DGM mechanism would guarantee dealers a profit margin of about 10 sen per litre
By AFIQ AZIZ & ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL
PETROL pump dealers are pushing for a new fuel price formula that would abate the risk of the weekly oil price fluctuation onto their businesses.
The dealers guaranteed margin (DGM) mechanism, which is currently being practised by one of the country’s largest oil companies, is promoted as a nostrum to the weekly float system that has seen the closure of more than 300 petrol stations nationwide.
Petrol Dealers Association of Malaysia (PDAM) president Datuk Khairul Annuar Abdul Aziz said the new method will take out the risk of fluctuation from the dealers and allow for steadier returns.
“Initially, we proposed the ‘self-order’ mechanism which would allow dealers to determine orders instead of their principle. But this will create a spike in orders when fuel prices go up, thus making it unviable in terms of logistics.
Now, we are proposing the DGM mechanism.
“What this mechanism does is oil companies will compensate the dealers if we have net losses, and vice versa when we gain profit. Over a month, our margin will be as per if there were no price fluctuations.
This way, oil companies undertake the risk and not the dealers,” Khairul Annuar told The Malaysian Reserve.
He added that, under the DGM mechanism, dealers are guaranteed a profit margin of about 10 sen per litre.
However, not all oil companies are eager about the new system. Some oil majors are not keen on the proposal as it would affect their existing retail arrangements. In turn, other fuel retailers associations had asked PDAM to propose for a nationwide implementation of the mechanism.
The weekly price mechanism, implemented on March 29 last year, has been a bane for retailers who have groused about thinning margins due to the spiralling costs of fuel and minimum wage and levy payments for foreign workers.
There are some 3,200 petrol stations in the country at present — nearly half of which are owned by Petroliam Nasional Bhd, while the rest are shared among Shell Malaysia Ltd, Petron Malaysia Refining and Marketing Bhd and Boustead Petroleum Marketing Sdn Bhd among others.
PDAM had, in June last year, submitted its proposal and recommendations to the Domestic Trade, Cooperatives and Consumerism Ministry (KPDNKK) after a four-hour long meeting.
Among the suggestions forwarded by PDAM include allowing petrol retailers to have control over their stock and selling the stock through consignment, where commission will be given based on per litre sold.
Following the engagement, KPDNKK Minister Datuk Seri Hamzah Zainuddin said the government would study a new formula to improve the current weekly mechanism.
However, there have been no updates on the matter so far.
Khairul Annuar said apart from the fuel cost mechanism, PDAM also wants the government to revise its commission system upwards.
He said the 12.9 sen per litre commission mandated since 2008 by the government has become obsolete as operational costs have increased significantly in the last 10 years.
PDAM is now seeking a raise of 18 sen per litre, which is about 40% higher than the current commission rate.
Khairul Annuar said the request to review the commission system had been put forth earlier, and the government is expected to implement the scheme in June this year.