Fuel Price Joke

The announcement of a new fuel subsidy plan is not likely to happen anytime soon as the cabinet meeting to discuss the subsidy issues as revealed by Second Finance Minister Tan Sri Nor Mohamed Yakcop last week did not happen. Deputy Prime Minister Najib Razak told Bernama yesterday that several ministers were not able to make it to the meeting, and a few others requested that the meeting be postponed. The cabinet will meet again on this coming Wednesday, so let’s hope the discussion happens this time.

Second Finance Minister Nor Mohamed Yakcop mentioned earlier this week that the subsidy pan will be unveiled before the Budget 2009 meeting, which will happen on the 29th of August 2008. This means the new subsidy plan will happen anytime within the next 3 months.

In other fuel related news, the Domestic Trade and Consumer Affairs Ministry (DTCAM) has released a letter stating that a ban on selling fuel to foreign cars will only come into effect next week instead of yesterday, and it would only apply to the northern area within 50km from the border. The ban down south 50km from the Singaporean border will only start on the 9th of June 2008.

More after the jump…

I have been thinking and maybe a subsidy card-based solution could be used. Limit the amount of subsidised fuel that can be purchased by a person every month to say, RM300 a month. If you use more than this, you pay market price. This should take care of the majority of low income earners who do not spend that much on fuel every month.

To prevent a high income earner with multiple family members or friends from applying for multiple subsidy cards to enjoy more subsidies, only the car owner should be allowed to apply for the card. Just pass it around to whoever’s driving the car at that time.

Motorcycle owners can apply, but the amount of subsidised fuel allocated will be much lower, appropriate to how much a motorcycle uses. By tying the issuance of a subsidy card to vehicle ownership, the government can even deny the owner of an expensive car a subsidy card. Just have one fixed amount of subsidised fuel to allocate for cars, and one for motorcycles. If you are eligible for subsidised fuel but have to use more than the reasonable allocated subsidised fuel each month, you just top up the balance of what you need to use at market rate prices. This encourages people not to waste fuel as excessive usage will have to be paid for at market rates.

Does anyone see any problems or holes with this idea? I can already think of one. A high-income person with an expensive car may think of buying many cheap and old second hand cars to allow him/herself more subsidy cards to be used to pump fuel for an expensive car. I am not sure how to go around this. Maybe limit the amount of subsidy cards that can be held by a person, but that would be a problem for a dad who needs to apply 3 cards for himself and his 2 children who drive cheap second hand cars that are registered under his name. Of course, he could just have the cars registered under the children’s name instead.

Any ideas? Please tear the idea in this post apart and improve on it, or suggest your own ideas, anything – let’s make this a fruitful discussion. For things like company cars, fleet cars, and etc I really have no idea at this point on how to tackle it.

Taiwan also faces fuel subsidy problems as we do, and on Wednesday hiked prices of petrol up by 13% and diesel up by 16%. Petrol in Taiwan now costs 33.9 Taiwan dollars (RM3.57), up from 30 Taiwan dollars (RM3.16). According to the Taiwanese government, this hike only covered 60% of increases in crude oil prices, with the remaining 40% to be split evenly between the government by reducing fuel taxes, and the state-run petroleum company CPC Corp.

The Taiwanese government will be subsidising the island’s 90,000 taxis by providing subsidised rates for the first 450 litres used per month. This is somewhat similiar to the idea in this post, except we have to figure out how to allocate those subsidised litres effectively. Taxis are easy – just one taxi per taxi driver and no need to differentiate between the rich and poor.

It’s actually really hard to imagine any kind of fair subsidy control being implemented when the government cannot even stop people from littering or pasting up illegal advertisements all over telephone poles and etc, but maybe when money is at stake things will be different.

UPDATE: Someone close to the cabinet committee enlightened me on one factor that I think alot of us all missed – time and cost forimplementation. Any form of card-based system will take a long time to implement and involve investments. Who will bear the cost of installing the card reading machines etc at the petrol stations, the petrol stations or the government? How will the government handle the processing of subsidy cards for every single eligible person in Malaysia, etc. A subsidy system that uses a card or something similiar will put money into the hands of the IT industry, perhaps unnecessarily.

A cash-based subsidy system where subsidy money is given directly to those that meet the criteria of eligibility of subsidy is much more cost-effective and can be implemented much quicker.