Malaysian Petrol Price Compared To Other Countries
Many Malaysians were shocked when the Government announced that subsidies for RON95 and diesel will be scrapped from December 1, 2015 onwards due to falling global fuel prices.
Here’s how Malaysian petrol price is doing compared to other countries around the world:
New prices are fixed according to a managed float system, which is based on the monthly average world price of crude oil. The move was followed by a 4 sen decline in the price of RON95 from RM2.30 to RM2.26 per litre for the month of December.
Historically, the retail prices of petrol and diesel in Malaysia had been determined through the automatic price mechanism (APM), which ensured that the difference between retail and actual prices were borne by subsidies and sales tax exemptions.
Through the system, set in place in 1983, the Government also standardised fuel prices at pump stations, and fixed the margins of oil companies and dealers at a level that will not be affected by fluctuations in world oil prices.
How much have Malaysians been paying for fuel?
RON95 petrol entered the Malaysian market in 2009 at RM1.75 per litre. It replaced the lower-octane RON92, which cost RM1.70 per litre in 2008.
The price of RON95 has increased steadily from year-to-year, due to the gradual reduction in fuel subsidy as part of the Government’s long-term plan to boost national coffers.
The fuel price was raised from RM1.90 to RM2.10 per litre in September 2013, and again in October 2014, from RM2.10 to RM2.30 per litre.
Though there have been much hesitation on removing fuel subsidies in the past, due primarily to fears about its political repercussions, the Government has finally set a firm footing on its subsidy reform plan. Subsidy for sugar prices was also abolished late last year, which saw the increase of sugar prices from RM2.50 to RM2.84 per kilo.
One advantage that comes with the removal of fuel subsidies is that consumers now get to enjoy the benefits from any decline in global crude oil prices, something Malaysians have not been getting for the past 31 years when the retail prices of fuel products in Malaysia had remained mostly static or gone up.
The new managed float system has put the price of RON95 in Malaysia as one of the lowest in the world, at only US$0.65 (RM2.26) per litre, compared to neighbouring countries like Singapore and Thailand, where RON95 costs US$1.56 (RM5.16) per litre and US$1.00 (RM3.48) per litre respectively.
Meanwhile, RON95 costs US$1.09 (RM3.48) in China (an oil-producing country), US$1.13 (RM3.93) in Australia, and US$1.88 (RM6.53) in the United Kingdom.
Saying goodbye to subsidies
Fuel subsidies have no doubt been a boon for Malaysians, of whom many rely on private transportation as a primary mode of commute. As of 2011, the total number of registered vehicles on Malaysian roads had reportedly surpassed 21.25 million units.
While subsidies usually start as an attempt to shield citizens from the pains of price increases in global markets, long-term subsidy initiatives are expensive and they eat up national budget.
Consider this: at the time of our independence in 1957, Malaysia’s population was 6.3 million. In 1971, when the New Economic Policy (NEP) was introduced, it had grown to 11 million.
Fast forward 2014, and the size of our population is now estimated to be around 30 million, and is estimated to balloon by another 10 million by the year 2040.
A growing population can generate economic growth. However, an increase in headcount also comes with greater subsidy volume, which can end up breaking our national budget.
Findings from a paper done by the Malaysian Institute of Economic Research (MIER) found that the subsidy bill in 1990 was RM500 mil. In 2010, the amount had escalated to an alarming RM23 bil. Imagine how much more the bill would be if we add in another 10 million people in the country!
Blanket subsidies that have been offered by the Government had also led to over-consumption and wastage, especially when high-income groups are also reaping the benefit of subsidies meant to assist the poor. Over time, the nation can become over-dependent on subsidy provisions and may be unable to adapt to real-world prices.
Although subsidy removals are often unpopular with consumers, the cut-back on subsidy expenditures is necessary in ensuring the long-term sustainability of the national budget and in elevating the country to high-income status by 2020. Savings on fuel subsidies will instead be channelled on infrastructure and development that would directly benefit the welfare of the people.
The successful implementation of float system variations in developed countries like Australia, China and the United Kingdom, as well as growing economies like Singapore and Thailand is a healthy indicator that the new pricing mechanism will move in synergy with Malaysia’s subsidy reform plans toward greater efficiency and effectiveness in managing our national funds.
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