BUDI Diesel a bitter pill today, but needed for a healthier tomorrow

 Judge the initiative not only by the discomfort it creates today, but by whether it builds a more sustainable and responsible subsidy system for tomorrow.

From Tan Peck Leong

The implementation of the targeted BUDI Madani Diesel programme in Sabah and Sarawak has understandably caused concern. In both states, diesel is not a luxury. It is part of daily survival for households, farmers, fishermen, small businesses, transport operators and rural communities.

With long distances, difficult roads, and many diesel-dependent activities, any change to subsidy policy will naturally raise concerns over costs, eligibility, and whether Putrajaya fully understands conditions on the ground.

While these concerns are valid, we must also look honestly at the bigger national picture. The old blanket diesel subsidy system has become increasingly unsustainable.

Malaysia’s diesel subsidy bill rose from about RM1.4 billion in 2019 to RM14.3 billion in 2023, while subsidised diesel consumption surged from 6.1 billion litres to 10.8 billion litres. At the same time, sales of commercial diesel without subsidy fell from 4.8 billion litres to 2.8 billion litres.

That pattern suggests that some demand which should have been met through commercial, non-subsidised diesel channels had shifted into the cheaper subsidised pool.

A subsidy meant to help Malaysians cannot be allowed to leak to smugglers or commercial users who were never its intended target. Allowing the subsidy to leak through smuggling and misuse is neither sustainable nor fair to the Malaysians it is meant to serve.

The recent figures for Sabah and Sarawak help explain why reform has become urgent – though they must be read with care.

The diesel subsidy bill for the two states reached RM1.4 billion in just the first four months of 2026, compared with about RM2 billion for the whole of 2025. Much of that surge, however, reflects the spike in global oil prices following the West Asia conflict.

Monthly subsidy spending stood at around RM103 million in January and RM106 million in February, then jumped to RM563 million in March, and RM647 million in April once prices climbed. In other words, the rising cost is largely a price story, and a good part of it would have occurred even with perfect targeting.

A matter of cost, not volume

The stronger evidence of leakage lies not in cost, but in volume. In March and April 2026, diesel sales at petrol stations in Sabah and Sarawak reportedly reached around 200 million litres per month, roughly double the level expected from the number of registered diesel vehicles.

Reported sales for 2025 were close to 2 billion litres, against estimated genuine demand of around 1 billion litres.

A gap of that magnitude cannot be explained by ordinary use. It points clearly to smuggling and to consumption by those who are not the intended recipients.

If the government continues to bear billions in subsidies without better targeting, the burden will eventually fall back on Malaysians through weaker public finances, less development spending, and reduced capacity to help the truly needy.

The expected saving of up to RM2 billion a year should not be oversold, as it is only a fraction of the national fuel subsidy bill. But it is still significant. If managed properly, it can ease pressure on public finances and support more targeted assistance, infrastructure and essential services.

The benefit is national rather than a sum set aside for any single region. Even so, Sabah and Sarawak – which still need stronger roads, better logistics, and improved rural connectivity – have much to gain from a healthier fiscal position that can sustain inclusive development over time.

In other words, the question is not whether Sabah and Sarawak deserve diesel support. They do.

The real question is whether the support should continue to be given through a broad and leaky system, or through a more targeted mechanism that protects genuine users while reducing abuse.

Blanket subsidy not a long-term solution

A blanket subsidy may feel easier in the short term, but it is expensive and unfair if it also benefits those who do not deserve it. A targeted subsidy may feel bitter at first, but it is fairer and more responsible if properly implemented.

Much of the anxiety in Sabah and Sarawak centres on one specific change. Under the new system, subsidised purchases are capped at 200 litres a month, shared between diesel and RON95, whereas previously the RM2.15 price applied without any limit.

For most users this allocation is sufficient. But for those who must travel long distances on interior roads, the cap is the real worry, and it deserves an honest answer rather than reassurance in the abstract.

Mitigation measures

Here the mitigation measures matter, and they must be communicated clearly.

The safeguards are important. Pickup and four-wheel-drive owners may apply for an additional 100 litres a month. Goods and public transport operators can obtain subsidised diesel through SKDS, fishermen retain their RM1.65 rate, river-boat operators will receive quotas through the Sarawak Rivers Board, and longhouse communities using diesel generators will be handled through Resident Offices.

These measures must work smoothly, because for rural users, falling through the gaps carries an immediate cost.

BUDI Diesel’s success will depend on implementation

Farmers, fishermen, rural households, small businesses, transporters and eligible diesel vehicle owners must be able to access the subsidy without unnecessary bureaucracy.

Mistakes in eligibility must be corrected quickly, rural access problems must be solved immediately, and the government must communicate clearly that the policy is meant to protect subsidies, not punish Sabah and Sarawak.

Targeted subsidy must not become targeted frustration.

In the short run, BUDI Diesel may feel like a bitter pill. But a country cannot continue spending billions on a subsidy system that leaks.

For Sabah and Sarawak, the better position is not to reject reform outright, but to demand fair, practical and compassionate implementation. Protect genuine users. Close leakages. Stop subsidising abuse.

Judge BUDI Diesel not only by the discomfort it creates today, but by whether it builds a more sustainable and responsible subsidy system for tomorrow. - FMT

Tan Peck Leong is a professor at the Arshad Ayub Graduate Business School, Universiti Teknologi Mara.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT