23 October 2001 (Business Times) - THE 10 sen per litre increase in petroland diesel prices will have a chain reaction in terms of higher costs oftransport which will lead to an increase in the price of goods andservices. Inflationary pressures with the usual ramifications on wageswill follow.

In the 2002 Budget speech, Prime Minister Datuk Seri Dr Mahathir Mohamadmentioned that petrol enjoys a subsidy of more than RM2.2 billion; thisworks out to slightly less than RM100 per person in the country.Therefore, a family of four enjoys a petrol subsidy of RM400, which ishigh by any standard. The current subsidy has resulted in relatively lowerpetrol prices in Malaysia compared to neighbouring countries.

But any economist will tell you that subsidies distort the real economiccosts of producing the item. The high subsidies are reflected in lowprices and this encourages wasteful practices and inefficient (energy)usage.

Hence the actual price paid by the vehicle owner is not reflective of theeconomic cost of producing the petrol.

In this context, the lowering of the subsidy by 10 sen should be welcomed,as it will bring our petrol prices more in line with world market prices.The subsidy mentality has to go if we aspire to be competitive in theworld market.

The unfortunate thing is that the transport sector depends almost entirelyon petrol, diesel and related products. Viewed in the context thatMalaysia may run out of oil as early as 2009 (according to the EighthMalaysia Plan document), the sector's dependence on petrol should beviewed seriously.

One way out is for the country to conserve its existing supply (besideslooking for new reserves). The other is to intensify efforts to promotealternative fuels such as natural gas (only taxis are using this fuel inlimited parts of the country), palm diesel and electricity (electriccars).

One can argue that if the Government is prepared to subsidise petrol tothe tune of RM2.2 billion, then there should be some effort to considersubsidising the use of palm diesel — a renewable source of energy — on acommercial basis.

Conservation of the country's depleting oil resources should be the mainimmediate agenda and this can be expedited through measures such as therecent price hike.

I feel the 10-sen hike is a small price to pay for conserving thecountry's depleting oil resources and keeping the environment clean.

Dr Pola Singh Kuala Lumpur