Review of automatic price mechanism for fuel likely

  • Business
  • Monday, 11 Dec 2017

KUALA LUMPUR: The Government is mulling to review the automatic price mechanism (APM) for fuel in the second half of next year following consultation with stakeholders.

This is mooted by complaints voiced out by petrol station operators on how the APM has been administered ever since the implementation of a managed float system to replace subsidies on retail fuel products in Dec 2014.

The new system has resulted in fluctuations of petrol prices and petrol inventory levels, the operators claimed.

The APM determines retail fuel prices since 1983, which means the Government sets the fuel price at a level that cannot be changed despite the changes in the crude oil price in the trade market.

However, the Government’s move to deregulate the retail fuel market in the last three years has caused discrepancies from the highly regulated agreement between the petrol station operators and the oil companies, which has resulted in a rising number of stations closing down.

Petrol Dealers Association of Malaysia (PDAM) claims that about 120 petrol stations nationwide have closed over the past three years. There are a total of 3,500 petrol stations nationwide.

Alarming figures from Petronas’ Petrol Station Operator Association revealed that 57 Petronas stations have shut down over the past three years, from only seven stations from 2012 to 2014, prior to the execution of the managed float system.

To-date, data from Shell Petroleum Dealers Association Malaysia echoed a similar growing trend of operators surrendering, with 45 petrol stations closing down over the past three years from only seven stations between 2012 to 2014.

Meanwhile, a total of 16 Petron stations have surrendered since the execution of the managed float system, from only two stations in 2014, according to Petron Petrol Dealers Association Malaysia.

In a recent interview with StarBiz, Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Hamzah Zainudin refuted the data from associations, saying that the figures of petrol station operators surrendering is less as the ministry controls the licences of the operators.

However, he admits there were complaints by petrol station operators on their powerlessness to control the stock level purchased by oil companies.

“When I look at the complaints, there are more towards the misunderstanding between oil companies and dealers (operators),” Hamzah said.

Going forward, he said the ministry is looking seriously to review the current APM by examining the stock level complaints by operators to create a fair deal between both operators and oil companies.

“I am looking to resolve this. I have to come up with a formula to create a win-win situation for both operators and oil companies. It will be in the second half of next year.

“Oil prices are rising now. So it is scary to say, if I really take a stand for the operators, it will create higher inflation.”

Despite a rally of crude oil prices, PDAM president Datuk Khairul Annuar Abdul Aziz said it is worse for operators as the profit gained on the stock purchased at the lower cost is used to buy back more expensive stock, adding that it has become a new factor to expedite the surrendering of petrol station licences.

“Let’s say, we have overdraft facilities for the working capital, and now our stock price is higher, we need to pay higher interest for the increased working capital.

“Otherwise we need to pump our own funds from outside, losing out on potential interest earned elsewhere (which is an opportunity cost).

“As we speak, dealers are preparing their surrender letters. It is not worth to continue pumping in more money,” he pointed out.

Moving forward, Khairul expects more operators on credit facilities such as loans to leave the industry as they fall into bankruptcy.

“There are many cases of operators becoming bankrupt now. They tried in vain to hang on by resorting to more loans, including from loan shark, in hope of a review in APM as cost has caught up and operator’s commission stagnant since 2008,” he pointed out.

Petronas station operator, Sitti Satmawati, 60, echoes the same sentiment, saying that her losses hover around RM150,000 since the introduction of the weekly fuel price mechanism in March this year.

“The losses made are my working capital. Overtime, the working capital will be eroded, then what do you do? You don’t have enough cash to pump in again,” she said.

Moreover, she added that operators absorbed 1% on merchant charges for credit card usage on behalf of customers, noting that credit card usage is higher compared with cash.

Satmawati has two Petronas stations that pump on average 300,000 litres and 800,000 litres per month, respectively.

She added that her survival is based on the bigger petrol station that is subsidising the smaller one.

“If your sale is below 300,000 litres per month, there is no way you can survive,” Satmawati said.

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