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27

Asia Protects Its Energy Giants

Asian governments on Thursday moved to cut energy subsidies to protect their finances and those of state-owned energy companies in the face of soaring oil prices

Asian governments on Thursday moved to cut energy subsidies to protect their finances and those of state-owned energy companies in the face of soaring oil prices.

As crude oil pushed through $135 a barrel for the first time, Taiwan, Malaysia and Indonesia announced plans for urgent action to free prices or cut subsidy costs. China denied rumours of an imminent increase in retail prices, but may relax price controls.

In Taiwan, the first act of the newly elected administration of President Ma Ying-jeou was to abolish price controls on petrol and diesel from June 1. The new government also said it would raise electricity prices in July.

Malaysia said it would soon announce a new petroleum subsidy scheme to keep its fuel subsidy bill at around last year’s level of M$40bn ($12.5bn) in spite of rising oil prices. With oil at $130 a barrel, the bill would reach M$48bn in the current fiscal year, exceeding the M$40bn that the government plans to spend on infrastructure and other development projects.

Nor Mohamed Yakcop, Malaysia’s second finance minister, also suggested that the government would take the unpopular step of raising electricity tariffs. “If there is a rise in the price of [natural] gas, we will have to pass that along, since we are not going to see Tenaga [the state power monopoly] lose money,” he said.

The Indonesian government said it would “soon” go ahead with a plan to raise fuel prices by an average of 28.7 per cent.
The recent surge in the price of oil has been particularly painful for Asian oil importers such as India, where imports cover 73 per cent of petroleum needs.

But it has also deprived state energy companies of additional revenues to make bigger investments in exploration, as well as downstream infrastructure.

India’s largest state-controlled pump operator, Indian Oil Company, is seeking shareholders’ approval to double its borrowing limit and help alleviate a cash crunch caused by price controls.

Analysts warned that planned cuts in subsidies and controls would have to be followed by more substantial energy market deregulation.