M'sia Better Placed To Benefit From High Oil Prices

SINGAPORE, Oct 19 (Bernama) -- International investment bankers Morgan Stanley says Malaysia looks "better placed than ever" to benefit from high oil prices but cautions fuel subsidies could undermine the positive effect.

It nevertheless lauded Malaysia's improving energy efficiency marked by diversification in domestic energy use away from oil, besides steady investment in exploration which has sustained oil production for export.

In a report issued here today on Southeast Asia's energy issues, the investment bankers said that "from all angles, Malaysia looks better placed than ever to benefit from high oil prices."

However, "in our view, fuel subsidies in Malaysia offset the positive effects of the oil trade surplus, as oil wealth is frittered away without much economic achievement."

Without subsidies, the impact of high oil prices would be severe but with subsidies, the outcome may be worse.

"Subsidies cushion the impact of an oil price surge now by diffusing the blow over a period.

"The imposition of subsidies turns negative when the future payback becomes more painful, as subsidies augment demand, increasing subsidy payouts unnecessarily; subsidies are not reaching the targeted segments; subsidies cause fuel shortages; and the opportunity cost of subsidies is much higher than the benefit of the subsidies."

Fuel subsidies were more far-reaching than was generally thought, it said.

"Electricity is subsidised nationwide as natural gas is provided at 25 per cent of the commercial price to the power sector. Fishermen and selected segments of the transport sector also receive subsidies," it said.

While fuel subsidies need to be gradually removed, Morgan Stanley acknowledged that they reflect a broader issue -- the heart of the problem is the practice of rent-seeking, it said.

-- BERNAMA