The moves by Ford, General Motors, Toyota, British Airways, American Airlines, Dow Chemical and now United Airlines to start radically reshaping their businesses to accommodate permanently high oil prices makes a mockery of the antics of Kevin Rudd and the Opposition.
As we continue to dither over cutting the price of petrol by two to five cents a litre for narrow political gain, major companies and some of the world’s more volatile countries are taking steps to increase prices or remodel their businesses because they know there is no other option as high oil prices are here to stay.
Even though global oil prices are almost 10% below their recent record of $US135.089 a barrel, the reality is that more and more difficult decisions are being taken overseas in recognition that the future is changing.
Instead we have Queensland Premier Anna Bligh promising to end the loophole that allowed naughty NSW drivers to get the 8 cents a litre subsidised prices across the border.
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Bligh, the PM and the Federal Opposition should stop blathering on about their almost mythical “working families”, and instead look at the tough decisions being taken in India and Malaysia, where the potential political costs could be high.
It’s not that these decisions to cut fuel subsidies and allow prices to rise are being taken willingly: it has taken 10 days of argument in India to get some modest rise through the nervy Government.
But the Indian government knows that by doing nothing they could potentially bankrupt state-owned oil companies. And in Malaysia the government knows that failure to act could damage social, welfare and education spending, which would have even greater drawbacks in the future.
India imports nearly 75% of its crude oil needs and it controls domestic prices of all fuel products, from petrol to cooking oil.
The price controls have caused state-owned oil companies to lose billions of dollars and to stop the drain, the government will allow petrol prices to rise 49 US cents a gallon, and diesel prices 30.4 US cents a gallon.
That’s an 11% increase in New Delhi, the capital, where petrol will cost $US4.56 a gallon. Fuel prices vary between states, which also impose their own taxes.
Cooking gas will rise sharply and the new prices started at midnight last night, so watch out for protests. To help the oil companies as well, excise duty on gasoline, diesel and other petroleum products will be cut by 5% so the state owned oil companies will have lower crude costs and higher selling prices. Without any cuts and world prices at present levels, these state owned companies were projected to lose over $US58 billion by March next year.
In Malaysia petrol prices will rise by 40% to reduce the government’s massive subsidy bill. That’s the largest so far in Asia this time around: Indonesia lifted prices by 33% recently and Taiwan and South Korea have both revealed plans to cut subsidies price controls.
Like India, the higher price will cause higher inflation (over 8% in India by some estimates and 5% in Malaysia): from today petrol in Kuala Lumpur will cost $US3.30 a gallon, from $US.32 a gallon. The price of diesel will rise 67% to $US3.04 a gallon.
The Malaysian government will also give a yearly cash rebate of $US201 per year to owners of cars with an engine capacity of 2,000 cc or less to offset their burden from the massive hike. That is a more efficient way of handing out subsidies than subsiding consumption for everyone which benefited business and the rich.
The price rise will save the Malaysian Government around $US1.3 billion a year which will be redirected into spending on welfare and education. That spending would have been overtaken this year by the cost of the fuel subsidy bill.