The petrol subsidy programme that never was

The policy, which is supposed to take place this month, has seen various delays over the past 6 months


THE government is once again postponing the targeted petrol subsidy programme (PSP), one of the most anticipated subsidy programmes by Malaysians.

The policy, which was supposed to take place this month, had seen various delays over the past six months.

It is part of the Pakatan Harapan’s (PH) election manifesto to ensure the stabilisation in fuel price and channel subsidies to the needy, mainly the bottom 40% (B40) income group.

However, after the programme was finalised in October 2019, the government decided to take some time in implementing it, stating that the public needs to be consulted and clarified to ensure a smooth policy change.

The Malaysian Reserve (TMR) recaps on the progress of the targeted PSP project, which was mooted by the PH government in line with its 14th General Election (GE14) manifesto.

The 100-day Promise to Stabilise Fuel Price

PH’s 100-day pledge includes stabilising fuel prices in the local markets, with subsidies to maintain retail prices of petrol and diesel.

Following its victory in the GE14, RM3 billion was allocated for the remaining of 2018 to subsidise retail prices of petrol and diesel.

Consequently, retail prices for RON95 and diesel petroleum were kept at RM2.20 per litre and RM2.18 per litre respectively, while RON97’s price was on a managed float, just as with the previous administration.

Despite the increase of global crude oil price by 42% to US$74 (RM302.66) per barrel, compared to an average of US$52 per barrel guided in the 2018 Budget, the prices of RON95 and diesel remained unchanged at RM2.20 and RM2.18 per litre respectively.

This, the Finance Ministry (MoF) said, involved a subsidy of 30 sen per litre of petrol that was borne by the government up until the end of 2018.

However, in line with the government’s aim to alleviate the debt burden on its coffer, Putrajaya said a targeted fuel subsidy mechanism is needed to ensure that money will only reach the needful group bracket.

The mechanism applies only to RON95.

Saifuddin Nasution says that 5m M40 individuals have been identified as recipients of the PSP scheme. – pic by RAZAK GHAZALI

Cash, Card and the Criteria

In November 2018, Domestic Trade and Consumer Affairs Minister Datuk Seri Saifuddin Nasution Ismail said the new system was expected to be rolled out in stages by the second quarter of 2019.

During the tabling of the Budget 2019, Finance Minister Lim Guan Eng said RM2 billion would be allocated for the PSP.

Simultaneously, the price of RON95 would be floated and adjusted gradually once the targeted petrol subsidy took effect this year.

However, petrol dealers associations, until June 2019, were still in the dark over the implementation.

They were also not briefed on the subsidy mechanism. The initial plan was to introduce a dedicated system, which would allow eligible recipients to be given a discount card or a coupon to purchase petrol.

Saifuddin Nasution suggested that direct debit into recipients’ bank accounts would be a more practical approach.

Quoting sources, TMR previously reported that the government would distribute cash directly to recipients under the proposed fuel subsidy programme as Putrajaya sought a direct approach like the cash aid programme mooted by the previous government — Cost of Living Aid.

Industry observers noted that by using new systems such as card and installed terminal, it would only add millions of ringgit in the government procurement, hence defeating the government’s goal to help the poor in this scheme. The programme was also dogged with arguments like the type of vehicles entitled for the subsidy.

In Budget 2019, Lim said the subsidy would cover cars with an engine capacity of 1,500cc and under, and motorcycles with engine capacity of 125cc and under.

The subsidy would be 30 sen per litre and capped at 100 litres a month for cars and 40 litres a month for motorcycles.

Around four million car owners and 2.6 million motorcycle owners were expected to benefit from the programme.

However, after several delays, Saifuddin Nasution announced that the new targeted fuel subsidy of RON95 would be rated at RM30 a month for car and RM12 for motorcycle.

He said the criteria are fixed for cars of 1,600cc and below, and those over 1,600cc and 10 years old and above.

The Cabinet also agreed to review the criteria for motorcycles, which currently applies to 150cc and below, and over 150cc and seven years old.

Maximum vehicle ownership is capped at two cars and two motorcycles for each person, while the eligibility of the subsidy is limited to one of which is higher.

The cash amount will be automatically credited into the recipients’ accounts every four months.

Saifuddin Nasution said overall, this programme will benefit about 2.9 million vehicle owners in the country, including disabled individuals.

On top of this, the minister also declared that five million middle 40% (M40) income group individuals have been identified as recipients of the PSP scheme.

Meanwhile, the remaining recipients need to be tracked as the MoF has allocated RM2.2 billion, which involves eight million recipients for the programme.

Lim said a study on the M40 data will be concluded in March.

If materialised, the M40 recipients might get their subsidy in the form of a card called Kad95, which would entitle them to a 30 sen per litre subsidy for RON95, limited to 100 litres a month for cars or 40 litres for motorcycles.

Another Postponement to Seek Better Clarity

The targeted PSP scheme scheduled to kick start today has been postponed indefinitely.

Saifuddin Nasution said the delay was approved at a Cabinet meeting on Dec 18, 2019.

“The Cabinet meeting has decided that the implementation of the PSP which is scheduled to begin in January 2020 will not go ahead until a time that will be announced later,” he said, adding that this was to allow more explanations to be conducted in order to better prepare Malaysians in accepting the PSP.

He added that the registration process of recipients under the M40 group will be conducted by the MoF.

“While waiting for the confirmation of the PSP implementation to be announced, the people can continue to enjoy current petrol prices based on the present system,” his statement read.