Malaysia subsidy cut increases fuel prices

The reason was that oil prices in Malaysia were much cheaper than here.

All that changed on June 5.

Feeling that it could no longer shoulder cheap energy prices that aggravated its fiscal burden, the Malaysian government freed up the oil subsidy, sending oil prices there shooting up 45-55 per cent.

Still, Malaysia is one of the best performers in the region when it comes to managing inflation. The end to oil subsidisation is expected to lift this month's inflation to about 5.8 per cent year on year and full-year inflation to about 4.5 per cent.

Diesel in the border towns of Malaysia has surged from Bt16.15 to Bt25.05 per litre, up 55 per cent. Premium petrol has climbed 42 per cent from Bt18.25 to Bt26.06 per litre.

Thai car owners now find no incentive to drive across the border to top up their tanks. Besides having to wait for 30 minutes in line, they are restricted from buying more than 20 ringgit, or about Bt200, worth of petrol at one time.

Malaysia, India, Indonesia and other countries are now cutting back on their fuel subsidies in the wake of spiking oil prices and rising fiscal burdens. About 40 per cent of Asia's consumption of oil is at a subsidised cost.

According to DBS Group's Daily Breakfast Spread, Malaysia has announced its much anticipated energy subsidy restructuring programme, which would likely cost the government M$56 billion this year without subsidy cuts and would still cost the lion's share of this.

With the revision, petrol prices will rise by 41 per cent to M$2.70 per litre. Diesel prices will increase by M$1 to M$2.58 per litre. Prices will be reviewed on a monthly basis thereafter.

Power tariffs for commercial users will also rise by 26 per cent, while Tenaga, Malaysia's power company, will introduce a new tariff structure on July 1.

Prices of gas supplied by Petronas will also double as part of this restructuring process. In all, the process is expected to help the government save about M$13.7 billion this year.

The government is also imposing a windfall tax of 5-15 per cent on millers for crude palm oil priced above M$2,000 per tonne.