Subsidised RM1.99 RON95 for all will cost govt up to RM15 billion, and it’s not fair to the M40 – Rafizi Ramli

With the new price of subsidised RON 95 petrol of RM1.99 per litre to take effect on September 30 for holders of the MyKad and valid driving licences, former minister of economy Datuk Seri Rafizi Ramli has weighed in on the development.

Based on the present exchange rate of RM4.20 to one United States dollar and the price of crude oil at US$67 per barrel, Rafizi estimated the fuel subsidy to be 60 sen per litre of RON 95 at its price of RM1.99 per litre.

The former minister of economy stated that the effectiveness of the government’s chosen method of two-tier pricing as opposed to cash aid is subject to a number of factors. Rafizi is of the view that providing subsidised petrol to all Malaysians will not significantly reduce overall fuel consumption, and the government will need to spend more to reduce the retail price of RON 95 petrol to the announced rate of RM1.99 per litre.

With these considered, rough calculations indicate that the Malaysian government’s subsidy expenditure will remain at around RM10 billion to RM15 billion a year for 2025 and 2026, and therefore the targeted subsidy’s effect on the strengthening of the nation’s fiscal position is not as great as previously projected by market analysts, Rafizi said.

Rafizi stated that the new RM1.99 per litre price for RON 95 petrol will not fairly distribute aid, as the more affluent groups will likely have more vehicles per household, and each adult in these households will have their own vehicles and driving licences, and so these more affluent households will effectively benefit from a larger subsidy amount compared to less affluent groups.

From this perspective, the approach taken is not for retargeting subsidies, but is instead limiting subsidies, Rafizi said. The reduction in price for RON 95 petrol can be expected to benefit motorists based in rural areas, as it should bring savings in fuel costs assuming usage patterns are unchanged. The added financial burden is potentially on urban motorists who use more petrol in commuting, said the former minister of economy.

Rafizi cites the example of an M40-demographic married couple who drive to work in their own vehicles, and should their monthly fuel consumption exceed 300 litres, which is the quota for the upcoming RM1.99 per litre price of RON95, this will result in increased monthly expenses. The more affluent among urban dwellers will also be subject to this increased cost, but the impact upon finances is not the same as that for the M40 middle-class, he said.

While the implementation of targeted subsidies is aimed at reducing leaks, this may also introduce new leakages as those who do not fully utilise their 300-litre monthly quota could purchase the fuel and resell their quota, Rafizi stated.

Those eligible for subsidised RON 95 petrol with no limit, such as e-hailing drivers could present the risk of the subsidised fuel purchased in bulk for reselling on the black market, he said. (This was addressed today by second finance minister Datuk Seri Amir Hamzah Azizan, who said that steps will be taken to verify that those who need more than 300 litres a month, such as e-hailing drivers, are genuinely eligible.)

Rafizi acknowledges that the decision on how the targeted subsidy is implemented has been made, and says he is certain that the matters he has mentioned are known to the ministry of finance which has chosen this method. Its overall effect on the nation’s fiscal position, subsidy targeting objectives and the risk of leakages will only be known in the six to 12 months from now, he said.

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