The fuel subsidy removal looks quite possible after the next General Election.
This sounds like really bad news for many lower middle class Malaysians, which is a rising segment due to our slowing economy, negative exchange rate and also our fledging global investment index.
But the fact remains that the government cannot continue to subsidies RON95 fuel, even with national oil company, Petronas making very decent profits. For decades the ruling government has worked to keep fuel prices low in order to keep the cost of goods and services low enough for the lower and the middle class Malaysian to have a decent life.
While this was happening, our ASEAN neighbors have slowly reduced their fuel subsides to allow their respective economies to adjust accordingly.
Recently our finance minister shared with the media that the Malaysian government is paying out more than RM28 billion in subsidies for petrol, diesel and liquefied petroleum gas.
Add to the current Russian invasion of Ukrainian which has pushed crude oil prices past the USD100 (which is about RM418.00 a barrel), which is the highest price for crude oil since 2014. Then just last week, crude oil prices rose again to USD104 per barrel.
Meanwhile Malaysian drivers currently pay a low RM2.05 per liter for the RON95 grade of petrol, the actual cost of the fuel had reached RM3.70 per liter in March this year, which means that the Malaysian government covered the difference of RM1.65 per liter.
Then there is the the un-subsidized RON97 grade of petrol which is now priced at RM3.83 per liter until the end of March 2022 which is a 17 cents reduction from the previous week.
This is why ‘cash back offers’ from some fuel stations are getting more popular. Then there is also heavily subsidized diesel fuel which remains unchanged at RM2.15 a liter.
So, the simple economics of this long term subsidy shows that the Malaysian government is paying out too much money to allow car, motorcycle and commercial vehicle owners to enjoy cheap fuel without taking into consideration the burden on the finance department, MOF.
Now, before you start grumbling (which we are about to as well) our neighboring ASEAN countries have less subsidy on fuel, starting with Indonesia where the price of fuel starts from RM3.74 per liter and Thailand which is even higher at RM5.63 per liter.
Well, we know that Singapore fuel is very high and that is why electric cars make better sense for them as at RM9.16 per liter they pay less for electricity to charge their electric cars.
So, this just means that Malaysian fuel prices will go up, and it will only happen after the next general election as the ‘rakyat’ will vote out a government who takes away the fuel subsidies, so let’s wait and see what happens.
Daniel Sherman Fernandez0