RON95 subsidy removal should be in stages; can start at RM2.45 this year, not directly to RM3.30 – analyst


RON95 subsidy removal should be in stages; can start at RM2.45 this year, not directly to RM3.30 – analyst

The fuel subsidy rationalisation for RON 95 petrol can be expected to be carried out in stages, said TA Securities chief analyst Kaladher Govindan, reported Harian Metro.

The Malaysian government may take some time to evaluate the impact of the floated retail price of diesel fuel, and the readiness of the Pangkalan Data Utama (PADU) database in order to determine the cash assistance required before carrying out the subsidy rationalisation for RON 95 petrol, Kaladher said.

Implementing the subsidy rationalisation for RON 95 petrol is more complex than that for diesel fuel because of its significant impact upon the majority of registered vehicles in Malaysia, which is around 36 million vehicles, which contributed to RM66.7 billion in sales of retail fuel last year, he said.

RON95 subsidy removal should be in stages; can start at RM2.45 this year, not directly to RM3.30 – analyst

The subsidy rationalisation cannot be rushed before a proper system is in place, and the government is likely to implement the rationalisation in the fourth quarter of this year before revising it in stages until 2025, he continued.

Additionally, further details on the fuel subsidy will be tabled in Budget 2025 that has been scheduled for October 2024, and by that time, the government will have had several months of data on inflation between June and September 2024 to evaluate the results of the mechanism for the diesel subsidy, Kaladher said in a TA Securities’ mid-year report, according to Harian Metro.

On one hand, the removal of petrol subsidy could increase the retail price of RON 95 petrol from its current rate of RM2.05 per litre by RM1.25 to RM3.30 per litre, though on the other, implementing the subsidy rationalisation for RON 95 petrol could bring even more savings to the government, he said.

RON95 subsidy removal should be in stages; can start at RM2.45 this year, not directly to RM3.30 – analyst

Assuming 20 billion litres of fuel is consumed this year, every 10 sen increase in fuel price will bring around RM2 billion in savings from fuel subsidies each year according to Kaladher. In its inflation forecast, TA Securities expects an adjustment of 40 sen to the retail price of RON 95 petrol, raising it to RM2.45 per litre.

However, the RM8 billion in savings from fuel subsidies may only be realised next year, depending on the quantum and duration of the fuel price adjustment, and more could be saved if the RON 95 subsidy rationalisation takes place this year, according to the TA Securities report.

The fuel subsidy rationalisation programme began on June 10, with the retail price of diesel fuel sustaining a 56%, or RM1.20 increase to RM3.35 per litre in Peninsular Malaysia. The fuel continues to be priced at RM2.15 per litre in East Malaysia.

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