Datuk Shahrir Samad reveals a little more on what went behind the doors at the Cabinet Committee on Inflation meeting, which resulted in fuel prices to be revised to RM2.70 per litre for RON97 fuel and the formation of a new subsidy payment of RM625 for cars with engines below 2000cc.

He also gives a preview on what to expect next when it comes to how we buy our fuel and how much we pay for it.

  • The government decided to increase the price immediately instead of the before-mentioned August date as calculations revealed that if they had waited any longer, the price increase would have been different.
  • The government was considering three quantums of increase: RM0.50, RM0.78 and RM1.00, which would have resulted in fuel prices of RM2.42, RM2.70 and RM2.92 respectively. Initially the committee favored RM1.00, but RM0.78 was picked because rather than setting it at RM2.42 and increasing it again to RM2.92 soon later, a one-time increase was preferred so that it has to be swallowed once.
  • The RM2.70 per litre price for RON97 fuel is expected to stay for awhile (note that this does not mean a confirmation, what more in these times of conflicting government statements), with further increases in crude oil prices to be absorbed by the government. The market price for fuel will only be implemented sometime in the future where fuel prices will be reviewed every month and will be set at market price minus a fixed RM0.30 per litre subsidy.

  • The RM625 cash subsidy via postal order plan is a one-off thing because for subsequent years there will be a new way to implement the subsidy with more controls as the current system has many holes in it, but was chosen because it was the quickest to implement.
  • A new system based on quotas will be introduced next. The current cash subsidy is based on a 66 litre per month consumption (calculated over 10 months). The suggestion is that the new quota system would also assign 66 litres of fuel per month, but it will likely be based on a person rather than on a per-car basis as it is currently with the road-tax based system. This closes the loophole of someone having multiple cars but only really driving one enjoying more subsidies than he should be getting.
  • The way to determine who should get the subsidies is still being finalised, but a MyKad-based system or something based on some other kind of card will be used to identify the person as qualified to get subsidies at the pump… apparently this year. I think the directors of ePetrol have valid reasons to be smiling in their sleep now.

The picture that Datuk Shahrir paints seems to be one of the government’s coffers running dangerously dry, so dry that urgency of reducing subsidy expenses seemed to be placed at the highest priority.

It’s sort of implying that waiting just two months and continuing to pay subsidies at the previous level for an additional two months would have such a devastating effect that even a RM2.70 petrol price could not be sustained for the next 1 year.

It’s either that or the government is playing it safe and is doing a subsidy bill projection taking into account further massive hikes in crude oil prices.

Sources: 1, 2, 3, 4, 5, 6