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Friday, November 21, 2014

Subsidies cut for RON95 and diesel from December 1

Fuel subsidies for RON95 petrol and diesel will be scrapped starting December 1. – The Malaysian Insider file pic, November 21, 2014.Fuel subsidies for RON95 petrol and diesel will be scrapped starting December 1. – The Malaysian Insider file pic, November 21, 2014.
Fuel subsidies for RON95 petrol and diesel will be scrapped from December 1, Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Hasan Malek announced this afternoon.
The retail price for these two fuels will be decided by a "managed float", he told a press conference in Putrajaya.
Hasan said fuel prices would be determined on a monthly average price, which will be announced at the end of each month for the following month.
Hasan said the managed float system was already in use for RON97 petrol, and the move to use the same system for RON95 and diesel was made after it had proven successful for the higher-grade fuel.
“The studies in implementing the managed float system for RON95 and diesel were carried out before the government decided on this method,” he said in a statement issued later this evening.
“This move proves the government’s wishes to ensure the public enjoys the full benefits following the drop in crude oil prices."
Since 1983, Hasan said, Putrajaya relied on the Automatic Price Mechanism (APM) to set the retail price for petrol. This ensured that retail prices were unaffected by changes in the world price.
“However, through the managed float mechanism, the changes in the average cost of the product will determine the price for the following month.
“This means if the global prices of crude oil rises, the retail price of RON95 and diesel will also rise.”
He noted as an example that from November 1 to 19, the average price for RON95 under the APM had dropped to RM2.72 a litre, which was lower than the government’s set retail price of RM2.30.
“In this case, the government will monitor the market price from November 20 - 30 2014 and the real figure will determine the retail price for December.
“If this trend continues, it is anticipated that the retail price for RON95 for December well be reduced in line with the APM formula.”
Today’s announcement comes barely two months after the ministry announced that prices for RON95 petrol and diesel will be increased by 20 sen a litre on October 2, as part of its subsidy-rationalisation strategy.
The previous increase in prices was on September 3, where prices for both fuels were raised by 20 sen a litre as well.
Two days ago, however, the price of RON97 dropped by 20 sen to RM2.55. 
The government has come in for some criticism of late for cutting fuel subsidies at a time when the global price of crude was dropping.
Critics also say the rise in petrol prices would lead to inflation.
However, Khazanah Research Institute wrote in a report launched on Monday that petrol subsidies were regressive, favoured the well-off, creates distortion in the economy, encourages wastage, is costly, promotes criminal behaviour, and encourages “fuel tourism”.
It mooted replacing the fuel subsidies with cash transfers such as the 1Malaysia People’s Aid cash vouchers, instead.
- TMI

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