Fuel subsidy increased while oil price is down?

By Ng Wei Aik, Member of Parliament for Tanjong


In the 2014 Federal Budget, the Federal Government is seeking to increase the subsidies for liquefied petrol gas (LPG), diesel and petrol and also cash aids to RM22.341 billion, an increase of RM2.326 billion from RM20.015 billion originally estimated in the 2013 Federal Budget.

In September 2013, the Federal Government tabled a supplementary budget in the Parliament to seek additional allocation of RM8.8534 billion, following the crude oil price that has suddenly increased from USD102 per barrel to USD 115 per barrel as a result of mounting prospects of a US-led military strike on Syria. These subsidies will go to RON95 (RM4.4 billion), diesel (RM3.52 billion) and LPG (RM0.88 billion).

However, the oil price has fallen as diplomacy aimed at Syria and Iran eased concerns about Middle East supplies after climbing to over USD110 in the late August. The oil price even dips below USD102 per barrel after parts of the US Government were ordered to shut down because of a budget impasse in Washington.

Following this trend, global oil prices are expected to fall moderately in 2014 as new supply comes on line from the US, Iraq and other countries. Future markets also indicate lower prices next year. As such, there is no necessity for the Federal Government to increase the fuel subsidies through the 2014 Federal Budget.

Our Prime Minister Najib Tun Razak has reminded us in the early September that the reduction in subsidies for fuel would save the Federal Government of RM1.1 billion for the remaining 2013 when announcing the 20-sen increase in the price of diesel and RON95. The rationalization of fuel subsidies will eventually save the Federal Government of RM3.3 billion in 2014.

Over the past two and half months, a number of countries or regions have lowered the fuel prices as indicated in the box:

New Delhi, India 30 Sept 2013 Petrol Price cut by Rs 3.05/litre
Taiwan 28 Oct 2013 Fuel Price reduced by NT$0.2
Ghana 1 Oct 2013 Petrol down by 4.3%; diesel by 2.3% & LPG by 2%
Vietnam 22 Aug 2013 Petrol Price decreased by VND300 per litre
Bermuda 16 Aug 2013 Diesel down 1.6 cents/litre
South Africa 2 Oct 2013 Petrol (95) 20 c/l decreased; Petrol (93) 19 c/l; Diesel 2 c/l
Georgia                26 Sept 2013 Diesel fuel price has dropped by 15 tetri – to 1.90 lari
China 29 Sept 2013 Petrol down by CNY 0.18 per litre; diesel by CNY 0.20 per litre


As such, the need to increase the fuel subsidies by 11.62% through the 2014 Federal Budget is highly questionable. There is no urgency for the Federal Government to further increase the fuel subsidies to RM22.341 billion (which is equivalent to 8.46% of total expenditure estimated in 2014), but to immediately lower the fuel subsidies as well as to reduce the fuel price, as a way to reduce burden of the people.

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