09 February 2010

Come May 1st RON95 is RM2.10

I don't know the truth, we just wait and see...

That's right. The Government is quite firm on "restructuring" the fuel subsidy on May 1st. Here is how it will work. First the price of RON95 will go up to RM2.10 per litre. Those who are eligible for the subsidies will have to swipe their MyKads at the gas stations and they will still get gas at the "old" price of RM1.80 per litre.

Those who are not eligible will have to pay RM2.10 per litre. This is based on todays world prices for oil. If oil goes up or down between now and May 1st, then the prices will be adjusted.

Eligible means cars below 2000 cc while cars above 2000 cc are not eligible. Between now and May 1st, you must register your MyKad and your car (if it is below 2000cc) somewhere. Details to be announced I think. Those with cars above 2000cc need not bother. You dont get the subsidy anyway.

Petrol stations will be equipped with a hand held device which can read your MyKad so that you can get your subsidy and also to read the amount of petrol you have used. The Government plans to allow only 100 litres of subsidised petrol per car owner per month. Only one car will be allowed for the subsidy.

All gas stations will be linked online (by May 1st) so that your usage of petrol will be monitored. The Government has talked to all the oil companies and they have all agreed.

Diesel will still be subsidised and commercial vehicles will not be affected. Only petrol driven privately owned passenger vehicles are eligible or not eligible for the subsidy.

What this means is that owners of cars below 2000cc will not see any reduction in their living expenses. They will still pay RM1.80 per litre for RON95 like they do today - no change there, except they will now have to flash their MyKads everytime they buy petrol, because they will only get say 100 litres of subsidised petrol a month.

Owners of cars above 2000cc will pay 30 sen more per litre - over 16% increase per litre of petrol.

Presently the Government spends about RM2.0 billion per year on fuel subsidies (petrol, diesel, all petroleum fuel). It is envisaged that this "restructuring the fuel subsidy" - which affects only petrol driven privately owned cars - will save the Government RM1.0 to RM1.5 billion.

Here are more numbers. There are about 8.0 million privately owned cars in Malaysia. Of these, 7.8 million are cars below 2000cc. This means this whole restructuring of the fuel subsidies is only going to affect 200,000 cars of 2000cc and above ? ?

And by making these 200,000 cars (of greater than 2000cc) pay an extra 30 sen per litre, the Government will save RM1.5 billion in subsidies a year ? ? I did some quick arithmetic and it works out to about 300 litres per car per month. But the Government is open for suggestions.

My view is while the 'restructuring' is supposed to help the poor, it does not really. They will still pay RM1.80 per litre (which they are paying now). There is no savings for them. Only the rich (those owning cars of 2000cc and above) will end up paying 30 sen more per litre. So while the poor remain status quo, the rich get penalised.

Even if world oil prices go up and pump prices also move up, the poor will still get subsidised petrol but at the higher market price. The rich will pay more.

I feel that prices of things will still go up. Although commercial vehicles and diesel lorries and trucks and tractors will still get subsidised fuel (thereby canceling the urge to raise prices) there will be some impact on the Consumer Price Index. Pasar malam traders use petrol driven generators to do their business at night. There are other equipment that may run on petrol - which may not enjoy the subsidy.

When the Government gave special diesel subsidies for the inshore fishermen (RM1.00 per litre of diesel), it immediately created huge diesel smugling problems. Then the Customs had to spend millions of Ringgit to buy boats to curb the smugling.

I think this split fuel subsidy structure will also create instant "kampong oil traders" especially if the oil prices move up drastically. People who have not used up their 100 litre per month quota will buy fuel and sell it for a small profit to others who may need it.

It would be fairer if the Government gave everyone a flat 100 litres (or 150 litres or 200 litres as may be more scientifically determined) of subsidised petrol. Above that and you pay market prices. And put in place a program to remove the subsidy altogether.

Its only 30 sen per litre (ok at current prices). The Government can reduce 10 sen per year and in three years, there will be no more need for fuel subsidies. The market will settle down to a new level by itself .

The issue of foreign cars can also be handled in a much easier manner. Singapore allows Malaysian cars 14 days free entry into Singapore. After that you have to pay RM75 per day. We could do the same thing. Charge foreign private cars RM10 tax per day - which goes to the Government or something like that.

The idea to deny the fuel subsidy to foreigners living in Malaysia does not seem fair. Foreigners who are resident here also pay road tax, drive cars bought in the country (paying excise duties etc) and may work here or run businesses here. They are actually part of the economy.

Foreign cars coming in from Singapore or Thailand are different.

The public also would like to see a drastic reduction in the prices of cars. Also a reduction in paying tolls. That would be more meaningful.

In conclusion, this restructuring of the fuel subsidies does NOT save any money for the poor (below 2000cc). The rich (above 2000cc) have to pay more. Both have to swipe their MyKads. They are all voters.


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