The rising costs of fuel have put more pressure on the Government to come up with a fair and efficient solution to ease the burden of the rakyat and relieve the strain on its coffers.
ALL eyes are on the Government's struggle to find a more equitable and efficient solution to the prickly issue of fuel subsidies.
This year's fuel subsidy is expected to hit a whopping RM45bil – even higher than the annual allocation of RM40bil under the Ninth Malaysia Plan – based on oil prices of between US$100 and US$120 a barrel.
Of the total, subsidies for petrol, diesel and natural gas will be RM18bil, tax foregone RM7bil and the national oil company's gas subsidy RM20mil.
Oil price is currently trading above US$120 per barrel. Goldman Sachs recently predicted that oil prices could hit US$200 a barrel within two years.
The Government is said to be looking at two-tier pricing for petrol and diesel, with subsidies going to deserving consumers especially those in the lower-income groups and priority industries/sectors such as public transportation and agriculture/fishery.
Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad has been pretty vocal on the issue as evidenced by the many news reports on the various proposals that are being considered.
These include replacing the current grades of petroleum with two new grades, RON 95 and RON 99, whereby the latter grade targeted at high-end vehicles would not be subsidised as much as the former, the use of the MyKad and even the introduction of a new card for more efficient subsidy allocation in fuel purchase.
To show that the Government means business, Shahrir has announced that a decision on new diesel prices could be out as early as next month followed by a revamp of the petrol subsidy scheme. The news is welcomed by those who view the current subsidy scheme as an inefficient way to allocate resources but received with apprehension by the public as many see it as adding to their financial burden.
“From the way things are going, it looks like a restructuring of fuel subsidies is inevitable. It is just a matter of time,” an industry expert said.
He reckoned that the unsubsidised market price of petrol should be about RM3.10 per litre and diesel at RM2.70 per litre.
With the current spiral in food prices, inflation and slowdown in the global economy, many feel the time may not be right for any reduction in fuel subsidy as the rakyat, especially the lower-income group would suffer.
This makes it even more imperative for the Government to come up with a solution that will benefit all involved if a restructuring of fuel subsidies takes place.
An economist believes a revamp of the fuel subsidy scheme may not be such a bad thing if the Government is able to implement a system that is:-
·efficient by ensuring that the subsidies are targeted at the right group of people namely the lower-income groups;
·equitable in that the quantum will not result in additional burden for the people especially the targeted groups;
- able to curb/reduce leakages;
- practical and consumer friendly and
- secure, easy to implement and manage
“The Government has been under more pressure over the fuel subsidy issue recently as rising costs have eroded the people's income and its own funds.
“This has also opened many people's eyes to the abuses the current scheme is subjected to resulting in a waste of resources,” the economist said.
The bone of contention is the fact that the blanket subsidy scheme currently benefits everyone in the same quantum – even those who are extremely rich.
According to an article in China Press quoting sources from the Road Transport Department, there are 30 rich men in the country who own 100 to 700 cars each for collection purposes. About 78,000 drivers each have five cars, while 1,589 drivers possess 10 cars each.
“It does not look like these people need fuel subsidies or any subsidies for that matter but they are still benefiting from the current scheme,” the economist said.
The current scheme also encourages wastage and leakages in the form of foreigners such as Singaporeans and Thais buying fuel at subsidised prices as well as smuggling of the commodity by unscrupulous traders.
An example of leakages in the scheme is the diesel subsidy for local fishermen.
Data from the Domestic Trade and Consumer Affairs Ministry showed that the rise in the sale of diesel to local fishermen did not commensurate with the volume of fish caught thus indicating the existence of smuggling activities.
In addition, the Anti-Corruption Agency is currently probing a suspected misuse of subsidised diesel for fishermen which amount to 18 million litres per month in Sabah.
“The leakages will be more widespread the larger the difference between the market and subsidised prices,” the economist said.
Nevertheless, a hue and cry is to be expected whatever the outcome.
As an industry observer puts it: “In this case it is impossible to please everyone. The Government will need to strike the right balance on this complicated issue.”
Perhaps the restructuring of the fuel subsidy scheme could then be followed by a long-term plan to reduce the country's dependence on oil.
Malaysian Institute of Economic Research executive director Prof Datuk Dr Mohd Ariff Abdul Kareem stressed the urgency of looking for alternative sources of energy and technology that would help reduce fuel consumption.
“It is also important to liberalise trade and break down any monopolies that can drive up prices,” he said.
