Petrol dealers warn of negative impact from floating RON95 price

Dealers would not be able to plan in advance the amount of fuel stock needed and sell at a lower price if there is a price drop


PETROL dealers worry that the government’s decision to float the retail price of RON95 starting next year under the weekly pricing mechanism will force operators to incur losses.

Fuel pumps operators said their losses would widen especially when global oil prices rise.

Bumiputera Petrol Dealers Association of Malaysia (Bumipeda) president Datuk Abu Samah Bachik said a weekly float system would have adverse effects on the dealers because they would not be able to plan in advance the amount of fuel stock needed.

He urged the government to not rush into the implementation of the system because many sectors will be affected.

“We (the traders) will buy one week stock of fuel. But if the float system is implemented weekly, we might have to sell fuel for a much lower price compared to when it was purchased because of the drop in prices,” he told The Malaysian Reserve.

Last week, the government announced a targeted petrol subsidy initiative which will be given out to eligible recipients under the Bantuan Sara Hidup scheme.

The changes would also see the price of RON95 floating according to global market price beginning January next year.

The targeted fuel subsidy scheme will benefit about 2.9 million people.

It is capped at RM30 monthly for cars and RM12 monthly for motorcycles.

Only car owners with 1,600cc engine and below; or those with 1,600cc and above, and at least 10 years old will receive the subsidy. Motorcycle owners with engine displacement of 150cc and below; or above 150cc and seven years old and above, would receive the monthly incentive.

All users irrespective of their social class in Sabah, Labuan and Sarawak will continue to enjoy RON95 at RM2.08.

Meanwhile, petrol dealer Samsulbahrin Saim said operators would prefer a monthly fuel price mechanism as it would minimise the impact on the station owners.

“As the price increases, dealers will not have sufficient funds (to purchase it) and we will suffer more losses if the price drops the following week because we will have to sell the fuel at a lower price.

“It will also lead to a smaller profit margin when the global market price is high because the bank merchant fees will increase and sales will drop as consumers reduce their purchase,” he said.

He, however, said the impact would be minimal if the fuel price is lower than RM2 per litre.

The weekly-managed float system was first implemented by the Barisan Nasional administration in December 2014.

The Pakatan Harapan government then capped the price of RON95 to RM2.20 per litre and further reduced it to RM2.08, while the price for RON97 is determined by a weekly floating mechanism.

Another dealer who refused to be named said petrol dealers went through a challenging period when the float system was implemented by the previous government.

She said for dealers, the price float mechanism means the immediate stock in tank is a loss if there is an overnight reduction in fuel prices.

“That stock loss needs a number of days to recover depending on the sales volume and amount of loss to be recovered.

“When there is an increase in price, the dealers have to use the one-time, net cash gained to pay a more expensive stock from the oil companies on their next purchase.

“Dealers just earn their commissions for every litre and not in terms of percentage. So any increase in fuel price doesn’t give extra profit to the dealers,” she added.

A report by Affin Hwang Capital showed that Petronas Dagangan Bhd (PetDag) will benefit from the targeted fuel subsidy programme.

“PetDag will be able to enjoy the benefit of a full payment directly from consumers under the managed float system, as compared to the current system whereby subsidy receivables by the government are paid with a two-month lag.

“We believe consumer spending may see a shift towards PetDag, which currently offers the highest fuel rebates through its loyalty card programme. As fuel becomes more expensive, consumers are likely to seek more attractive rebates to lower their cost of living,” said the report.

Malaysian Industrial Development Finance Bhd said the float system will impact sales volume of PetDag as consumers might potentially switch from driving to taking public transportation.

“However, we opine that the impact will be negated by the extensive network of 1,100 stations that PetDag has nationwide.

“Furthermore, it is noted that the newly refurbished stations have shown an average of 3%-4% increase in sales volume from the recent refurbishment exercises which we opine will also help mitigate the impact from the re-floating of the RON95,” it said in a report.