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Fuel Up in August

Posted on June 2nd, 2008 in Daily Observations, Malaysia Personal Finance |

Come August, the precious lubricant will rise once more…

KUALA LUMPUR – MALAYSIA will raise pump prices for petrol and diesel in August but subsidies will remain for the poor, a government minister said on Monday, in a move that could drive up inflation and deepen the government’s unpopularity.

‘Petrol prices will increase,’ Domestic Trade Minister Shahrir Samad told reporters, without specifying how much prices would rise.

‘I think the idea is August this year when the subsidy (scheme) is restructured. The prices will rise with the proviso that subsidies will be enjoyed by all not on the basis of use, but need.’

Fuel prices in Malaysia are among the cheapest in Asia, with petrol selling for just 1.92 ringgit (S$0.81) a litre, less than half the price in neighbouring Singapore.

Malaysia is a net oil exporter and gains from high oil prices, reaping 250 million ringgit (S$105.76 million) a year in revenue for every $1 rise in crude prices.

But the government’s fuel subsidy bill also has ballooned along with skyrocketing crude prices, compelling it to find ways to ease the burden on its finances.

Indonesia and Taiwan cut fuel subsidies last month and India is also poised to take action.

Mr Shahrir said fuel subsidies would total 55-56 billion ringgit in 2008 at current oil price levels, which are hovering around $127 per barrel.

Bond and stock traders said financial markets had already priced in a likely price hike and were now awaiting details of the new fuel subsidy mechanism.

Mr Shahrir did not give details on how the new subsidy scheme would work or whether the reforms would involve minor changes or a major overhaul.

He was quoted on Sunday as saying that Malaysia planned to scrap subsidies at the pump and instead give discounts to individuals based on their needs.

The minister had previously suggested requiring motorists to produce their Malaysian identification cards when filling up to ensure that only locals get the subsidies.

A sharp fuel price hike would increase inflation – which already stood at a 15-month high of 3.0 per cent in April – and could further stoke voter anger against Prime Minister Abdullah Ahmad Badawi’s government, which is battling criticism that it has not been effective in cushioning Malaysians against rising prices.

‘It will increase inflation but because they’re being very vague, we can’t really say how much,’ said CLSA senior economist Tony Nafte.

‘They’re going to be very careful how they do it and one way to do it is some kind of handout to compensate for the low-income earners.’

Mr Shahrir also said Malaysia would begin a temporary ban on fuel sales to foreigners from its southern Johor state, a short distance from Singapore, from June 9.

The government had already begun a similar ban at filling stations near the Thai border, he said.

Hundreds of Thai and Singapore motorists cross the border daily to fill up their tanks with cheaper Malaysian fuel. — REUTERS

Contrary to what is written in this article, there are quite many who disagree that Malaysians are enjoying low petrol prices, notably here and here.

Petrol PumpThe price of the petrol might be low, but petrol-related products such as cars, highway tolls and even lousy public transportation system are the tools used to tax the road users.

It’s important for us to be reminded that Malaysia is a net exporter of crude oil. With the recent surge in global oil prices, Malaysia should be looking at some major windfall, particularly from Petronas. However, Petronas being Petronas, they are not obliged to be accountable to the public on the natural resources that they dug from Malaysia soil.

And blogger Bernard Khoo worked out some maths that shows that instead of the government subsidizing the People, it’s the People that’s subsidizing the government!

Anyhow, the storm is coming and we’ve no idea what’s the magnitude yet. Whatever it is, it doesn’t hurt to practice a more efficient fuel-consuming lifestyle.





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  • life goes on, but then again we need to learn to be more savvy as far as money is concerned, read more, learn more and save more.

    Dont worry too much for things we dont have control over.
  • danielkong
    The government had been delaying this matter for long time as it could be due to the pre and post general election. They should take this opportunity (rising of world crude oil price) to educate rakyat that subsidies will one day no longer an option. We could probably take advantage of Petronas (since half of the cost of subsidy is paid by them) for another 2 decades.

    Early budget estimated the government will pay RM 35 bil for oil subsidies and now turn up to be RM 55 bil. With the RM 20 bil there are so many infrastructure can be built and now just disappear into the thin air. Crude Oil trading around USD 127 with a jump to USD 150 is just an increase of 20% and government could see another RM 20 bil gone.

    We need to change together with the environment in order to make ourselves stronger. Hopeful tomorrow announcement will not be a disappointing one. With the initial plan of revamp the whole system (with MyCard reader) and hope government will not still pay ten of billions for fuel subsidies after the massive change of system that could cost another huge amount I believe.

    The government should give subsidies of a relevant amount of gasoline each month to all and anything above that amount the individual had to pay for unsubsidized gasoline. To control price frustration, government should start stock pile on crude oil so the price is less speculative.

    Btw, I disagree with bernard khoo calculation. Crude oil and gasoline is different. Crude oil is just like uncut diamond and gasoline is like a sparkling diamond. 1 barrel of crude oil after refinery could is lesser and cost of refinery occurred.
  • Finally, it's time to revise back our lifestyle and adjust according to face it. We can take opportunities from the advantage of it, to keep up with the price.
  • It may be quite unfair to compare just fuel costs. I wonder how much Malaysians pay in terms of heavily taxed vehicles. I suspect that I have already paid my fuel bills in excess of market prices for the past 20 years.

    And I also wonder what the Gomen will do with the savings from not having this subsidy.....hope they don't waste it away on hairbrained projects.
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