Fuel Prices to Rise – Definitely

It’s no longer ‘if’ but ‘when’ concerning the increase in petrol prices in Malaysia. Domestic Trade & Consumer Affairs Minister Tan Sri Muhyiddin Yassin confirmed this today but declined to give an indication of how much the increase would be.

One of the reasons why prices will increase is due to the heavy burden of subsidising the cost for the sake of the rakyat. In 1997, the subsidy was RM228 million and this went up by 119% to RM499.6 million the following year.

The increasing subsidies have been due to rising oil prices: since 1999, oil prices have risen to US$30 per barrel – 67% higher than that in pre-recession years. As a result, the government may need to spend over RM1 billion this year if it keeps petrol prices unchanged.

But before deciding on how much the increase will be, the government is doing a detailed study of the implications, particularly on transport costs. It is important to avoid any serious impact on the economy at a time when things are steadily picking up and not cause inflation inadvertently. However, the Minister gave an assurance that even with an increase, our fuel prices would still be fairly low (only Indonesia has lower fuel prices than Malaysia in the region).

Based on the present subsidy levels, fuel prices in Peininsula Malaysia are RM1.10/litre unleaded petrol, RM1.06/litre for leaded petrol, 65.1 sen/litre for diesel, and just RM1.18 for LPG. Total removal of subsidies would see prices increasing to at least RM1.56/litre of unleaded petrol while leaded petrol (which the government intends to phase out before long) will be in the region of RM1.52/litre. Diesel would still be fairly ‘cheap’ at RM1.06/litre but LPG would rocket to RM1.83.

If the increase is 7.5% (as some quarters speculate), pump prices would go to RM1.18/litre of unleaded petrol; leaded petrol would be RM1.14/litre and diesel would be 70 sen/litre. LPG, if the government chooses to keep its price low to promote its use, would be RM1.27. Shell’s V-Power would cost RM1.34/litre.

So when will the prices go up? Unless the government has an urgent need to cut its costs, it may hold back till October when the annual Budget is presented.