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Sakmongkol ak 47

Saturday 14 November 2009

Pahang conserving her forests: premium for neighbourhood effects.

Some people are not happy with certain aspects of the Pahang 2010 budget. It is still a deficit budget. We have explained that deficit in isolation isn't as bad as people think it is. It's bad if the deficit is used to finance consumption spending such as financing the increase in salaries and emoluments without that corresponding increase in quality and productivity.

It's also bad as it may hide incompetency and unaccountability and blatant disregard for financial prudence. It is bad as it can also reflect lack of financial discipline and poor planning. Poor planning for example may result from low quality human resource. You can't expect high quality work from low quality man power.

Some people are also not happy about the fact that MB has gazetted 900,000 hectares or over 2.2 million acres of forest so that these areas regions remain a water catchment area. The water it is said, benefits also states like Selangor and Negeri Sembilan and others. In doing so, the MB claims that Pahang has made sacrifices and is entitled to some form of compensation from the federal government. Milton Friedman and Friedrich Hayek call these benefits- the neighborhood effects.

One commentator accused the MB of trying to get easy money from the federal government. By choosing an easy way out, the MB has in effect concealed his limitations and the writer goes on to say, that it's time for the MB to be replaced. I am sure this suggestion will be hotly debated.

But let us not dismiss outright the MB's suggestion to be compensated just because he has a very direct and crude way of saying it. Instead let's discuss whether what he wants can be justified economically. 2 years ago, when I was an ADUN, I too suggested that because Pahang voluntary chooses to retain forested region so that it can provide water to other states and while doing good to others, the state bears the cost, perhaps it can be compensated. The cost is in terms of foregoing revenue that could be earned if the forest resource is exploited commercially.

In effect, Pahang has created positive externalities to consumers in states that have insufficient water. This external benefit would increase the utility of third parties at no cost to them. Other states can go on exploiting forest resource knowing full well that big Pahang is conserving its own so that they could enjoy having ample water. If the water is obtained at the normal price without incorporating a premium, then these other states enjoy the status of a free rider.

The Pahang problem is this. If it has a choice it would want to fully exploit its forest to earn more for the state. But to do so would be selfish on its part, yet it has no way to monetise the benefits it gives to the others. The rational economic agent will want to produce less of this good since it cannot monetise them- but Pahang chooses to continue. Hence what it is asking is that the public good it gives be monetised in the form of compensation from the federal government to ensure continued supply of the public good. All it is asking is monetization of its sacrifice so that the supply of the product is market driven.

Let us regard then, compensation from the federal government as being the approach to "internalize" third party costs and benefits. But, in many cases internalizing costs or benefits is not feasible, especially if the true monetary values cannot be determined.

This is why the role of the federal government is needed. For one, we know that the monetary values of externalities are difficult to quantify, as they may reflect the ethical views and preferences of the entire population. It may not be clear whose preferences are most important, interests may conflict, the value of externalities may be difficult to determine, and all parties involved may try to influence the policy responses to their own benefit.

Because it may not be feasible to monetize the costs and benefits, another method is needed to either impose solutions or aggregate the choices of society, when externalities are significant. This may be through some form of political intervention as when the federal government intervenes to adjudicate. The government acts to distribute costs and benefits that are not solvable by purely private transactions. The value of the compensation therefore can be seen as the form of economic adjudication.

So despite the MB's plebeian way of asking from the federal government, the idea can be economically justified.


Pak Zawi 15 November 2009 at 06:56  

Dato' Sak,
Thank you Allah for giving your MB the gut and will to conserve such a big area of forest 900,000 ha (I wish it could be more). While other states are depleting their forests (Kelantan included) at an alarming rate to such an extent that rivers are running dry and water quality has gone so bad that only the hardiest of fish could survive (eg. Nenggiri and Lebir Rivers in Kelantan), Pahang is set to retain its forest for perpetual use. Pahang should exploit its eco tourism potential to the hilt and conserve whatever it has including Gunung Senyum which may not be smiling anymore. Perhaps only this 900,000 ha beside the National Park will remain forested in the whole of Malaysia in 50 yrs time. Even Sabah and Sarawak may not be spared. Thus compensation to Pahang for keeping its forest is definitely a deserving case.
It is not easy for an MB to make such a decision. Remember what happened to the late MB Datuk Rahim Bakar. The next MB just gave away vast areas of forest to remain in the good book of the palace.
Water supply will be perpetual if it remains under forest. Even the peat swamp is a big reservoir of water. Remove the forest and it will dry up. So these are potential area for supply of fresh water. Bear in mind processed drinking water can sometimes fetch more per liter compared to petrol. Even unprocessed raw water can be sold at 30 sen per 1000 gallon (forget Johor's gift to Singapore at 3 sen per 1000 gallon).
Extensive dams are just an excuse to extract the timbers and where will the dam get its water when there is no forest to retain and regulate the constant supply of water?
Pahang, go for it. You are on the right track.

Anonymous,  15 November 2009 at 08:37  

Nobody loves to see this face of MB Pahang but what he is doing now must be supported and Federal Government must compensate the Pahang state but hopefully the compensation is utilize for the benefit of the rakyats not the crony and you know who lah....
Just wait and see!!!!

Kazakh47,  15 November 2009 at 21:28  

Cakap senang tapi siapa tahu if this MB knows how to walk the talk, Takut Tuanku order sahaja, dia dah lemah kaki.

Since the day he became the MB, Pahang has been pretty stagnant lah.. Mana ada FDI keluar ada masuk mana ada????

Major town in pahang like Kuantan, being called Economically Dead Town... very sad. Tanjung Agas in Pekan branded another potential the making...

Cikgu Ngah,  15 November 2009 at 23:06  

Assalamualaikum Dato',

Pertamanya terima kasih kerana sudi menyiarkan pandangan saya. Dato' memanglah seorang yang demokratis dan memberi peluang kepada semua orang utk bersuara.

Keduanya, apa yg saya nak tanya betulkah 900 000 hektar hutan itu dijaga dengan baik dan tidak ada langsung aktiviti pembalakan dijalankan? Betulkah kerajaan negeri Pahang kawal aktiviti pembalakan supaya tidak menjejaskan alam sekitar? Apakah kawalan ketat benar-benar diadakan supaya kes curi balak tidak berlaku? Itu yang saya nak tanya. Saya tak hendak orang kata perishtiharan Dato' Nan itu hanya suatu 'lip service' saja, macam yg Tun Pak Lah selalu buat. Cakap banyak, apa hasil pun tak nampak. Itu yg saya maksudkan. Kalau benar-benarlah 900 000 hektar hutan itu terpelihara dan langsung tiada aktiviti pembalakan dijalankan, yg haram mahupun yg halal, maka saya ucap setinggi tahniah dan berbanyak-banyak terima kasih kepada Yang Amat Berhormat Dato' Sri Pak Long Nan kita. Moga Allah SWT merahmati Dato' Sri dan melanjutkan usia Dato' Sri. Kalau betul-betul hutan yg 900 000 hektar itu terpelihara dengan rapi, saya rela pi buat demonstrasi aman di Putrajaya menuntut supaya kerajaan pusat bagi wang ehsan pada negeri Pahang.

Soalnya betul ka tidak? Dari pengamatan saya sbg seorang rakyat biasa macam tidak. Tengok saja Cameron Highlands, makin gondol dan botak serta makin panas dan tidak lagi sesejuk dulu. Air sungai Jelai dan Sungai Lipis di kampung halaman saya makin berlumpur, berkelodak dan tohor. Saya rasa mestilah ini kesan daripada aktiviti pembalakan.

Tindakan Dato' Nan minta wang ehsan dari kerajaan pusat itu hanya akan jadi beretika dan bermoral jika beliau dan kerajaan negeri dapat membuktikan bahawa benar-benar hutan yang telah digazet itu dijaga dengan rapi dan sempurna sebagai kawasan tadahan air.

Satu lagi saya juga tak nak menyalahkan Dato' Nan 100%. Tentulah soal menjaga hutan di Pahang ini kerja Jabatan Hutan serta Pejabat Daerah dan Pejabat Tanah dan Galian. Kakitangan di pejabat-pejabat ini sentiasa hidup mewah dan kaya walau siapa juga memerintah dan mereka ini tak semuanya sokong kerajaan BN. Kalau Dato' Nan melakukan sesuatu untuk membersihkan jabatan2 ini daripada elemen2 yg korup, tidak efektif dan lembab dalam bekerja dan membuat keputusan, saya tidak ragu-ragu untuk mengatakan bahawa Dato' Nan patut menerajui Pahang untuk 10-20 tahun lagi. Tapi ada kah beliau buat begitu Dato'?

Maaf sekali lagi kerana tulis panjang sangat. Terima kasih

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