Budget 2024: Make natural gas available at competitive price - Glove manufacturers

KUALA LUMPUR - A simplified gas supply agreement, natural gas supply at reduced cost and the removal of a 0.2 per cent export cess - these items are high on the Malaysian rubber glove industry’s wish list for the upcoming Budget 2024.

The industry is urging the Energy Commission to consider revising its gas supply agreement (GSA) by adopting a much fairer pay-as-per-usage pricing mechanism.

"The current GSA is complex with multiple penalties and ‘harsh’ take-or-pay terms, which have significantly disadvantaged local manufacturers and restricted the flexibility and competitiveness of our glove manufacturers in the international market,” Malaysian Rubber Glove Manufacturers Association (Margma) president Oon Kim Hung told Bernama.

Margma, according to him, strongly encourages Petroliam Nasional Bhd (Petronas) to consider providing natural gas to Gas Malaysia Bhd and its subsidiary Gas Malaysia Energy and Services Sdn Bhd at a cost that allows the industry to compete with overseas manufactures using coal.

Such a move, he said, would result in lower and more competitive energy prices for the rubber glove industry and other natural gas-dependent industries in Malaysia.

"Additionally, this initiative would enable Malaysia to leverage its natural oil and gas resources to manufacture value-added export products, thus significantly enhancing their contribution to the Malaysian economy,” he said.

Oon said the rubber sector is currently operating in a most challenging environment, facing intense competition particularly from countries that have access to cheap energy from coal, like China.

In recent years, for example, the Chinese and Thai governments have taken additional steps to offer new incentives to encourage the retention of manufacturing activities within their borders.

"Our industry is populated with diverse players ranging from the small and medium enterprises level to large conglomerates, which attract significant foreign direct investment, as well as major public limited companies.

"To ensure that this group can sustain in Malaysia, measures to immediately address the critical issues are required. Without these, it is questionable if the industry would be able to survive in its current form and be able to make its historical, substantial contributions to the Malaysian economy,” he emphasised.

Similarly, Top Glove Corporation Bhd -- the world’s biggest natural rubber glove maker -- hopes that the government would consider making natural gas available at a competitive price to Malaysian manufacturers, instead of exporting this resource.

"The cost of heat energy from natural gas is very high, which makes Malaysian rubber glove manufacturers less competitive than other rubber glove-producing countries which have lower energy costs.

"In view of this, rather than exporting this natural resource, it would be more beneficial to make natural gas available at a competitive price to Malaysian manufacturers, as this will encourage the growth of downstream activities, creating employment opportunities and business growth for supporting industries while enhancing export value and increasing the inflow of foreign income,” it said.

Top Glove also suggested the reintroduction of the Goods and Services Tax (GST) at a reasonable rate, adding that the GST is a more effective, efficient, and transparent tax system.

In addition to the implementation of the GST, the group hopes for a gradual reduction in the corporate tax rate as well as an extension of the special reinvestment allowance which expires in 2024, with advance notice provided to enable corporates to plan ahead.

Margma also hopes the government would consider the immediate removal of the 0.2 per cent export cess, enabling the industry to avoid further suppression in the current challenging situation and allowing it to strengthen its global competitiveness moving forward.

"The industry has been subject to a 0.2 per cent export cess for over 20 years, resulting in the rubber glove industry paying over RM500 million in export cess during this period. In our best years, this 0.2 per cent cess accounted for as much as two per cent of our gross profit margin.

"However, as the current average selling price has fallen below production costs, the industry continues to pay export cess despite incurring losses on every exported container,” the association said.

To be tabled in Parliament on Oct 13, Budget 2024 will be the second budget announced by the unity government. - BERNAMA