Petrol prices will be reduced by a further 10sen to 20sen from Wednesday.

RON 97 petrol is reduced by 15sen to RM2.30; RON 92 petrol is reduced by 10sen to RM2.20; and diesel is reduced by 20sen to RM2.20.

A post on the Prime Minister's Office website (wwww.pmo.gov.my) said the decision was made following the marked drop in the global oil price of late.

"The lowering of the fuel prices is also made to speed up the reduction of retail prices so that the people will be able to enjoy the benefits sooner," the post added.

The statement was signed by Prime Minister Datuk Seri Abdullah Ahmad Badawi. The previous two reductions were on Aug 23 and Sept 24.

Malaysian Economy: Cost-push inflation and Stagnation at the same time

I regularly scan foreign news reports on Malaysia and spoted this statement here, by Second Finance Minister Nor Yakcop. This report is actually about this Minister's appearance on TV3's The Exchange which I had earlier missed.

This particular statement on the right caught my eye and I was quite taken aback by this ridiculous lie of the Government 'having done all we can' to fight inflation. In the first place this hyperinflation (where inflation goes out of control with prices of goods doubling or trippling in a short time) which started in June 2008 was caused by the Government's stupid fiscal policy of increasing fuel price by 40%. It's of course cost-push inflation- the Government pushed the cost up and did nothing effective to repair this economic blunder. If the Government is sincere and 'have done all they can in fixing the economy, fuel price should have been dropped further immediately when crude oil prices started to fall.

Er- cost-push inflation not as serious as demand-pull inflation??! In my professional opinion, both are equally dangerous if not addressed properly. Cost- push inflation is caused by the sudden decrease in the supply of an essential item and/ or the sudden increase in prices of an essential item which is so substantial and rapid that it shocks the economy and chain-effects the other items causing their prices to rise as well. The situation can happen so rapidly that supply of the said item(s) cannot be expanded in time ; or suppliers of those items have their hands tied behind their backs preventing them to act to increase demand so as to adjust the market price. The perfect example is our 40% petrol price hike in June. On the other hand demand-pull inflation happens when total demand exceeds total supply in the economy caused by needs of consumers. The suppliers cannot supply the needs of its customers thus causing the scarcity in supply of goods; which in turn increase prices, thus called 'demand-pulled'.

If I were managing Malaysia's economy I would not want to focus inflation alone. That's because Malaysia is on the verge of an economic situation called stagflation- the combination of inflation and economic stagnation. Instead of one enemy we have two now- inflation and stagnation happening at the same time. The sudden surge in petrol prices in June 2008 caused cost-push inflation which sent out a signal to the general public not to spend more, be conservative,etc. The Government's fiscal cut of RM2 billion in Ministers' entertainment and claims allowances in June 2008 was one loud signal to spend less. The impact of such fiscal measures was almost immediate- economy growth slowed down immediately- suddenly we are not talking about the forecast growth of 6-7% but a below 5% economic growth. Business are now faced with low demand (stagnation of revenue and growth) and the rising costs of doing business (inflation), hence the term stagflation. If we continue to run a business in this situation, employers will have to lay-off workers in order to curb falling margins. Eventually, the businesses will also go under the lack of sustainability.

This country is run by amateurs... the Finance Ministers does not appear technically sound even in the most basic economic principles. We had better remove them, one way or another.

Stagflation and Budget 2009

It is possible to have inflation and economy stagnation happening at the same time. Whilst while we know what's inflation (rise in prices of goods and services) stagnation is when the economy grows at about 2-3%. You may want to ask what the heck is a recession then- a recession is when our economy grows...I should say contract rather than growth, at a negative rate. Malaysia is not at economic stagnation yet, at the expected growth rate of 4.6% in 2008 (Source: MIER), but it is very near that stage with the slowed down growth happening this year. At the the same time, consumer prices are also spiking sky high as a result of the fuel price hike in June 2008. The two noticeable indicators that stand out like a sore thumb are:

• highest 27-year inflation rate occuring in June 2008 at 7.7%
• GDP is downtrending with constant downward revisions very month (now at 4.6%)

Based on the above ground rules our economic condition is very close to what's being called stagflation- the combination of inflation and economy stagnation. The tricky thing about stagflation is that you are being faced by the rising costs of doing business, but you can't raise the selling price of your products because your business will loose sales volume if you do so.

Historically Malaysia achieved very high GDP rates from 1988 to 1996, in excess of 9%, hitting 10% in 1996. Those were the greatest Mahathir years. During Mahathir's tenure as PM, the only years when Malaysia hit a technical negative growth was in 1985 and 1998- and those were also the years of global economic recession.

Bank Negara and sound monetary policies

I applaud the manner Bank Negara handled inflation by not increasing the overnight policy rate unchanged at 3.50% on 25th July 2008. You may want to ask what's an overnight policy rate about?? It's the interest rate which one bank charges another for lending available funds. This rate is governed by BNM and if it raises we are screwed if we have home loans and so on, because interest rates are going to rise. So what if BNM does not increase this rate? You see, by the book, the central bank should increase interest rates to curb the supply of broad money during inflation but Zeti did not do it. High interest rates will result in the higher cost of obtaining credit- when cost of capital is more expensive to obtain, the supply of money reduces, spending reduces thus inflation is kept in check. For people in who have taken up loans the idea is to force them out of it via bankruptcy. That's the harsh reality of economics.

Zeti in fact recognized the root cause of Malaysia's inflation- which is not natural but cost push inflation, as a result of the government's fiscal policy of increasing petrol prices by 41% overnight at the beginning of June 2008. Immediately following this electricity tarrifs increased 26%; hauliers and fowarders increased their costs by 30-40%. Zeti knew that there's no point increasing interest rates because if BNM did so, Malaysia would be in bigger trouble because the inflation will still be there. That means inflation + higher interest rates. I remember back in 1998, many home owners failed to settle their home loans. I for one was on the lucky side as I got my house pretty cheap because demand for property in that area was bad. Zeti is certainly much smarter that Pak Lah and the rest of the Putrajaya goons. Gotta thank Zeti for watching closely the BN Government.

Budget 2009

This year's budget must prop up the economy ie expansionary, by the adopting the following measures:

-the government must seriously look into further reduction of the petrol price. I understand that it was a global oil crisis at that time but petrol price should not have been increased overnight!!! Luckily I miss that Parliament session with Wee Choo Keong in June otherwise I would have kicked Badawi's ass myself.

-2009 must have tax cuts in personal income tax (corporate tax reduction is a foregone conclusion) to stimulate personal spending and boost the retail industry.

-adopt a deficit budget, with expansionary fiscal policies. A deficit budget of about 4% is expected this time around.

-increase tax allowance for families with children.

-remove service tax completely- service tax holiday for 2009.

-control the prices of steel to prevent construction companies from going bankrupt.

Prices of essential goods will not reduce much unless they are controlled items because they are sticky-downward; and wages, depends a lot on the people's sentiments on inflation. Hopefully inflation will taper off in Q4 to finish at below 6% for the year 2009. With the situation cooler, wage inflation will also reduce, easing out the higher cost of staffing for employers.

Deficit 2009 budget yes, but what's the source of funding it?

Historical crude oil prices and Malaysia's historical petrol prices

Malaysia petrol prices

1990 - RM 1.10 (increased RM 0.21)
01/10/2000 - RM 1.20 (increased RM 0.10)
20/10/2001 - RM 1.30 (increased RM 0.10)
01/05/2002 - RM 1.32 (increased RM 0.02)
31/10/2002 - RM 1.33 (increased RM 0.01)
01/03/2003 - RM 1.35 (increased RM 0.02)
01/05/2004 - RM 1.37 (increased RM 0.02)
01/10/2004 - RM 1.42 (increased RM 0.05)
05/05/2005 - RM 1.52 (increased RM 0.10)
31/07/2005 - RM 1.62 (increased RM 0.10)
28/02/2006 - RM 1.92 (increased RM 0.30)
05/06/2008 - RM 2.70 (increased RM 0.78)
22/08/2008 - RM 2.55 (decreased RM0.15)
25/09/2008 - RM 2.45 (decreased RM0.10)
15/10/2008 - RM 2.30 (decreased RM0.15)
01/11/2008 - RM 2.15 (decreased RM0.15)
15/11/2008 - RM 2.00 (decreased RM0.15)
03/12/2008 - RM 1.90 (decreased RM0.10)
16/12/2008 - RM1.80 (decreased RM0.10)


World crude oil prices
Year US Average $/bbl
1949 20.21
1950 19.73
1951 18.43
1952 18.08
1953 19.01
1954 19.57
1955 19.58
1956 19.43
1957 20.83
1958 19.73
1959 18.87
1960 18.43
1961 18.31
1962 18.19
1963 17.89
1964 17.60
1965 17.20
1966 16.84
1967 16.56
1968 16.00
1969 15.95
1970 15.52
1971 15.85
1972 15.36
1973 16.59
1974 26.39
1975 27.00
1976 27.26
1977 26.78
1978 26.14
1979 32.98
1980 49.63
1981 66.20
1982 55.98
1983 49.80
1984 47.18
1985 42.40
1986 21.62
1987 25.68
1988 20.14
1989 24.22
1990 29.03
1991 23.00
1992 21.59
1993 18.68
1994 16.86
1995 18.17
1996 22.40
1997 20.39
1998 12.66
1999 17.78
2000 29.54
2001 23.39
2002 23.78
2003 28.42
2004 54.93
2005 47.97
2006 58.30
2007 64.20

Jan-08    84.70
Feb-08   86.64
Mar-08  96.87
Apr-08  104.31
May-08 117.40
June-08 126.33
July-08  126.16
Aug-08 108.46
Sept-08 96.13
Oct-08   68.50
Nov-08  49.29

About Forty Years Until the Oil Runs Out

By Michele Chandler
Stanford Graduate School of Business

STANFORD GRADUATE SCHOOL OF BUSINESS—If the world had to rely on the United States for all of its oil, the supply wouldn’t last very long—one year to be exact.

According to calculations by Gilbert Masters, Stanford Professor of Civil and Environmental Engineering, Emeritus, current oil supplies in all nations combined would last the world for only about 41 years. Masters painted the sobering picture of the world’s looming energy dilemma during a January conference on environmental sustainability.

He was one of more than a dozen speakers urging attendees to “Reduce Your Ecological Footprint,” during a three-day conference jointly sponsored by the Stanford Business School Alumni Association and the University’s Woods Institute for the Environment. Other topics covered included an analysis of Wal-Mart’s efforts to offer more environment-friendly consumer products and the explosion of interest on the part of venture capital firms in investing in sustainable companies.

Canada’s supply of oil could serve as the world’s only supply for six-and-a-half years. Central and South America combined would have about three years’ worth. Africa contains only a 2.7-year global oil supply, while Europe and Asia combined have 3.3 years total. Half of the world’s oil reserves—enough to last 23 years—are found in the Middle East nations of Saudi Arabia, Kuwait, Iran, Iraq, and the United Arab Emirates.

With new oil sources not guaranteed, Masters said, more companies are showing interest in renewable energy, including solar and wind power, and electric-powered vehicles.

He cited a Morgan Stanley report from October 2007 saying that the market for environment-friendly products and technologies will reach $1 trillion by 2030.

The potential of power that uses fewer resources has also caught the attention of the business world. Venture capital investments in “greentech” businesses have risen to $2.4 billion in 2006, up from only $0.9 billion in 2005, Masters said. VC investments in solar power alone reached $1.2 billion by the end of the third quarter of 2007.

The United States leads the world in oil consumption, with about half of all the oil use powering personal vehicles. Car companies have been pushed to develop cars that get better mileage or use alternative fuels because of legislation including a mandatory increase in corporate average fuel efficiency (CAFE) standards. As part of a broader energy bill approved in December, the U.S. Congress passed increased CAFE standards that require passenger cars and light trucks sold in the United States to get 35 miles per gallon, the first increase in average fleet fuel economy in 32 years.

Masters is bullish on the development and wider adoption of electric-powered vehicles.

Unlike oil, which is increasingly expensive and scarce, “Electricity is an inexpensive fuel,” said Masters who advocates generating electricity for cars from sunlight using photovoltaic technology.

While a typical car using conventional fuel “costs you 14 cents a mile just to buy the gasoline, if you had a hybrid, it would cost you half that, about 7 cents a mile,” said Masters. Purchasing electricity during off-peak hours would cost about 1.5 cents a mile.

Factor in a “smart garage” generating photovoltaic technology with roof tiles and consumers would have enough power “to drive one of these plug-in hybrids and all-electric cars about 12,000 miles a year,” Masters said.

Photovoltaic technology also has implications for American homes and offices.

About 40 percent of all photovoltaics are being purchased and installed in Germany, Masters said, and the industry has generated about 40,000 jobs. All kilowatt hours produced by residents’ homes must first be sold to the utility company. By contrast, in the United States, homeowners who generate photovoltaic power only sell leftover power, he added.

An outsider's view

Yesterday I had a long chat with a friend whom I hold in very high regards. He is the man who gave me my first responsible job and guided me patiently, acting not only as a friend but as a mentor as well. He is not born and bred in Malaysia, but is a Singaporean. However being in Malaysia for the past 5 years has given him a good understanding of how Malaysia works internally and he is able to compare and contrast the government we have, and the government he is used to having back in Singapore.

He raised a few crucial points which perhaps we have always known and felt all the while, but it is interesting to see how our country is perceived by an objective bystander looking in. The first question I raised was, how do the Singaporeans or foreigners view Malaysia's current political situation? The answer was; "it is the laughingstock of the international arena".

The second question I raised was, how does the situation in Malaysia affect its neighbouring countries like Singapore? He said; "probably not much except in terms of foreign investors when they are looking where to put their money. Of course with Malaysia in a limbo, investors would rather turn to Singapore which is perceived as a more stable environment".

Then without further questioning, he raises his views on why we are in the situation we are today. In short, he says it is sad to see a nation which is full of natural oil resources, palm oil, rubber, rice and our own agriculture be poorer than a nation which is smaller than the size of Johor Bahru, has no resources whatsoever and relies on the exports of other countries. In fact, he believes we could close our doors to the outside world and be self-sustaining, that is how rich our nation is.

He talks about Terengganu, who should be one of the richest states due to their oil reserves. The royalties alone for the past four years could have been enough to build schools, roads, better housing facilities and what-not. However, go to the state of Terengganu and you will see one of the poorest states in Malaysia, with the citizens surviving on selling "ikan masin" and "keropok lekor" at the side of the road to make a living. The sad thing is, oil reserves run out, and Terengganu is estimated to only have four years of reserves left.

Then he makes a comparison to Singapore's government; the complaint that some people have is that Singapore's ministers are one of the highest paid in the world. They rake in about $1 million per annum. However here's a good point he makes; would you rather pay 1 million a year to a government official when you know where the country's resources are going, or would you rather have ministers who siphons off 1.2 Billion a year of the country's resources to offshore foreign accounts?

Most people, in fact everyone will admit we have a corrupt government. Nobody will believe our government is clean. However the problem lies in the fact that we have accepted this as a way of life. And we have accepted that there is nothing we can do about it. This acceptance has caused us to give up our ideals of a transparent and fair, corruption free government.

This is why people say that there is nothing we can do to change anything. Even putting a new government in place will not eradicate this 'way of life' that we are so used to. But the truth is; it is because we accept it to be the way of life that it will never change.

Just like if we were born into poverty or slavery, and we accept it to be our fate and that things will never change, then it will never ever change. The mindset we have is so important in guiding us to where we want to be in life, so really the decision lies in our hands...are you willing to accept the condition we are in now? Because I know I'm not.

Possible tax on petrol rebate

It is interesting to see how the headlines read on the petrol rebate given out since the latest fuel price hike on June 5, 2008:

June 8, NST- Fuel price hike: 'Rebate will help ease fuel price hike pain' A person who drives a small car and travels not more than 50km a day would not be burdened by the higher petrol prices. This is because the RM625 cash back rebate would cover the higher costs incurred.

June 9, The Star- All will get cash rebate, says Shahrir KUALA LUMPUR: Motorists who renewed their road tax before April 1 and therefore fail to qualify for the cash rebate need not fret. Their next road tax renewal would qualify them for it.

June 13, The Star- Rebate in three minutes The process of getting fuel subsidy rebates will be simple and will only take three minutes, Pos Malaysia Bhd said.

July 10, The Star- IRB to decide whether RM625 rebate is taxable The Government has yet to decide whether to tax the RM625 rebate a year given to owners of vehicles with engine capacity of up to 2,500cc.

The IRB chief goes on to say that the rebate may push borderline taxpayers into the higher bracket- of course it will. It will also push non-taxpayers into the taxpayer bracket as well. Whether the tax rebate is taxable or not depends on how the IRB wants to interpret Section 4 of the Income Tax Act 1967. Section 4 has a wide scope, but if one understands it word for word, the RM625 is a clear cut non-taxable item. Just amend Section 6A (section on Tax Rebates) to include this RM625 in this Section and that's it. Additionally, the type of rebates in Section 6a for personal tax payers is pretty small- Eg. An RM400 rebate for personal computer purchase not related to business purposes; rebates for religious dues and rebates related to the RM35,000 tax band.

6.4 million is the number of registered tax payers; 1.14 million is the number who pays taxes; the employed workforce being 10.5 million (Source: 1st quarter 2008- Dept of Statistics Malaysia). I do not have tax payer demographics but taking from the median tax band of 13%, if IRB decides to define this rebate as taxable it may stand to gain about at least RM93 million. This figure could be higher, up to RM171 million depending on taxpayer band. The estimated number of vehicles legible for rebates is estimated to be slightly over 7.05 million (from MAA and JPJ records), giving rise to a possible total pay out of over RM4.4 billion in rebates.

As one can see from the above estimation, the Malaysian Government will never be able to recoup fully the possible RM4.4 billion rebates. Even if it intends to do it the back door way by making the rebate partially or fully taxable, the estimated recoup is just small percentage of the total rebate payout- the Government might as well save the public unrest and ask IRB to shut up and bite the bullet.

KL cabbies are ruining their own rice bowl

I am writing this post from the consumer point of view.Several years back my job got me posted to Penang. Having fresh transferred from East Malaysia to Penang, I did not own any motor vehicle as I had sold off my car earlier. Having a car is a drag especially when you get posted to multiple locations every one or two years. Morever Penang is a city and life could not be too bad without a car. I could fly home or take the bus to KL on my off days, cool. Spending about 2 years in Penang gave me a chance to observe the cab service- I was very wrong when I thought I could survive in Penang without a car.

The Penang situation.

Upon arrival to the Sg Nibong Penang bus station from KL- one can observe that most bus passengers have their own transport awaiting. One rarely takes a cab. The cab drivers have their own station, and will be pretty engrossed in their carom/ checkers game. Few will be reading the papers. Business is bad- most passengers don't take the cab.The general observation is as follows:

* All Penang cabbies do not use meters. If you happen to strike a conversation with them about cab meters, they proudly proclaim what they are doing is right.

* Most Penang folk have given up taking busses or cabs. Buses never arrive on time and cabs are too expensive. Almost everyone owns a car or a bike.

* Penang cab charges are expensive for the distance travelled. Charges are also subjective, depending from cab to cab and on peak periods or not.

* If you are going out of town, the bus station is 20 km away from town. The cab fare from Georgetown to the Sg Nibong bus station was half the bus fare (RM10) to KL, and after midnight it's almost equvalent to the bus fare to KL (RM20 to RM30). If not for those damn Air Asia flights which is always late at least 2 hours, I would have flew most of the time.

* Reason given by cabbies for not using meters- Penang is a small place, distance travelled is limited- meter charge corresponds with distance, hence revenue is limited. To get more income, cabbies can't use the meter, else their families would starve.

* Tourists know it's better to rent a car than to take a taxi.

* On most days, supply exceeds demand and most cab drivers end up playing either carom or checkers in taxi stands.

* Most cabbies have a fixed daily hire purchase or lease rental that's a fixed cost they must cover. Most cabbies say they've got mouths to feed. But if they are playing checkers or carom all day long, who's bringing in the money?

The KL situation.

The taxi situation in KL is fast becoming what's in Penang. Taxi drivers should not stop using meters or else the situation may be far worse than in Penang eventually. From the theory of economics, taxi is a fairly elastic 1 service in Kuala Lumpur because of subsitutes 2- the LRT, Monorail, RapidKL, kereta sapu and so on. This elasticity is confined to the operating hours of LRT, Monorail, RapidKL, meaning to say if there is an unusual hike in taxi fees within that transport substitute's operating hours, consumers may switch to an alternative mode of transport where service is available. For example, the Monorail is considered a substitute mode of transport if it runs to your destination. Another taxi substitute is getting your own car or bike, which was what I did in Penang; or walk.

Before getting my car, I actually walked wherever I went in Penang- never agreeing to the un-metered taxi system. I could not manage to walk the long distance between the Sg Nibong bus station and Georgetown though. I was so pissed-off with taxis that year that I bought myself a car, and paid the downpayment for my better half's MPV as well. So we got two nice cars that year.

A word of advice to KL cabbies- don't push it. Taxi is a volume business and it doesn't pay to chase your customers away by simply charging without rules. When customers switch, you'll be in bigger trouble.

Update: Checkout these terrible testimonials from the Expat magazine.

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1 Elasticity

In economics theory- elasticity means the degree which demand for a particular product/ service is influenced by its price. There are 2 types of elasticity- price elasticity and demand elasticity. A product/ service is price elastic if demand for the product/ service falls when prices increase. People switch to substitutes of the product or stop using it altogether. A product/ service is known to be supply elastic if producers of the product/ service can increase supply as demand increases.

2 Substitute

The next best alternative to the current product/ service whereby it can be used in the place of another. A substitute, depending on its degree of substitutability plays an important part in determining prices.

Protest on fuel hike went well

I am happy to state I was there! Was it for a good cause? the answer is yes. Was it politically motivated? I don't think that's relevant because even if the opposition was involved in it, we gathered for a common cause; A PROTEST ON FUEL HIKE. So it does not matter whether we are politically inclined, or NGO inclined, or just regular individuals, we were there because we felt the pinch of rising costs of living and stagnating salaries. So I am proud to say that I've done my part by showing up even if the protest speeches seemed to be more of an 'anti-BN' slur.

And being the first official protest that I've attended, I must say that Malaysians are showing great levels of maturity. The crowd was peaceful, strangers were talking to each other like old friends, and I felt a certain warmth and friendliness towards everyone there. However I heard some talk that there was an attack on a rock band earlier, I can't clarify since I only arrived at about 8.00 pm.

Perhaps the most memorable was the fact that the demographic of protesters was so diverse that it really was a mini Malaysia. From people of all ages, from all walks of life, whether urbanites or laid back country folk, they showed up regardless of race, religion, or economic status. And I was most surprised to see many groups who were probably around my age group, i.e. 18-24 who showed up bearing the colours of red and showing great interest in the plight of the nation. We even had a youth who came all the way from Sarawak proudly bearing his state's flag.

This really was an eye-opener for me and I am glad to be a participant, even if it was just to add to the number of people there, although, the helicopters flying overhead are a bit of a distraction.

Indonesia and the oil crisis

Amidst rising oil prices and inflation rate (estimated to be 8.9%), Indonesia is contemplating withdrawing from OPEC and direct the production of its oil for local consumption. Like Malaysia, Indonesia too, made a governmental executive decision to cut fuel subsidies and increase fuel price by 30% on May 5, 2008 in order to quash a budget deficit. With national elections looming over the horizon in 2009, Indonesia looks like it has little choice in the oil price game- increase domestic oil production and lower the prices; or loose the elections in 2009. The Indonesian public had voiced their anger in the Makassar (Sulawesi) demonstration recently. Compare to its neighbor Malaysia, Indonesian citizens has more reasons to protest- almost 50% of its 235 million people live on less than USD2 a day… its GDP per capita in 2007(USD3,900) is 30% that of Malaysia (USD12,900).

Parents are forced to give up children to crowded government-funded orphanages there!

What is "Subsidy"?

Someone emailed this to me, I thought it was worthy of posting.

The story about "apple subsidy".

A man called Maha owns a farm which can produce 10 apples every day. He has 5 workers to operate the farm. Each of them eats 1 apple daily and it is enough to keep them operating the farm normally. The remaining 4 apples, the landlord sells them at RM10 each and he earns RM40. He uses the RM25 to improve the farm operation and facilities. He gives RM2.00 to each of his workers and he keeps the remaining RM5.00 as profit. Day by day, the farm is well developed and all of the 5 workers are happy with the money they can save.

When Maha passed away and there is a new landlord, Abdul comes to continue the farm operation. He says to the workers:" We need to improve the farm quality and redefine our way of thinking.From now on all of you only need to pay RM1.00 for each apple you eat. It is very cheap as the price is RM10 each outside the farm." The workers have no choice but to pay RM1.00 for the apple they eat daily. Their earning decrease from RM2.00 to RM1.00 per person.

As usual, Abdul sells the 4 apples and he gets RM40. He uses RM25 for farm improvement and pays RM10 to his 5 workers. He gets RM5.00 as profit. On top of that, he gets another RM5.00 from the apples that he sells to his workers. In total, he gets RM10 as profit every day. Soon, the apple price increases to RM20 each. The new landlord gets a higher profit as he gets RM80 for the 4 apples he sells daily. Then, he decides to give the farming improvement contract to one of his close friend, Samy. Samy says:"Apple cost naik, improvement cost also misti naik." So, the farm improvement cost increases from RM25 to RM50. In actual, the improvement only cost RM30.

The remaining RM20, Abdul and Samy share evenly among themselves. Let's calculate how much Abdul gets daily:

RM10 (from farm improvement cost)

RM20 (Net profit by selling 4 apples:

[Gross profit,RM80] - [Improvement cost, RM50] - [Wages RM10] = RM20)

RM5 (from selling apples to his workers)

In total, Abdul gets RM35 daily compare to RM10 initially when he takes over the farm from Maha. His profit increases RM25 and the workers are still getting RM1.00 daily per person. The greedy Abdul does not want to stop there.

One day, he says to his fellow workers:" You see ah, the current market price for one apple is RM20 and you are only paying RM1. See how lucky you are! I have to SUBSIDY RM19.00 for each of the apple you buy and total I need to SUBSIDY RM95.00. This will greatly burden the farm and we might get bankrupt if we continue like this. In order to avoid bankruptcy, I need to increase the apple price that you buy from RM1.00 to RM1.50 and I will bear the remaining RM18.50 per apple as my subsidy to you all. " So, greedy Abdul adds RM2.50 to his current profit and the number becomes RM37.50.

After you have read the story, I am sure you have already understood the meaning of "SUBSIDY" given by the government. The RM95 subsidy never existed in the first place and so was the RM52 billion fuel subsidy generously "given" by the government. Cutting fuel subsidy is actually just a reason to steal money from your pocket.

Source: written by DJH, June 13, 2008 13:49:44

No more petrol price increase?

A couple of mornings ago on the way to work I heard the news on the radio stating that originally Malaysians are supposed to pay RM3.45 a litre. Then we have a wonderful reassurance from our beloved 'flip-flop' PM stating that they will not increase the price of petrol this year.

This worries me even more because 'flip-flop' PM is famous for doing the exact opposite of what he pledges. So if he promises not to increase petrol price anymore, you know what's going to happen...

Remember back in 2004 when he came into power with a whopping mandate and promised us to eradicate corruption? Nope, corruption got more rampant till the extent it was so obvious. The Chinese have a saying which translates into something like 'if you're going to eat, at least wipe your mouth clean'. Well i think BN have smudges up to their eyebrows.

And remember when he told us he wanted to fight rising crime rates? Well as far as I know, that didn't go very well. In fact now with the rising petrol price, I'm almost scared to step out of my house because it seems people do not even have enough money to buy food anymore. Well at least now I won't have to worry about my car getting stolen since everyone will be looking to conserve petrol.

Oh, and remember when he said that BN will get a confident landslide victory again during the 12th GE? HMM...wonder what happened then? Oh, and then he promised not to disband parliament, but he did. And also to step down, but he didn't.

The list just goes on and on and on....

Now most people I know, who given their education level, IQ competence and aptitude should be making it big...are stuck with either getting an extra part-time job for income or cutting back cost because, we have lost our competence, we are not moving forward and we have to deal with higher cost of living.

So, if marching in protest is going to do any good, I am with you. Even if it doesn't I will still be with you because seriously, all this pent-up energy and anger is bad for me.

And RWM just because I'm a girl, please don't hide behind me!

I'm convinced in the need for a new government ASAP

Yesterday I managed to pull my dad to a talk by the Pakatan Rakyat led state, Selangor in Ulu Klang. Despite short notice, the field was packed to the brim at about 9.30 pm.


Of course the main star of the event was de facto leader Anwar Ibrahim. Here's an interesting fact divulged by the new state government; the so called subsidies which the goverment claim they can't handle anymore amounts to about RM15 billion. Fair enough, but do you know that only RM2 billion is actually subsidised to the Rakyat?

Apparently about 6 billion goes to Independant Power Producers which are actually held by large multi-million dollar corporations such as Genting Sanyen and YTL corp. Also, another 5 billion goes to other similar large privatized companies who are rolling in money. Only about 2 billion reach the rakyat...


This has convinced me, any change is definitely better than the current polpots who are in power now. My parents did not raise me up to be a boot licker, so FUCK you BN I will not join MCA just to fill my pockets at the expense of everyone else.


And to anyone who is in BN thinking that they can do good and serve the people, there are only 2 scenarios:

1)they're fucking liars

2)they're brainwashed into thinking the goverment is good, in this case refer to the North Koreans and how they believe Kim Jong Il is God.


I really doubt ANYONE can do a worse job then the current goverment so screw inexperience, screw the "it's immoral to cross over" crap! I want a change, and I want it before we end up being a bankrupt third-world has-been country.

Hike in fuel price; the woes of a fresh grad...

I've been keeping silent since the hike in fuel price on Thursday, mainly because I started out with my first 'real' job on Wednesday, 4th June 2008 and i've been struggling with calculations on how to cut back now.

I was pretty happy that morning, I have a proper job right after my exams, even before I am officially a degree holder and the starting salary of a fresh grad. It's a meager 2k a month job, but I figured when took it, hey, everybody's got to start somewhere right?

I calculated my cost, RM10 a day for petrol, RM10 a day for parking and RM10 a day for lunch. So i spend RM30 a day, time 22 days a week, so that's RM660 a month. Minus that from my salary, give or take some extras, I'll probably have about RM1200 left. Then after paying installment for my car, that's about RM400, I have RM800 left. Not too shabby I thought...until the end of the first day when a friend rang me up and said,"hey you might want to stop by the petrol pump on your way home, they're hiking the oil price up to RM2.70!"

Well there goes my calculations flying out of the window! So where does my 'glamarous' pay leave me at after the hike? Well strike out my RM10 a day for petrol, increase it to RM15 and multiply that by 22, I have to pay an extra RM110 a month just to get me to and from work! Let's not forget, the hike will also entail rise in food prices, that means I'll probably have to spend an extra RM100 eventually on food! So, it seems that I'm left with a little over RM400 a month to survive on.

And who am I to complain? Most people I know start with a pay of RM1500, what will they be left with? If according to my expenditure, they'd be left with a negative balance! So, it seems a prudent way would be for me to take public transportation right? Yes, I did consider it. The problem is this; how do I get to Damansara Heights from Wangsa Maju?

Well, lets set out the options;

The bus

This would entail a route of taking the bus from Wangsa Maju to maybe a central stop in Kl. Then wait of another bus en route to PJ, which may not be directly to Damansara Heights, which means another switch of buses once in PJ. That makes 3 different buses for an area 15 kilometres away! My usual 20-30 minute drive, would end up in a 3-hour ride!

The LRT

Well, I could take the Putra LRT from Wangsa Maju up to perhaps Bangsar and either

a) take a bus or

b) take a cab

to my work place, and do the same when leaving for home. Again, no direct route and requiring at least 1-2 hours travel.

If I recall, that would be the time it takes for me to reach Seremban!

So much for a degree, looks like life is going to be crap as usual! Sigh, I guess this means taking up a second job just to make ends meet, plus going for classes once they decide CLP or CBC. I might just consider moving to Vanuatu, but then I remembered, they're probably having a food crisis and I just might starve to death.

The question that boggles the mind is this. If we are one of the biggest net exporters of petroleum in Asia, why is the hike in oil price affecting us? Has Brunei or Saudi Arabia announced a hike in their local consumer's price? If we sell oil, and the price of oil goes up doesn't that mean we should be earning more? Hey, I'm no economist or math genius, but isn't this common sense? Ok, so if we're not making enough, who decides?

Why do I have to take the word of a bunch of apes running the revenue of the country? I want to see figures, published accounts, expert INDEPENDANT opinions, then I'll decide if the rise is justified. Right now, all I know is a bunch of dumb low IQ animals are running the country and honestly, I don't buy the shit they're forcing up my throat!

Since Bodohwi's administration took over in 2002, the rise in petrol price has more than 100%. In 2002-2003, the price of a litre was about RM 1.33, then it went up to RM1.92 which by then the stupid Govt machinery had already plastered up billboards to remind us how kind they are by sucking in their belts and showing us the subsidised price against the non-subsidised price, reminding us how 'generous' they are. Now, 6 years later, it's up to 2.70 a litre...that's more than double the increase since 2002. And these are the prices in other oil-exporting countries;

Iran — RM0.29 per liter.

UAE — RM1.19 per liter

Venezuela — RM0.16 per liter

Nigeria — RM0.32 per liter

Arab Saudi — RM0.38 per liter

Mesir — RM1.03 per liter

Kuwait — RM0.67 per liter

Brunei — RM2.03 per liter

Malaysia — RM2.70 per liter

When we study corporate governance, we have learned that huge multi-billion corporations such as Enron and Worldcom can fall in the hands of a few key people. The reason was mainly lack of accountability, transparency and of course the source of all evil; greed, corruption and fraud. These few people in position have the power to siphon off money and cover up their deeds from public scrutiny leading a profiting company to its downfall. To me, a government is just like a huge corporation, and a government not checked will have the ability to bring a nation to its ruin.

If this style of closed door accounts and 'secret profits' is not checked, it is us stakeholders in the company who will be left to suffer. If previously, the rakyat has not felt the urgent need for a change because no one really cared whether they had a right to freedom of speech or good governance, perhaps now they will care because they feel a burn in their pocket!

If nothing changes soon, I'm packing my bags and leaving to a place which appreciates me more for my education and capability, and not the colour of my skin. I hope the stupid govt. then doesn't start to blame us grads for being ungrateful and not returning to contribute to the country! Honestly, can you really blame them?

UMNO bigwigs meet over party direction

SHAH ALAM: For two days, Umno leaders evaded reporters who camped at a hotel here, where a retreat for party supreme council members was held to discuss the party's direction and winning back the people's support.


Soon after the two-day meeting ended around noon yesterday, party president Datuk Seri Abdullah Ahmad Badawi and his deputy Datuk Seri Najib Tun Razak went off without meeting the media, while others party leaders declined to comment on the outcome of the meeting.


Datuk Shahrir Abdul Samad merely said: “We talked about Umno strategic planning. This was more an opportunity for members to sit down and talk about what to do with the party.”


Asked whether there was a potential political setback in view of the petrol hike, he said: “I don't think so because in the end, there are other aspects of overall programmes that we are giving back to the people.


“What we have to emphasise is this is the first time we are reducing the subsidy for petrol,” he said.


When approached, Umno vice-president Tan Sri Muhyiddin Yassin said he did not have the authority to say anything about the event.


On whether the succession plan of the Prime Minister ws discussed, he said: “I have no right to say yes or no.”


On the outcome of the retreat, he said: “Very positive."


No need to meet la- it's a waste of time. Just abandon party.