This article first appeared in The Edge Malaysia Weekly on January 7, 2019 - January 13, 2019
THE man on the street will probably be cheered by RON95 petrol retailing at RM1.93 per litre — a level last seen 18 months ago in early July 2017. That would save motorists about RM27 per 100 litres. The diesel price of RM2.04 per litre, down 14 sen from RM2.18, is also the cheapest in 16 months.
The government also promised to ensure that retail prices will not go above RM2.20 a litre for RON95 and RM2.18 a litre for diesel — at least until targeted subsidies are implemented from the middle of the year. New pump prices will be announced every Friday and be determined by using the automatic pricing mechanism (APM).
It is not immediately certain if the new RON95 and diesel prices are subsidised, although the gap between the new prices from the ceiling set implies that none was required.
Finance Minister Lim Guan Eng said in a statement last Friday that the pump prices had taken into account new petrol dealer margins that were approved by the Cabinet on Jan 2. The higher margins provide some respite to the Petroleum Dealers Association of Malaysia, which in 2017 had lamented that more than 100 petrol stations nationwide had closed down because petrol was sold below their cost. This followed the implementation of a managed float system in December 2014 in place of blanket subsidies.
Petrol dealer margins — a fixed price component under the APM — was revised upwards by 2.81 sen a litre to 15 sen. For diesel, the margin was also higher by 3 sen per litre to 10 sen.
It is not known if other price components under the APM — including profit margins for oil companies, operation costs and the so-called alpha buffer — remain the same or have also been changed.
What is known is that the new pump prices were announced a day after Lim said the government had spent RM4.89 billion on subsidising RON95 petrol and diesel from January to November 2018.
“The Pakatan Harapan government has neither profited from retail petrol pump prices nor imposed sales tax on RON95 or diesel. Allegations that the government has been taxing petrol are false and baseless,” Lim said in the Jan 3 statement.
For November alone, Lim said the government had spent RM4.1 million on subsidising RON95 and a further RM209.1 million on diesel, “which is heavily used not only for commercial and industrial sectors but also by the general public in Sabah and Sarawak”. Subsidy figures for December were still being compiled, he added.
According to official figures, the petrol subsidy was the highest in October at RM961.2 million, up from RM897.2 million in September and RM650.2 million in August.
Last year, the monthly average Brent crude oil price was the highest at US$82.72 a barrel in September, one month earlier than the peak subsidy spending. Brent crude oil prices have risen from an average of US$77.42 a barrel in August, US$74.25 a barrel in July and US$79.44 a barrel in June. However, the average skidded to US$75.47 a barrel in October, US$58.71 a barrel in November and US$53.80 a barrel in December. Prices were hovering at US$57.27 a barrel at the time of writing.
It is worth noting that the RM3.78 billion spent on subsidies from June to November last year is higher than the RM3 billion that the government had allocated to subsidise RON95 petrol and diesel from June to December last year. At the time, Lim said the government had decided to fix retail prices at RM2.20 a litre for RON95 and RM2.18 a litre for diesel by subsidising prices by 33 sen per litre. Global crude oil prices were then at US$76 a barrel and refined petrol and diesel prices were between US$87 and US$88 a barrel.
The government should have the subsidy figures for December 2018 soon enough. It should also provide greater clarity on how prices and subsidies are determined.
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