Malaysia may have to review petrol subsidy as crude prices go up

Rising crude oil prices in the international market may up the pressure on the Government to review local pump prices to rein in the country’s huge fuel subsidy bill, reported local business daily the StarBiz.

Crude oil yesterday retreated from a high of $82 per barrel hit in New York overnight, but remained above the $80 mark during Asian trading hours yesterday. At the current level, crude oil had surged 15 percent since the start of October and more than doubled from a low of $34 per barrel in March.

The current pump price for the RON95 petrol has been set at 1.80 ringgit (1$=3.5 ringgit) a litre since the grade was officially introduced last month.

Prior to September 1, a number of select pump stations around Klang Valley were selling the petrol at 1.75 ringgit per litre. The hike was to take into account the higher crude oil price since the plan to introduce RON95 was announced early this year.

However, Domestic Trade, Cooperative and Consumer Affairs Ministry secretary-general Datuk Zain Mohd Dom said last month the Government would cap the RON95 price at 1.80 ringgit for the rest of the year.

International crude oil price was traded within $65 and $75 per a barrel in August and September. Crude oil price averaged about $74 per barrel over the past three weeks of October. Some estimates put that based on the average price, the Government has to fork out 39 sen in subsidy for every litre of RON95 sold at local pumps.

Last week, Prime Minister Najib Razak said Malaysia spent 9 billion ringgit on subsidies for petrol, liquefied petroleum gas and diesel, but did not specify any time period.

“The Government may revamp the existing fuel and food subsidy structure to bring down its budget deficit,” Bank Islam Malaysia Bhd senior economist Azrul Azwar Ahmad Tajudin said.

Malaysia’s budget deficit was forecast to widen to 7.6 percent this year, but was projected to be lower in 2010 by cutting down on operating expenditure that includes spending on subsidies.

The government was also reported to be considering “a more discriminatory system” where the bulk of the subsidies would be chanelled to lower income groups.

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