Fuel subsidy — the Paul Tan perspective

Fuel subsidy — the Paul Tan perspective

Interview by Debra Chong (Malaysia Insider)

KUALA LUMPUR, June 3 – The prime minister is expected to announce a new fuel subsidy mechanism tomorrow, after Cabinet mulls over the proposals forwarded by the Committte on Inflation, which sat earlier this afternoon.

Datuk Seri Abdullah Ahmad Badawi, who is also the Finance Minister, also said that the new scheme would be implemented with immediate effect. This would spell the beginning of the end of government-controlled fuel prices.

How much will the new pump prices cost? How will the new subsidies apply and distributed? Who will qualify? How will the poor cope?

These are just some of the obvious questions. Hopefully, all will be revealed within the next 24 hours.

In the meantime, The Malaysian Insider gets the assistance from motoring blogger, Paul Tan, for his perspective on this bread-and-butter issue.

TMI: What are the most popular options for the new subsidy system being discussed?

Paul Tan: There are a few. Let me list. What we know for sure is the prices at the pump will be market price; Pak Lah said so yesterday. It could potentially include fuel tax too and there will not be any ceiling price for this...free market.

TMI: Could you elaborate?

PT: This means we could – though it's a possibility only – see different stations offering different prices for fuel, like in Singapore. What remains to be decided is how to give subsidies. One way is through some kind of automatic way, like using a card of some sort to activate the cheaper prices at the pump. The other way is through a rebate: Pay market price (basically whatever the petrol companies want to charge) first, and rebate it later.

TMI: What's this about a fuel tax then?

PT: Basically our fuel price now is cost of crude oil + cost of refining it into petrol + petrol company profit - fuel subsidy. Now, let's say cost of crude oil + cost of refining + profit = RM3. It is possible that the government will not let it be sold at RM3. They will add fuel tax to earn money.

To put it simply, rather than helping us pay for our petrol, now not only will they not help us pay, they are going to tax us for it! Like alcohol tax, cigarette tax, this that. So petrol will be cheaper in (duty-free places like) Langkawi, etc (laughs).

TMI: How likely is such a scenario?

PT: I don't know really. Up to the government.

TMI: Your prediction though?

PT: I think maybe only in August they will introduce fuel taxes.

TMI: So, what's the scenario likely to look meantime?

PT: (Domestic Trade and Consumer Affairs Minister, Datuk) Shahrir (Abdul Samad) said this whole thing will be implemented in stages, leading from tomorrow up until August. Tomorrow will likely be market price without the addition of the fuel tax.

TMI: And what about the new subsidy system to be introduced?

PT: Okay, here's the thing. The new subsidies are not quota-based. So as long as you qualify, if you use 10 litres a month, you get 10 litres' worth of subsidies. But if you use 1,000 litres a month, you get 1,000 litres of subsidies. It's based on need and paid for by usage rather than need and quota. (The new subsidy) I think money will be dished out every quarterly or something.

TMI: How? Cash? To whom?

PT: To the people who qualify for subsidies. The easiest way to determine who qualifies would be through the Income Tax Board, so I guess now everyone has to register despite not being qualified to pay tax yet. The last time I tried, they told me to... because I earn too little.

TMI: So they'll draw up a plan and divide the citizenry into two categories: Rich and poor?

PT: Yup.

TMI: So, based on your annual income and not what car you drive?

PT: Yup. If a rich man drives a Kancil, too bad. He'll have to pay an expensive price also (for his fuel). This means hybrid car sales like Civic Hybrid will probably pick up!

TMI: So we'll see a new column in our Income Tax form to claim our rebate for fuel, is it?

PT: Most likely.

TMI: But how if it's going to be a quarterly rebate?

PT: Erh, this one I'm not sure. I say quarterly because it's a good balance. The government, I don't think has got enough resources to process monthly payments in such a short timespan by August.

TMI: Okay, that's in the fine print which they'll have to work out, right?

PT: Yeah.

TMI: I'm thinking up cons for this already. What about those who cannot even afford cars?

PT: That is also why whatever card system or MyKad won't be used for the subsidies. August is too soon to implement such gizmos. Too bad for them. The system, as it is, already they don't enjoy any subsidies because they don't pump fuel into anything. So why should they "bising" (make noise)?

TMI: They bising because they pump fuel into their motorbikes.

PT: Then they get a tiny amount of subsidy.

TMI: But if the pump price is market price and is not subsidised ...

PT: What we know is for something to be implemented by August. It will be a very simple way of doing it. No time. The last time they wanted to change credit card terminals to chip-based took ages.

TMI: So, something simple. The likeliest option will be a rebate. yes?

PT: Yup, cash rebate.

TMI: How else do you think the government will move to reduce their subsidy burden?

PT: Lower-income group of people, however, will be given subsidy in other forms — cash handouts and fuel quotas, Shahrir was quoted as saying by the national news agency Bernama.

TMI: Some are talking about a different rate for industry users.

PT: Industry users already have fleetcard system in place. I think there's no need to care about that. As it is, they get cheaper diesel than what is available at the pumps by using the fleetcard. My friend pumps cheaper diesel into his pick-up truck because his father-in-law has a ladang kelapa sawit (palm oil estate), or was it ladang coconut (coconut estate)? All these systems, all can be abused.

TMI: What's a fleetcard?

PT: Fleetcard is a subsidy card system used so that businesses can get cheaper than pump price diesel at normal petrol stations.

TMI: And how does one get it?

PT: You need to apply. I don't know the criteria. Certain industries qualify. On complaints by the Pan Malaysian Lorry Owners' Association and Pan Malaysian Bus Operators' Association that they were having trouble getting the fleet card which entitles them to cheaper diesel, (Datuk) Mohd Shafie (Apdal, former Domestic Trade and Consumer Affairs Minister) advised them not to raise their grouses through the media, but to come to the ministry instead. It seems that buses cannot. (laughs!) And some lorries.