Fuel Up Your Horses . . .

PUTRAJAYA, June 4 (Bernama) -- Petrol and diesel prices will go up by 78 sen and RM1 per litre respectively at midnight tonight, Datuk Seri Abdullah Ahmad Badawi announced Wednesday.

The prime minister said the new price for petrol at the pump would be RM2.70 per litre and diesel, RM2.58 per litre.

Abdullah told a news conference at his office the Cabinet had agreed on a cash rebate for Malaysian owners of private cars and motorcycles to ease the burden of the rise in the fuel prices.

"A cash rebate of RM625 per year will be given to owners of private cars of engine capacity of up to 2,000 cc and pick-up trucks and jeeps of up to 2,500 cc.

"Owners of private motorcycles of engine capacity of up to 250 cc will be paid a cash rebate of RM150 per year," he said.

The prime minister said the cash rebate would be given to the owners of the cars and motorcycles when they paid or renewed their road tax.

He said the cash rebate would cover cars and motorcycles for which the road tax was renewable between April 1 2008 and March 31 2009.

The prime minister said the cash rebate would be given in the form of money order at post offices nationwide beginning July 1 2008.

The increase in prices announced Wednesday is the highest ever. On Feb 28 2006, the prices of petrol and diesel went up by 30 sen, with petrol costing RM1.92 per litre and diesel RM1.58 per litre.

The announcement Wednesday is part of the government's new fuel subsidy scheme mechanism which seeks to reduce the fuel subsidy amounting to an annual RM53 billion.

The government's move to float the fuel price in accordance with the global market price still makes Malaysia one of the countries with low prices for fuel in this region.

The new prices of petrol and diesel are far lower than the RM5.20 and RM4.22 for the fuels, respectively, in Singapore which has floated the prices as well.

The prime minister said the Cabinet had decided that the owners of cars and motorcycles excluded from the cash-rebate category would have their vehicle road tax reduced according to the following rate effective June 1 2008:

* Owners of private petrol and diesel vehicles with engine capacity of more than 2,000 cc will have the road tax reduced by RM200.

* Owners of private motorcycles of engine capacity of more than 250 cc will have the road tax reduced by RM50, subject to a minimum road tax of RM2.

Abdullah also said that there would be no change in the prices of liquefied petroleum gas (LPG) and natural gas for vehicles (NGV), with LPG at RM1.75 per kg and NGV at 63.5 sen per litre.

He also announced the streamlining of the diesel subsidy for approved transportation companies, vessel transportation companies and fishermen.

"Currently, transportation operators, fishermen and vessel owners enjoy different subsidies for diesel. Fishermen buy diesel for RM1 per litre and vessel owners buy at RM1.20 per litre.

"The Cabinet has agreed to streamline the price of diesel (for these categories of consumers) at RM1.43 per litre effective Thursday, June 5 2008.

This price would not jeopardise transportation companies under the fleet card system because they will continue to enjoy the petrol and diesel subsidies at this price," he said.

He said the government had agreed to pay in cash a portion of the difference in the old and new prices to fishermen and vessel owners, as follows:

* Payment of RM200 cash monthly to every owner and crew of Malaysian-owned vessels registered with the Fisheries Department.

* Payment of incentives to vessel owners at the rate of 10 sen per kg of fish landed by approved fishing vessels at fish landing centres in the country.

"The payments will be managed by the Malaysian Fisheries Development Authority. The Cabinet has also decided that operators of river passenger boats will be given cash payment of 10 sen per litre based on an approved quota," he said.

Abdullah also announced that beginning July 1 2008, the prices of gas supplied by Petronas in Peninsular Malaysia will be changed as follows:

* For the electricity sector, the price will be increased from RM6.40 per mmBtu (Million British Thermal Units) to RM14.31 per mmBtu.

* For industrial sector consumers using less than 2 mmscfd (Million Standard Cubic Feet per Day), the price fixed by Gas Malaysia Sdn Bhd (GMSB) will be raised from RM9.40 per mmBtu to RM24.54 per mmBtu.

* For industrial sector consumers using more than 2 mmscfd, the price of gas supplied by Petronas will be raised from RM11.32 per mmBtu to RM32.56 per mmBtu.

"However, special assistance will be given to consumers of GMSB gas, i.e. for the category of small and medium enterprises. These consumers will enjoy a lower gas tariff rate.

"In line with the sustainable energy policy, Petronas will reduce the subsidy for the electricity sector progressively in line with the current market price, up to the 15th year, when the level reaches the market price," he said.

At the same time, he said, the subsidy for the industrial sector would be reduced progressively in line with the market price, up to the 11th year, when the level reaches the market price.

Abdullah said that in announcing the new electricity tariff, Tenaga Nasional Bhd (TNB) would have to bear the increase in the price of coal in the global market.

He said that with the restructuring of the gas subsidy and increase in the price of coal, the government had approved a new electricity tariff structure to enable TNB absorb the fuel cost for gas and coal.

The new tariff structure, effective July 1 2008, would apply to all domestic, commercial and industrial consumers in Peninsular Malaysia only and a new structure would be announced soon for those in Sabah and Sarawak, he said.

In line with the government's desire to safeguard as much as possible the welfare of the low- and medium-income group, the new electricity tariff structure would not affect consumers who use less than 200 kilowatt hour (kwh) per month, with the electricity bill estimated to be RM43.60.

"This means that 59 per cent of households in Peninsular Malaysia will pay the same amount for electricity so long as they maintain their level of usage," he said.

Commercial and industrial users will see a rise of 26 per cent in their electricity bills, he added.

"However, retailers, shopkeepers and small restaurant operators as well as industrial users such as cottage enterprises using not more than 200 kwh a month will only see a rise of 18 per cent," he said.

Touching on the contribution of independent power producers (IPPs) and palm oil producers towards easing the financial burden on the people, Abdullah said the IPPs were expected to generate more profits from market returns.

"In line with the restructuring of the gas subsidy, the government has decided to implement provisions of the Windfall Profit Levy Act 1998 on IPPs in garnering their contribution to meet the rise in the cost of fuel to generate electricity.

"The quantum of the levy is 30 per cent of the excess return on assets at the threshold value exceeding nine per cent based on their audited accounts," he said.

The prime minister said palm oil producers had recorded increased profits following the high price for palm oil in the global market.

As such, he said, the Cabinet had agreed to abolish the Cooking Oil Stabilisation Scheme (COSS) effective July 1 2008 and implement provisions of the Windfall Profit Levy Act 1998 on palm oil producers.

The levy would be imposed at the stage of the millers:

* For Sabah and Sarawak, it is 7.5 per cent for every tonne of crude palm oil (CPO) which exceeds RM2,000.

* For Peninsular Malaysia, it is 15 per cent for every tonne of CPO which exceeds RM2,000.

"Although the COSS is abolished, the price of cooking oil will remain the same because the returns from the new levy will be used to subsidise the price of cooking oil.

"The rate of levy for palm oil producers in Sabah and Sarawak is lower (than in Peninsular Malaysia) because they have to pay tax also to the state governments," Abdullah said.

* Be prepare for the worst, start saving now.

The Rice Crisis

What's behind the current food shortages: Is the increase in ethanol production to blame or is hoarding the problem?

Image details: Thai Producers Struggle To Meet Increasing World Demand served by picapp.com

As world rice prices set new records daily, the World Bank has warned that the crisis could further impoverish 100 million people (BusinessWeek.com, 4/25/08). What's behind the current food crisis and what can the world do to dig itself out from the problems? Here are a few of the key issues to consider.

Has the increase in corn cultivation for producing ethanol in the U.S. and Europe affected the price of rice?

Yes, indirectly. As farmers in the U.S. and Europe plant more corn in place of wheat to produce ethanol, the price of wheat has risen as supplies have tightened. Faced with higher wheat prices, people are substituting rice in their diets, particularly so in Africa. And, of course, the demand for ethanol as an alternative fuel is linked directly to the soaring price of oil. Moreover, the cost of rice production has increased significantly because fertilizer, transportation, and processing costs have shot up along with skyrocketing oil prices.

And how did that spill over to Asia?

India and Vietnam, the world's second- and third-largest rice exporters, saw the prices of soybeans, wheat, and corn skyrocket. In an attempt to keep a lid on domestic inflation, in late March both countries announced export restrictions. The idea was to ensure plenty of domestic stock of rice so prices wouldn't rise. But it backfired, because as soon as international prices shot up domestic traders jacked prices up at home anyway, leading to panic buying and hoarding.

But is there a worldwide shortage of rice?

No, there is an artificial shortage because of measures taken by governments of rice-exporting nations.

Who is doing the hoarding?

It's happening at several levels throughout the supply chain by traders, millers, wholesalers, and retailers. The appeal of rice for speculators is that it is easy to store and transport. However, this kind of speculation is extremely risky because the futures market in rice is not very liquid, so it it's difficult to hedge one's bets. There are 15 different benchmark prices for rice depending on quality, and the market is far from transparent.

How is Thailand, the world's biggest rice exporter, faring in all this?

At first blush, Thailand appears to be sitting pretty. The spot price of Thai fragrant rice is about $1,100 per ton, compared with about $320 at the end of last year. However, exporters make their contracts several months in advance of delivery, and Thai Rice Exporters Assn. President Chookiat Ophaswongse says several exporters face huge losses because they are buying rice from traders at today's prices but delivering that rice to buyers at prices from early in the year, before the latest price spiral started. Some exporters have renegotiated, others have defaulted on their deliveries. Chookiat says higher prices will cause exports to fall 20%-25% in the second quarter, to about 780,000 tons per month, compared with the first three months of the year.

If this is mostly speculation and government interference in trade, will prices fall eventually?

Up to a point. Once the price spikes, speculators and hoarders will try to unload their stocks, pushing prices down, but there is a lot of pent-up demand from major importers such as Iran and Indonesia that have not purchased any international rice in 2008.

Why don't farmers just plant more rice?

Because they can't. The majority of rice farmers consume most of what they grow already and plant rice on every available acre of land. What's more, rapid urbanization and, in China, desertification has led to a decrease in the available supply of farmland. The increase in biofuels has encouraged palm oil plantations instead of rice paddies. Also, as incomes rise in the region, people substitute more meat for rice in their diet, which requires more land to raise livestock and produce the same amount of calories.

Is a second "green revolution" possible?

In theory, yes, but it will take time. International Rice Research Institute director general Robert Zeigler says the time lag between new biotech discoveries and implementation on the farm is about 15 years. He also notes there has been underinvestment in rice research by multinational companies because it's primarily grown by poor farmers in developing countries.

Can't planting genetically modified rice help increase supply?

Yes, many varieties are readily available, but the problem is convincing the farmers to buy the seeds. Because rice is self-pollinating, farmers are accustomed to keeping their own seeds. Although hybrid rice is also self-seeding, each succeeding generation is less productive, and many farmers would rather save their cash than buy new seeds every year. "[Genetically modified seed] should be an important part of our toolbox, but it isn't a silver bullet," Zeigler says.

Who is getting hurt the most by soaring food costs?

The poorest populations in the world, for whom rice is a staple and spend the greatest percentage of their incomes on food. The World Bank estimates that 100 million people are at risk. Sub-Saharan African nations are particularly vulnerable because they import 40%-50% of their rice needs. But only 8% of the world's rice output is traded, so most rice-consuming countries actually feed themselves.

What about relief agencies. Can they obtain the food they need?

In theory, yes, the supply is available since much of relief food is actually sourced locally, so the drop in rice available for export has no direct impact. But since prices have risen so much, their budgets are stretched to the limit. On May 1, the World Food Program in Cambodia will stop buying locally produced rice, which it had been using to provide breakfast to 450,000 needy school children. It's abandoning the program because of spiraling prices. And the government of the Philippines, which is the world's largest rice importer, has only been able to buy part of the rice it imports because exporters have not responded to its tenders in full.

What short-term methods could boost supply?

More investment in irrigation. Better storage methods and low-cost devices such as moisture meters, which could help farmers avoid wastage. Also, greater use of hermetically sealed bags would prevent infestation.