Govt to unveil new fuel subsidy scheme tomorrow

Govt to unveil new fuel subsidy scheme tomorrow
3 June, 2008

by Pauline Puah & Sharon Tan, The Edge

The government will announce a restructured fuel subsidy scheme tomorrow, said Prime Minister Datuk Seri Abdullah Ahmad Badawi yesterday.

However, it is unclear whether the scheme would be a temporary measure until a firmer plan was finalised by August, as suggested by Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad.

A comprehensive revamp of the country’s fuel subsidy scheme could also include a review of subsidies for power generators, including independent power producers, and ultimately the tariffs for consumers.

“The announcement will definitely come out on Wednesday. Tomorrow (Tuesday), we (Cabinet Committee on Inflation) are finalising quite a number of proposals,” he told a press conference after chairing the eightt National SME Development Council meeting at Bank Negara here.

Abdullah, who is also the Finance Minister, said the new scheme would take effect immediately. “Most of them (the proposals), we want them to be effective immediately. If not, there will be a lot of speculation,” he said.

Asked about Shahrir’s announcement earlier that there might be a fuel price hike in August, Abdullah said: “He (Shahrir) said it might be. Anyway, as far as subsidy or anything to do with oil, the final decision will only be made on Wednesday.”

In an immediate response to The Edge Financial Daily , Shahrir said tomorrow’s announcement would be on temporary measures before the permanent scheme took effect in August.

Earlier, speaking at a press conference at the parliament lobby yesterday, Shahrir said Malaysians should brace themselves for an increase in petrol prices in August but the lower-income groups could expect the increase to be cushioned.

“The petrol prices will increase. The idea is August this year when the subsidy system is restructured. The prices will rise with the proviso that Malaysians would still enjoy the subsidies on the basis of not on usage but on need.

“We have to be prepared for certain changes that would happen. There may be new changes,” he said, adding that a few proposals had been forwarded to the Ministry of Finance for its decisions.

“At the moment, the petrol subsidy is given on the basis of usage. The more you use, the more subsidy you get. That does not sound like a subsidy system. We would like to have a subsidy system that is based on need,” said Shahrir.

Asked if Malaysians were ready for the adjustments, Shahrir said the petrol subsidy issue would not have been a big burden for the government had it not been for the increase in both prices of petrol and food.

“The price of oil has gone up many times over since subsidy was introduced. Now it’s touching US$140 (RM455) in the world market. The second factor is the issue of food prices.

“The increase in food prices worldwide has put this issue of subsidy of petrol and diesel into another dimension,” he said, adding that savings from the petrol subsidy would be channelled towards food security and food production.

Petrol subsidy is expected to cost taxpayers RM56 billion this year while only RM4 billion had been allocated under the food security policy. The government subsidises about RM2 for each litre of petrol.

Shahrir also said the current regulation of restricting foreign vehicles to purchase petrol outside the 50km radius from the borders was only a stop-gap measure until the fuel subsidy management was established.

About 493 petrol stations at the northern and southern borders are affected. The ruling has already taken place in the northern borders and will come into force on June 9 in the southern entry point. The ruling, however, would not affect motorcycles.