Removing Subsidy

The double standard on the issue of subsidy removal is glaring.

Pakatan Rakyat has maintained that the issue of subsidy removal must be approached holistically. It is morally wrong to take back assistance to the people (in the form of lower petrol prices) in the name of subsidy removal – yet the huge financial incentives and soft loans to big corporations such as Independent Power Producers (IPPs), water concessionaires and toll operators are maintained in the name of “sanctity of legal agreements”.

While the Federal Government continues to dilly dally with water restructuring in Selangor to return the utility back to the public and to ensure minimal tariff in the future; it also provided Syabas with a RM320.8 million 20-year back-loaded and interest free loan.

The issue of exorbitant profits made by IPPs is well known and has become a national topic. PETRONAS has suffered a bill of RM97 billion cumulatively up to 31 March 2009 in gas subsidies; mostly to IPPs. Despite continuous public pressure, Barisan Nasional has not had the courage nor willingness to restructure IPPs given the burden to the national coffers in terms of gas subsidy that could have been used elsewhere.

In between 2003 and 2008, the public has paid RM2.84 billion in gross compensation to PLUS even when the existing toll rates were generally accepted as burdensome to the public. At the same time, for the financial year ended 31 December 2009, PLUS recorded an even higher net profit of RM1.19 billion compared to a previous year’s profit of RM1.08 billion.

The refusal of the government to restructure the toll concessions – either by way of renegotiation or complete take over to allow for more equitable review of the profit percentage to the new toll operator – outlines the double standard and different treatment by Barisan Nasional when it comes to the public.

To the public, it forges ahead with the agenda of subsidy removal in the name of new economic model. To the big corporations, it allows inefficiencies and massive profit hoarding in complete opposite to the need to promote competition and transparency.

Pakatan Rakyat’s view on subsidy removal has been consistent and well received by the public.

The review and restructuring of one-sided agreements and concessions of public utilities (such as water, electricity and highways) is a major thrust of the review of subsidy system in itself – only by ensuring an equitable profit to operators and reasonable cost to the public; can the government continue with the next step of subsidy removal.

In this manner, while the public will bear the higher petrol price, they will also benefit from lower costs of living arising from the restructuring of the utilities sector in the country.

But such is the contradiction of NEM – it preaches economic liberalisation and competition to the poor; but is silent on removing protection and monopoly of the rich.

Government’s withdrawal from business

Prime Minister YAB Dato’ Seri Najib Tun Razak announced that Khazanah and EPF will lower its equity holdings of government-linked companies listed at Bursa. This was followed by an announcement of Khazanah’s divestment of its 32% holding in Pos Malaysia.

On the other hand, EPF is expected to take direct interest in business and increase its overseas investment which currently stands at 6% of overall portfolios.

If anything, the decisions on EPF and Khazanah are proofs of inconsistency and flip-flopping nature of decision making in Putrajaya.

The move to encourage EPF to take direct interest in business is not much different from Khazanah making investments in unlisted/listed companies. On top of this, in March last year the government had also announced the setting up of Ekuinas (which until today is not much heard of).

As it is, there are three government backed agencies or corporations involved actively in taking stakes/interest in companies – Khazanah, Ekuinas and now joined by EPF; even if we were to exclude the involvement of PNB.

The message sent by the government is mixed – there seems to be a lack of coherence in coordinating the roles played by these agencies.

A policy that encourages a divestment by one agency only to allow the other agency to increase its participation brings no real change to the status quo.

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