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June 5, 2008

MALAYSIA/FUEL PRICE HIKE
Govt in for angry protests

Malaysia's government faced demonstrations and public outrage Thursday over its decision to hike petrol prices 40 percent overnight, in a bid to curb its massive subsidies bill, reported AFP.

Opposition groups said they would hold protests in Kuala Lumpur at 11.30am local time and in the northern city of Ipoh at 11.00am over the "unconscionable" increase.

"The fuel increase is both economically inefficient and socially unjust," said Lim Guan Eng, secretary-general of the Democratic Action Party which is part of the opposition alliance.

"So long as rich companies continue to enjoy such fuel subsidies, especially the independent power producers, the fuel increase will be seen as both pro-rich and punishing the poor," he said in a statement.

The new pump price for petrol will be 2.70 ringgit ($0.84) and 2.58 ringgit for diesel. Petrol previously cost 1.92 ringgit, among the cheapest in Asia.

Prime Minister Abdullah Ahmad Badawi's announcement on Wednesday evening triggered chaos across the country as motorists swamped fuel stations to fill up before the measure took effect at midnight.

Traffic snarls brought streets to a standstill in the capital Kuala Lumpur as up to 100 cars queued at each petrol station which still had fuel to sell, while many others said they had sold out and turned angry customers away.

Abdullah indicated that further increases were in the pipeline as Malaysia moves to completely abandon fuel price controls that would have cost 17.4 billion dollars this year - about a third of the national budget.

Abdullah is taking a major political risk in removing price controls as he attempts to recover from disastrous March elections that dealt the ruling coalition its worst results in half a century.

Rising prices of food and fuel were a major factor in the ballot, which has triggered repeated calls for the premier to stand down.

"It is not an attempt to be popular, we have to think in the best interests of the people," Abdullah said Wednesday.

Under a revamped subsidy system, drivers of smaller vehicles will receive a cash payment of 625 ringgit to offset the rising cost, equating to subsidising some 800 litres of fuel.

But economists said the subsidy cut was deeper than anticipated, and that the cash payment was not large enough to compensate for average use.

Abdullah said the price hike could suppress economic growth and drive up inflation as high as 5.0 percent this year, from current levels of 3.0 percent in April.

As part of the subsidy reform, industry and power producers will be charged higher prices for gas from July. Electricity tariffs will rise 18 percent for householders, and 26 percent for commercial and industrial users.


But there was good news for Thais and Singaporeans who will now be allowed to buy fuel at border petrol stations after a recent ban was lifted in view of the subsidy cut.

Fuel prices in Malaysia had been unchanged since February 2006, and economists have warned any move to abandon fuel subsidies completely may spark protests, push inflation sharply higher and weaken consumer spending - a bane to an already slowing economy.



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