Tuesday, June 3, 2008


Going UP again
PETROL and DIESEL pump prices will increase in August: Minister


Pump prices for petrol and diesel will be raised in August but subsidies will remain for the poor, Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad said yesterday, in a move that could drive up inflation. “Petrol prices will increase ... it will happen,” Shahrir told reporters, without specifying how much prices would rise. “I think the idea is August this year when the subsidy (scheme) is restructured. The prices will rise with the proviso that subsidies will be enjoyed by all not on the basis of use, but need.” According to him, although the fuel prices would go up, the petrol subsidy would continue to be enjoyed by the people based on requirement instead of usage. “If we look at the subsidy that we receive today, it is based on the amount used, if we consume 200 litres per month, we will receive subsidy for each litre that we purchase. If we use only 100 litres, we will also be given the subsidy. So, this means there is no restriction to the subsidy that we get based on our usage,” he said. Fuel prices in Malaysia are among the cheapest in Asia, with petrol selling for just 1.92 ringgit (60 US cents) a litre, less than half the price in neighbouring Singapore. Malaysia is a net oil exporter and gains from high oil prices, reaping 250 million ringgit ($77.6 million) a year in revenue for every $1 rise in crude prices. But the Government’s fuel subsidy bill also has ballooned along with skyrocketing crude prices, compelling it to find ways to ease the burden on its finances. Indonesia and Taiwan cut fuel subsidies last month and India is also poised to take action. Shahrir said fuel subsidies would total 55-56 billion ringgit in 2008 at current oil price levels, which are hovering around $127 per barrel. He said the restructuring is part of the Government’s efforts in tackling the rising subsidy burden following the significant rise in the world oil price which had exceeded US $130 per barrel current. Bond and stock traders said financial markets had already priced in a likely price hike and were now awaiting details of the new fuel subsidy mechanism. Shahrir did not give details on how the new subsidy scheme would work or whether the reforms would involve minor changes or a major overhaul. He was quoted on Sunday as saying that Malaysia planned to scrap subsidies at the pump and instead give discounts to individuals based on their needs. The Minister had previously suggested requiring motorists to produce their Malaysian identification cards when filling up to ensure that only locals get the subsidies. He said the total subsidy borne by the Government for petrol, diesel for foreign cars by petrol kiosks within 50 kilometres from the border was only a temporary measure. He said the ban had already been enforced at the Malaysia-Thai Border while near the Singapore border, the ban would take effect on June 9. A sharp fuel price hike would increase inflation - which already stood at a 15-month high of 3.0 percent in April - and could further stoke voter anger against the Government, which is battling criticism that it has not been effective in cushioning Malaysians against rising prices. “It will increase inflation but because they’re being very vague, we can’t really say how much,” said CLSA senior economist Tony Nafte. “They’re going to be very careful how they do it and one way to do it is some kind of handout to compensate for the low-income earners.” Shahrir also said Malaysia would begin a temporary ban on fuel sales to foreigners from its southern Johor state, a short distance from Singapore, from June 9. The Government had already begun a similar ban at filling stations near the Thai border, he said. Hundreds of Thai and Singapore motorists cross the border daily to fill up their tanks with cheaper Malaysian fuel. — Reuter, Bernama.