The Automatic Price Mechanism (APM) that has been in place since 1983 to regulate the price of fuel in Malaysia might soon see some change. The government is mulling a review of the APM in the second half of 2018 after consultation with stakeholders, The Star reports.

Before you start thinking of lower fuel prices, the stakeholders in question here are petrol station operators, who are not happy with the way APM has been administered since the implementation of the current managed float system, which replaced subsidised retail fuel products in December 2014. They claim that the new system has resulted in fluctuations of petrol prices and inventory levels.

According to the daily, the government’s move to deregulate retail fuel prices in the last three years has caused discrepancies in the highly structured agreement between petrol station operators and the oil companies.

The issues caused has resulted in a rising number of stations closing down. Petrol Dealers Association of Malaysia (PDAM) claims that around 120 stations nationwide have stopped operating over the past three years. There are a total of 3,500 petrol stations nationwide.

The Petronas Petrol Station Operator Association says that 57 Petronas stations have closed over the past three years, a big jump from the seven shuttered ones from 2012 to 2014. Shell Petroleum Dealers Association Malaysia shared a similar trend – 45 stations have closed down over the past three years, from seven between 2012 to 2014. A total of 16 Petron stations have closed down in the same period.

What does the government have to say about this? Domestic trade, cooperatives and consumerism minister Datuk Seri Hamzah Zainudin, in a recent interview with StarBiz, refuted the figures from the petrol station dealer associations, saying that there have been fewer operators closing down. He however acknowledged complaints by station operators on their powerlessness to control the stock level purchased by oil companies.

“When I look at the complaints, there are more towards the misunderstanding between oil companies and dealers (operators),” Hamzah said, adding that moving forward, the ministry is seriously looking to review the current APM by examining the stock level complaints by operators to create a fair deal between both operators and oil companies.

“I am looking to resolve this. I have to come up with a formula to create a win-win situation for both operators and oil companies. It will be in the second half of next year. Oil prices are rising now. So it is scary to say, if I really take a stand for the operators, it will create higher inflation,” he said.

PDAM president Datuk Khairul Annuar Abdul Aziz explained the situation. He said that station operators are using profit gained on the stock purchased at the lower cost to buy back more expensive stock, and this has expedited the surrendering of petrol station licences.

“Let’s say, we have overdraft facilities for the working capital, and now our stock price is higher, we need to pay higher interest for the increased working capital. Otherwise we need to pump our own funds from outside, losing out on potential interest earned elsewhere (opportunity cost). As we speak, dealers are preparing their surrender letters. It is not worth to continue pumping in more money,” he stressed.

Khairul expects more operators to leave the industry as they fall into bankruptcy. “There are many cases of operators becoming bankrupt now. They tried in vain to hang on by resorting to more loans, including from loan shark, in hope of a review in APM as cost has caught up and operator’s commission stagnant since 2008,” he said.

The English language daily found an example in Petronas station operator Sitti Satmawati, whose losses hover around RM150,000 since the introduction of the weekly fuel prices in March 2017. “The losses made are my working capital. Overtime, the working capital will be eroded, then what do you do? You don’t have enough cash to pump in again,” she said, adding that station operators also absorb the 1% on merchant charges for credit card transactions.

Here’s an explanation on what goes into the Automatic Pricing Mechanism and how retail fuel prices are calculated. Click here for more.