Petronas wants gas hike September 18, 2007Posted by elizabethwong in Economy, Malaysia, Note2Self, Politics.
There’s been increasing pressures to hike the price of diesel and now, Petronas wants to reduce subsidies to natural gas to the local industry.
Crude oil has gone up as high as USD 80/barrel.
While the government has promised there will not be any fuel price hike in 2007, there’s only 3 months left to the year. Most likely after General Elections.
Tuesday September 18, 10:07 AM
Malaysia to rule Monday on Petronas gas hike-paper
KUALA LUMPUR, Sept 18 (Reuters) – Malaysia’s energy minister will argue in cabinet next week for state oil company Petronas to be allowed to raise the price of natural gas it supplies to local industry, the Star newspaper said on Tuesday.
The daily quoted Energy Minister Lim Keng Yaik as saying a cabinet committee would meet on Monday to consider the request, and that Petronas was subsidising gas at an unsustainable rate, importing it and selling it domestically at well below cost.
“How can they continue to subsidise the prices for the imported gas?” Lim was quoted as saying. “It is beyond them. We cannot control global prices, it is not our doing.”
His aides could not immediately confirm the remarks.
Lim said Petronas had been selling gas to local industry, including power producers, at low rates for 10 years, amounting to a cumulative subsidy of close to 50 billion ringgit ($14 billion).
Currently, Petronas sells gas to domestic industry at 6.40 ringgit per million British thermal units, compared to a market price of about 40 ringgit, the Star said.
The report gave no details on the proposed hike but it quoted Lim as saying Petronas could no longer afford this level of subsidy, especially with the crude oil price at record highs of more than $80 a barrel. Gas prices are related to oil prices.
Lim said Petronas could not meet all the domestic gas demand from Malaysian fields and had to import some gas at market rates from Indonesia and Thailand.
“We are doing a disservice to our grandchildren. We are spending so much on the subsidies at the expense of our future generation,” he was quoted as saying.
Even if cabinet sanctions a gas-price rise, Lim ruled out another increase in electricity tariffs. The government last raised the price of electricity in June last year.
Gas is used by both the main state-linked power firm, Tenaga Nasional Bhd , and the independent power producers (IPPs), such as YTL Power International and MMC Corp , to make electricity.
Brokerage OSK Securities said on Tuesday any increase in gas prices would not affect the independent power producers (IPPs) because they had contracts to buy the Petronas gas at the subsidised rate through Tenaga, not direct from Petronas.
“Tenaga sourced all the fuel for the IPPs,” said OSK analyst Tursina Yaacob. “The IPPs also pay 6.40 ringgit for the gas.”
“Under the power-purchase agreement, any changes in the fuel price would be borne by Tenaga and there is no pass-through clause for the IPPs,” she said.
OSK maintained a buy recommendation on YTL Power with a target price of 2.80 ringgit, citing its steady and predictable cash flows and attractive valuation.
At 0200 GMT, YTL Power was down 0.8 percent at 2.36 ringgit while Tenaga was down 1.04 percent at 9.55 ringgit.