Fuel subsidy to be reviewed, targeted aid considered – keeping fuel price at RM2.05 will cost Malaysia RM28b

With the fuel subsidies in effect, rising oil prices are inevitably passed on, which means that the government bears the brunt of the financial pressures.

This appears to be a burden that the Malaysian government plans not to shoulder indefinitely. Due to the sharp rise in global crude oil prices, the current fuel subsidy will be reviewed in favour of a targeted approach for those in need, said finance minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz, The Star reported.

According to the finance minister, the Malaysian government could be paying up to RM28 billion in subsidies for petrol, diesel and liquefied petroleum gas (LPG) for 2022, the ongoing Russian-Ukrainian conflict has pushed crude oil prices past the US$100 (RM418) mark, making it the most expensive it has been since 2014. As of this week, this has passed US$120 (RM502) per barrel.

Fuel subsidy to be reviewed, targeted aid considered – keeping fuel price at RM2.05 will cost Malaysia RM28b

Under the current programme, the same subsidised prices are enjoyed by everyone, regardless of income, and the high-income groups stand to benefit more from the subsidies based on their higher consumption levels compared to those earning lower incomes, Tengku Zafrul added.

“Therefore, the government will review the fuel subsidy mechanism in order to implement a more targeted and focused aid and subsidy to the vulnerable and those really in need,” the finance minister told the Dewan Rakyat during the Minister’s Question Time segment today, The Star reported.

The finance minister’s statement was in response to a question posed by Wong Hon Wai (PH-Bukit Bendera), asking if there will be a coordination of petrol, diesel and subsidy programmes in light of the sharp increases in global crude oil and natural gas prices.

Fuel subsidy to be reviewed, targeted aid considered – keeping fuel price at RM2.05 will cost Malaysia RM28b

The finance minister also said that the government cannot borrow for operating expenses such as subsidies, and therefore it must offset the increase in subsidy cost by increasing revenue and savings, the report added. The implementation of targeted subsidies is therefore expected to relieve pressure on the government’s financial resources, and the savings gained can be redistributed for other programmes for the welfare of the people, said Tengku Zafrul.

Although Malaysian consumers currently pay RM2.05 per litre for the RON 95 grade of petrol, the actual cost of the fuel had reached RM3.70 per litre in March, which means that the Malaysian government covered the difference of RM1.65 per litre. For perspective, the unsubsidised RON 97 grade of petrol was priced at RM3.75 per litre this week, through a 30 sen spike.

Tengku Zafrul gave the example of when a consumer refuels with a value of RM100 for about 49 litres of RON 95, the government pays RM81 because the actual market price is RM181 for 49 litres of RON 95 petrol; this means that the government subsidy is up to 45% of the total price, he said.

Fuel subsidy to be reviewed, targeted aid considered – keeping fuel price at RM2.05 will cost Malaysia RM28b

Meanwhile, consumers of diesel currently pay RM2.15 per litre for the B10 and B20 blends (the B7 blend is 20 sen dearer at RM2.35 per litre), while the actual cost for the fuel has exceeded RM4 per litre, the finance minister added.

In terms of losses, the large gap between the retail price of fuels in Malaysia compared to actual market prices will also lead to a higher risk of subsidy leakage due to fuel smuggling into neighbouring countries, where fuels are sold at higher retail prices, he continued.

For comparison against the prices of fuels sold in neighbouring countries, petrol is sold in Indonesia at RM3.74 per litre, Thailand at RM5.63 per litre and Singapore at RM9.16 per litre, according to Tengku Zafrul; even compared to other oil-producing countries, Malaysia’s current rate of RM2.05 per litre is relatively low compared with Saudi Arabia, which retails petrol at RM2.59 per litre, he said.

The Malaysian government is also in the process of reviewing the targeted subsidy approach for expanding to subsidise other products, in order for the subsidies to reach those who are really in need, the finance minister said.