Malaysia to float diesel prices, target subsidies to curb fuel leakage - Amir Hamzah

PUTRAJAYA: The government will implement a floating diesel price mechanism alongside targeted diesel subsidies to curb fuel subsidy leakages, which have become increasingly prevalent.

Finance Minister II Datuk Seri Amir Hamzah Azizan said the diesel subsidy, which amounted to RM1.4 billion in 2019, surged tenfold to RM14.3 billion last year due to several factors.

He highlighted that the consumption of subsidised diesel rose from 6.1 billion litres in 2019 to 10.8 billion litres last year, marking an approximate 70 per cent increase.

“From the perspectives of economic development and the rise in diesel vehicles, I cannot account for the 70 per cent increase. We believe this surge is due to significant leakages,“ he said during a recent briefing to senior editors at the Ministry of Finance.

He noted the disparity between the retail price of diesel at RM2.15 per litre and the market price of approximately RM3.50 per litre, which some parties exploit for profit.

Additionally, the fuel price differences with neighbouring countries, such as Thailand (RM4.12 per litre), Indonesia (RM4.73), and Singapore (RM8.87), create opportunities for fuel smuggling from Malaysia.

“To reduce leakages, the most logical solution is to float the price. When the government floats the price of diesel, the gap between retail and commercial prices is eliminated,“ Amir Hamzah said.

He added that reducing the gap between retail and commercial prices would prevent parties from profiting off subsidised diesel.

When asked about the implementation timeline for the diesel subsidy mechanism, he suggested it could be “this year” but did not provide specifics.

Regarding the targeted diesel subsidies, Amir Hamzah said the government employs a “whole of government approach,“ involving close cooperation among all ministries and agencies to ensure successful subsidy targeting.

This includes enhanced enforcement to prevent leakages and profiteering.

He mentioned that besides enforcement, creative measures are necessary to reduce border leakages.

“For instance, Singapore requires vehicles (with Singapore registration plates) entering Malaysia to have their fuel tanks at least three-quarters full, and Malaysia could implement a similar reverse check,” he said.

Amir Hamzah emphasised that targeted subsidies will be limited to qualified diesel vehicle owners, shifting away from bulk subsidies.

On 21 May, Prime Minister Datuk Seri Anwar Ibrahim announced that the cabinet had agreed to implement targeted diesel subsidies, projected to save the government around RM4 billion annually.

However, these targeted subsidies will not affect users in Sabah and Sarawak.

Additionally, the government will continue providing diesel subsidies to certain business sectors using diesel commercial vehicles, while mitigating the risk of sudden price increases for goods and services.