RON95 subsidy removal should be phased in; could start at RM2.45 this year, not straight down to RM3.30 – analyst
The rationalisation of fuel subsidy for RON 95 petrol could be done in phases, said TA Securities chief analyst Kaladher Govindan. Harian Metro.
It may take some time for the Malaysian government to assess the impact of floating retail diesel fuel prices and the readiness of Pangkalan Data Utama (PADU) Database to determine the level of cash support needed before implementing subsidy rationalization for RON 95 gasoline, Kaladher said.
The rationalisation of the subsidy for RON 95 petrol is more complicated than that for diesel fuel, he said, as it significantly affects the majority of registered vehicles in Malaysia, about 36 million units, which contributed to retail fuel sales of RM66.7 billion last year.
He added that there was no rush to rationalize subsidies before a proper system was in place and the government was likely to implement the rationalization in the fourth quarter of this year before revising it in phases until 2025.
Additionally, additional details on fuel subsidy will be presented in Budget 2025 scheduled for October 2024 and by then, the government will have inflation data for months from June to September 2024 to assess the outcome of the diesel subsidy scheme, Kaladher said in a mid-year report by TA Securities, according to Harian Metro.
On the one hand, removing the petrol subsidy could increase the retail price of RON 95 petrol from the current RM2.05 a litre to RM1.25 to RM3.30 a litre, while on the other hand, implementing the subsidy rationalisation for RON 95 petrol could bring more savings to the government, he said.
Assuming 20 billion litres of fuel are consumed this year, every 10 sen increase in fuel prices will save about RM2 billion in fuel subsidies each year, according to Kaladher. In its inflation forecast, TA Securities expects the retail price of RON 95 petrol to be revised up by 40 sen to RM2.45 a litre.
However, the RM8 billion savings from fuel subsidies could only be realised next year, depending on the extent and timing of fuel price adjustments, and could be even greater if the rationalisation of RON 95 subsidies takes place this year, according to a TA Securities report.
The fuel subsidy rationalization program starting on June 10, with diesel fuel retail prices maintaining a 56% increase, or RM1.20 to RM3.35 a litre in Peninsular Malaysia. Fuel continues to be priced at RM2.15 a litre in East Malaysia.
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