Until the diesel subsidy was scrapped beginning June 10, the country had to spend RM14.5 billion annually on the subsidy. Minister of Finance II Amir Hamzah Azizan said diesel subsidies cost Malaysia RM1 billion a month, while losses from leakages or smuggling amount to a staggering RM4.5 million every day. The cut would save the government RM4 billion annually.
With the retail prices of diesel floated to the market rate of RM3.35 per litre – an increase of 55% from RM2.15 – the commodity is no longer the second cheapest in Southeast Asia (the cheapest diesel being Brunei). However, for obvious political reason, retail diesel prices will remain subsidized at RM2.15 per litre in the Borneo states of Sabah and Sarawak in East Malaysia.
Based on RM4.5 million daily losses due to leakages, it would translate to RM1.64 billion every year, leaving the remaining RM2.36 billion losses due to subsidies for undeserved parties. That was how Prime Minister Anwar Ibrahim came out with the RM4 billion saving. It was absolutely a good reform to stop diesel smugglers from profiting in the black market.
For decades, diesel had been smuggled northward across the border into Thailand, thanks to cheaper Malaysian diesel by about RM2.12 per litre compared to pump prices in the neighbouring country. It was such a lucrative business that smugglers would pump diesel into modified hidden tanks in lorries in Kuala Lumpur area of Gombak, before offloading the fuel at a collection point and get paid.
From the collection point, the diesel would be transferred to different lorries and make a 400-kilometres journey to northern state of Kelantan, which has three border crossings into Thai. The state under the control of PAS Islamist party has a long border with little enforcement – infested with corrupt officials and smuggling cartels – hence allowing the smuggled fuel to be transported and sold in the Thai’s black market.
But Kelantan was not alone. The ICQS (Immigration, Customs, Quarantine and Security) Complex at Bukit Kayu Hitam, Kedah suffered an estimated RM1.2 million worth of diesel smuggling daily. After the diesel subsidy cuts, the government was quick to declare victory. Communications Minister Fahmi Fadzil proudly announced that smuggling cases have declined.
Still, questions remain as to why the government could not cripple the smuggling activities through enforcement rather than cutting blanket diesel subsidies. It’s hilarious that the government has the resources to monitor petrol stations and know the plunging cases of smuggling after the subsidy cut, but has no clue how to eliminate corrupt officials and smuggling cartels to prevent smuggling.
Unlike Mexico-United States border which extends 3,000 kilometres with 48 border crossings and 330 ports of entry, there are only 9 border crossings along the 600 kilometres border of Malaysia-Thailand. Instead of worrying about offending corrupt immigration and custom officers, PM Anwar should be more worried about losing support from millions of voters as a result of inflation due to the half-baked subsidy cut.
Anwar said the targeted diesel subsidy was necessary because of excessive leakage of the fuel, especially involving the use by foreign fishing vessels. He has also revealed that the number of vehicles has increased only by 8%, but diesel usage has risen by 20% to 30%. Interestingly, diesel subsidy bill has jumped 10-fold from RM1.4 billion in 2019 to RM14.5 billion in 2023.
To cushion the impact of the price increase, Anwar said eligible residents numbering around 30,000 would receive monthly cash of RM200 in their bank accounts under a programme called Budi Madani cash handouts. Likewise, farmers and smallholders would also receive the cash assistance. The government also provides diesel subsidies to businesses that use commercial diesel vehicles, including buses and taxis.
Essentially, subsidies will still be given 10 types of public transportation vehicles and 23 categories of goods transport vehicles that are using diesel-powered commercial vehicles. Logistics vehicles, meanwhile, are entitled to fleet cards – a card for subsidised diesel to be used at petrol stations – which allow the business owners to buy diesel at RM2.15 per litre.
While subsidised diesel for fishermen remains at RM1.65 per litre, school buses, express buses, ambulances and fire engines will pay RM1.88 per litre. However, the subsidy reform has received bad reviews in general, largely due to an abrupt announcement, lack of information and bad implementation. The poor execution and vague clarification have turned a good reform into an unpopular decision – triggering confusion and panic.
For example, the monthly RM200 cash handouts only enable recipients to purchase 59.7 litres of “fully subsidised” diesel each month. At about 3 litres to cover 40 kilometres, that would deliver about 800 kilometres in a month, or 26 kilometres daily. Therefore, most people believe the handouts are insufficient, especially in cities like Kuala Lumpur or Petaling Jaya.
To be eligible to receive the RM200, a “Budi recipient” must have an annual income of RM100,000 or less, in addition to owning a non-luxury diesel vehicle under 10 years old. So the idea was to punish both smugglers and those earning more than RM100,000. Already, at least 10 companies are being investigated for increasing prices of goods and services.
Tow-truck operators, concrete producers, hardware stores and food and beverage chain were among some unfortunate companies which were not eligible for the fleet card facility to enjoy diesel subsidies, forcing them to raise the cost of doing business following the 55% hike of diesel price. The reason ranges from direct impact of the subsidy cut, or indirect impact such as an increase of raw materials like milk.
The government can warn – even threaten – business owners against jacking up prices. But they will definitely find loopholes or excuses to raise prices such as an increase of vehicle maintenance cost due to pricier spare parts, or even a weak local currency. Because the government cannot or refuse to compensate fully all businesses affected by the subsidy cut, the chain reaction will see inflation spread and affect everyone.
It didn’t help that Anwar had vigorously promised during his election campaign to reduce fuel prices the next morning he wins, only to see him raising prices instead. It’s hard to believe he did not know about the subsidy problem, which was already a time-bomb when he was previously the deputy prime minister, before being sacked by then-PM Mahathir Mohamad in 1998.
The ugly truth is that Prime Minister Anwar Ibrahim, who is also the finance minister, inherits RM1.5 trillion national debts accumulated by the previous corrupt ruling Barisan Nasional government, which ironically is now one of the governing partners of the current unity government. Running out of money to appease Malay voters, he had no choice but to raise money through cutting fuel subsidies.
And it’s not rocket science that scrapping diesel subsidy is just an experiment to test the water to see if the government can proceed to also abolish subsidies for RON-95 petrol, which will be a bigger time-bomb than the extremely unpopular 6% GST (goods and services tax) introduced by former PM Najib Razak. The GST was Najib’s ultimate Waterloo, when angry Malays sent him packing in the 2018 General Election.
It’s also an ugly truth that the smuggling of fuel cannot be crippled unless the government has the courage to nail “all corrupt officers working hand-in-glove with smugglers” to the wall. Get real, ending diesel subsidies won’t stop fuel smuggling. The smugglers along border areas have switched to smuggling RON-95 petrol right after the government announced the rationalisation of diesel.
RON-95 petrol in Malaysia is a bargain at RM2.05 (15.94 baht) compared with RM4.80 (37.35 baht) for Gasohol 95 in Thailand. If the prime minister is not careful, the Pakatan Harapan coalition which he leads would suffer a crushing defeat in the next general election. Like it nor not, the timing is bad to cut subsidies. If it’s true that economy is doing well, the people certainly do not feel it.
According to a latest survey done by Ipsos, more than two thirds (nearly 7 in 10) of Malaysians believe that the country is in recession despite positive economic growth. Worse, one out of three felt that their inflation crisis is worse than in other countries in the region, impacting their personal financial management. Only half of Malaysians said they are just getting by financially.
There’s only one reason why people are under financial stress even though economy grew at a higher rate of 4.2% in the first quarter of 2024 compared to 3.7% in 2023, while inflation dropped to 1.8% against 2.5% in 2023. Either the data had been massaged to create a feel good fantasy, or the purchasing power has dropped so much that the government doesn’t know what to do and choose to be in denial.
Mr Anwar foamed at the mouth bitching that blanket subsidies are more beneficial to the ultra-rich because their consumption or spending on goods and services is greater. He also blames 3.5 million foreigners who have benefited from the fuel subsidies. Well, he can just ship out those pesky foreigners, can’t he? He should be targeting the mega-rich who were corrupt, and not those who become ultra-rich through hard work.
To punish the super rich and large industries, who pays higher taxes, was like driving the country to socialism or communism. Laughably, the PM was the same man who praised the royal pardon’s decision to gift crooked billionaire Najib Razak a 50% jail term discount (to just 6 years) after stealing billions, and 76% discount on fine – slashing it to RM50 million from RM210 million.
In his televised special address, the prime minister tried to convince the people that “any targeted subsidy should not burden the majority of the people”. Yet, factory and tour bus operators are bearing the brunt of the government’s decision to float diesel prices, with some seeing their operation costs almost doubling. Peninsular Tour Bus Operators Association says operational costs will increase by up to 30%.
Last year, the rationalisation of subsidies for electricity tariffs and sales of chicken has saved the government an estimated RM4.5 billion and RM1.2 billion a year respectively. Where have those savings gone to? Of course, it has been used to give the bloated civil servants a more than 13% increase in salary hike, and not benefited everyone regardless of skin colours as claimed.
This round, if you think the Madanistan premier did not lie again when he said every single sen saved will be returned to the people, then you should also believe in tooth fairies. But the biggest problem isn’t the dubious distribution of savings as a result of the subsidies cut. The biggest problem is when the corrupt opposition Perikatan Nasional wins the next election, they will be laughing all the way to the bank while plundering the savings. - financetwitter
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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