RON95 petrol price should be floated; two-tier pricing causes issues like long queues, system abuse – PDAM

The Petrol Dealers Association of Malaysia (PDAM) has said a two-tiered pricing mechanism for RON 95 will have issues and is not feasible. According to association communication and media secretary Gordon Lim, petrol station operators may face issues disrupting operations if subsidised RON 95 petrol is sold using the MyKad.

Instead, he proposed the price of RON 95 be floated and the current subsidised diesel control system (SKDS), which is a refund-style system implemented in June, be adopted.

“For cash purchases, customers will need to queue inside the store as ‘pigeonhole’ transactions from outside may not be possible. Due to the queue, a petrol station may also lose customers who intend to shop at their convenience store. More customers may opt to pay electronically with their debit or credit cards. This will incur a higher merchant discount rate for us,” said Lim.

He added that operators would also be burdened by an increase in capital because of the price increase as reimbursement for the subsidy could be delayed by the government. Smaller petrol stations could also be at risk of closure as customers may prefer to purchase fuel from larger stations to avoid the long queues.

As reported by The Star, Lim said PDAM also foresees abuse of the system due to eligible individuals swapping their MyKads or using them fill petrol for vehicles owned by those who are ineligible for the subsidy.

Lim’s comments are echoed by Universiti Sains Malaysia Centre for Policy Research and International Studies director Assoc Prof Dr Azeem Fazwan Ahmad Farouk, who agreed that two-tiered fuel pricing for RON 95 petrol is impractical as using the MyKad could complicate a sale.

“Subsidising fuel encourages overconsumption and smuggling. This has been evident time and again. What should be done is to float the price of RON 95 and subsidise the individual by returning cash to those who qualify. This is the best solution,” he said.

Meanwhile, Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said a two-tiered pricing system would see petrol station operators incur additional costs as they may need to enhance their infrastructure, especially those in rural areas where telecommunications coverage could be poor.

“If there is no cap on each eligible recipient for subsidised RON 95, it can be abused when ineligible parties buy fuel through them. However, putting a cap on the entitled quantity can be cumbersome as consumption may vary from one to another. Some may need to travel long distances to commute to work. It is best to allow the RON 95 petrol price to be floated and then reimburse the middle- and low-income motorists with direct cash transfers,” he explained.

One way to distribute subsidies as suggested by Malaysia Consumers Movement secretary-general Herby Dhillon is to have them be directly paid to the bank accounts of eligible recipients based on the type and number of vehicles they own and their average usage.

“This is the only way to avoid leakages, and vehicle ownership data can be obtained from the Road Transport Department and Inland Revenue Board. The subsidies can be paid monthly and the authorities can periodically investigate at random if there is suspicion of abuse,” he added.

At the tabling of Budget 2025, it was announced that the government will will restructure the RON 95 petrol subsidy in mid-2025, with a switch to a targeted subsidy. It remains to be seen how the petrol subsidy rationalisation would be implemented, including the form of mechanism used.

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