Is the fuel price hike really justified?

FACT CHECK The price of RON95, the most commonly used fuel by Malaysian motorists, went up by 20 sen two months in a row to RM2.30 per litre.

The hike immediately sparked a war of words between Petaling Jaya Utara MP Tony Pua and the BN Strategic Communications Team.

Malaysiakini, having sifted through the statements of the two, which were tinged with contempt for each other, found they were pretty much on the same page in terms of the projected RON95 price for January and February.

Both BN and Pua agreed that the actual price of one litre of RON95 fuel for January was RM2.19. But for February, BN puts the figure at RM2.26 while Pua puts it at RM2.23 - a three sen difference.

Before delving into the details of the argument, let's take a look at the justification of the RM2.30 retail price for RON95 this month.

Are we paying higher than market price this month?

Yes, the retail price of RON95 at RM2.30 this month is higher than the price as determined by the automatic pricing mechanism (APM).

Consumers are paying four sen more, according to BN's calculation. According to Pua, it’s seven sen more.

To be fair, consumers enjoyed a subsidy of nine sen when they paid RM2.10 for a litre of RON95 fuel last month.

Both BN and Pua agree that the actual price for January should have been RM2.19.

Why are we having to rely on figures from BN and Pua?

This is because the government does not disclose the actual calculation when the monthly fuel price is announced.

In fact, the government does not announce the new fuel price to the public. It informs petrol dealers who then disclose them to the media.

While the method of calculation is public knowledge - and anyone, including BN and Pua, can make an approximation - the exact figures used lies with the government.

A transparent disclosure of the monthly calculation will avoid the confusing war of words between the opposition and ruling coalition.

How are petrol prices calculated?

Petrol price is determined by the APM which relies on two main factors, namely the Means of Platts Singapore (Mops) and ringgit-US dollar exchange rate, based on the average of the previous month.

On top of that, there is also a fixed cost of 31.73 sen per litre comprising 5 sen alpha (difference between Mops and oil purchased at refinery), 9.54 sen for operating expenditure, 5 sen profit for oil company and 12.19 sen profit for petrol dealer.

For detailed information, check out Malaysiakini's explanation how fuel prices are calculated here. Note the calculator is only an approximation.

How did Pua and BN calculate the price of RON95?

Pua puts the Mops average for RON95 in December at US$66.553 per barrel (159 litres) which translates to US$0.4186 per litre.

At an average exchange rate of US$1 to RM4.48, it works out to RM1.8753 per litre.

BN claims that Pua got the figures wrong as the December Mops average should be US66.7646 per barrel and the average exchange rate should be US$1 to RM4.4599.

Based on this, BN puts the price at RM1.8727 per litre.

However, the discrepancy between BN and Pua's calculation was so small that both ended up with a final January price of RM2.19, after factoring in the 31.73 sen fixed cost.

For January, Pua puts the Mops average at US$68.820 with an average exchange rate of RM4.42 to one US dollar.

BN puts the January Mops average at US$69.3436 with an average exchange rate of US$4.4592 to one US dollar.

This resulted in BN's figure of RM1.9448 per litre and Pua's figure of RM1.9130 per litre, which translated to RM2.26 per litre and RM2.23 per litre respectively after factoring in the 31.73 sen fixed cost for February.

Despite the finger pointing on who is right or wrong, their numbers are quite similar.

Conclusion

Pua pointed out the APM price difference for January (RM2.19) and February (RM2.23) was around four sen, and demanded to know why motorists are hit with a 20 sen hike in the latest round of increases.

As explained by the BN strategic communications team, consumers only paid RM2.10 per litre last month when the actual price was RM2.19 - a nine sen subsidy based on the APM price.

Therefore, the hike not only accounted for the slight increase in fuel price this month but also the below market price last month (as well as to recover the subsidy losses).

Based on the estimations, a hike of 15 sen for February would be nearer to the APM price.

However, if the APM system is managed properly, the price consumers pay will still average out despite underpaying or overpaying for some months.

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This Fact Check is done by NIGEL AW.- Mkini