Current fuel subsidy to be reviewed, targeted subsidy for needy instead, says Tengku Zafrul

Photo: Bernama

KUALA LUMPUR: The current fuel subsidy will be reviewed in favour of a targeted programme for the needy due to the sharp rise of global crude oil prices, says Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz.

He said that the government could be paying up to RM28bil in subsidies for petrol, diesel and liquefied petroleum gas (LPG) for 2022, as the Russian-Ukrainian war has pushed crude oil prices over US$100 (RM418) per barrel, the highest level seen since 2014.

He said crude oil prices have been rising significantly since 2021, costing US$85 (RM356) per barrel in January this year compared to US$55 (RM230) during the same month last year.

Tengku Zafrul added that the spike in global crude oil prices have caused the government to bear a tenfold increase in the subsidy bill for petrol, diesel and liquefied petroleum gas (LPG) from RM200mil in January 2021 to over RM2bil in January this year.

The Russian invasion of Ukraine further escalated crude oil prices, to over US$100 (RM418) per barrel, and it is now expected that the subsidy for petrol, diesel and LPG will cost the government more than RM2.5bil a month, he said.

“If the global crude oil prices remain at over US$100 (RM418), the overall cost of subsidy for the whole of 2022 is expected to reach RM28bil compared to RM11bil in 2021," added Tengku Zafrul.

He said that under the current programme, the same subsidised prices are enjoyed by all, regardless of rich or poor and added that the high-income group will enjoy more subsidies based on consumption levels, which are larger, compared to those on low incomes.

“Therefore, the government will review the fuel subsidy mechanism in order to implement a more targeted and focused aid and subsidy to the vulnerable and those really in need,” Tengku Zafrul told the Dewan Rakyat during the Minister’s Question Time on Thursday (Mar 10).

He also said that the government cannot borrow for operating expenses such as subsidies and therefore the increase in subsidy cost must be offset by increased revenue and cost savings by the government.

Thus, the implementation of targeted subsidies is expected to optimise the government's financial resources and the savings obtained can be redistributed for more effective programs that will in turn contribute to the well being of the people, said Tengku Zafrul.

He added that consumers in Malaysia have continued to enjoy retail fuel prices of RM2.05 per litre for the RON95 grade petrol but that the actual cost in March had reached RM3.70 per litre.

He then said that this meant that the government had to cover the difference of RM1.65 per litre.

“For example, every time we refuel with a value of RM100 or about 49 litres, the amount paid by the government is RM81 because the actual cost based on market price is RM181 for 49 litres of RON95," said Tengku Zafrul

“This means the government subsidy is up to 45% of the total price. As for diesel, consumers only pay RM2.15 per litre while the actual cost has exceeded RM4 per litre,” he added.

Tengku Zafrul also said that the big gap between the retail price at the petrol station compared to the actual market price will also result in a higher risk of subsidy leakage caused by petroleum products being smuggled out of Malaysia to neighbouring countries, which have higher retail petrol prices.

The RM2.05 per litre retail price of petrol in Malaysia is relatively low compared to oil-producing countries such as Saudi Arabia, where it is RM2.59 per litre, and also when compared to neighbouring countries such as Indonesia at RM3.74 sen per litre, Thailand at RM5.63 sen per liter and Singapore at RM9.16 sen per litre, said Tengku Zafrul.

Earlier, Wong Hon Wai (PH-Bukit Bendera) asked the Finance Minister whether a coordination of petrol, diesel and subsidy programmes needed to be done given global crude oil price and natural gas have risen sharply during the Russian-Ukrainian war.

Tengku Zafrul added that the government is also currently in the process of reviewing how the targeted subsidy approach can be expanded to other subsidised products so that the subsidies can be focused on those really in need.

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