Increase in crude prices expected to bring total subsidies for petrol, diesel and LPG to more than RM2.5b per month

 pic by TMR FILE

THE government will review its oil product subsidy mechanism following a 10-fold increase in the cost to subsidise fuels to RM2 billion in January due to the rise in crude oil prices.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) said the war in Europe has pushed the price even higher.

“The price of crude oil for this month (March) of this year is US$85 (RM355.94) per barrel from US$55 per barrel in January 2021.

“Coupled with the conflict between Russia and Ukraine, global crude oil prices have risen sharply to more than US$100 per barrel, the highest level since 2014,” Tengku Zafrul said in Dewan Rakyat yesterday, responding to a question by Bukit Bendera MP Wong Hon Wai.

Thus, the minister said, this increase is expected to bring the total subsidies for petrol, diesel and liquefied petroleum gas (LPG) to more than RM2.5 billion per month.

“If global crude oil prices remain above US$100 per barrel, the total subsidy for the whole year of 2022 is expected to reach RM28 billion compared to RM11 billion for 2021,” he noted.

Tengku Zafrul also said consumers currently only pay RM2.05 per litre for RON95 petrol, but the actual cost in March has reached RM3.70 per litre, which the government has to cover the difference of RM1.65 per litre.

“This means that the government subsidies are up to 45% of the total need to pay,” he added.

As for diesel, he noted that consumers only pay RM2.15 per litre at the petrol station, while the actual cost has also exceeded RM4 per litre.

“A big gap between the retail price at the petrol station compared to the actual market price will be resulting in a higher risk of subsidy leakage due to smuggling activities of petroleum products,” he added.

The finance minister was concerned as the government cannot borrow to finance operating expenditure (OE) such as subsidy costs.

“Thus, the increase in subsidy costs needs to be offset by increased revenue as well as expense savings.

“The government will review the oil product subsidy mechanism to implement more targeted and focused aid and subsidies on the vulnerable and those who really need help,” he said.

Meanwhile, Tengku Zafrul said despite spending the largest budget of RM31 billion for aids and subsidies in 2022 compared to RM28 billion a year ago, the expenses exclude the cost of delivering public services.

“The cost of delivering public services such as public health services involves an operating expenditure of about RM28 billion,” he told Dewan Rakyat.

Tengku Zafrul noted that the allocation for this year includes more assistance for livelihood and welfare (RM11 billion), education subsidies (RM7.7 billion), agricultural entrepreneurs subsidies (RM2 billion) and transport subsidies including rural air services (RM1.9 billion).

Besides subsidies for petrol, diesel and LPG, subsidies for cooking oil also increased in line with rising market prices of palm oil.

“Cooking oil subsidy expenditure in 2020 was RM500 million and increased over four-folds to RM2 billion in 2021. It continues to show an increasing trend in early 2022,” he noted.

Concurrently, the minister said the government has also introduced subsidies for poultry and eggs at more than RM130 million per month to protect the people from sharp price increases.

“However, this approach is not targeted and price subsidies benefit all consumers regardless of income level and consumption level.”

Therefore, Tengku Zafrul said the government is now covering billions of subsidies for high-income groups, which should be more worth spending for national development and assistance for those in need.

“The government is in the process of reviewing how to approach subsidies that can be extended to other subsidised goods, so that the government’s limited resources are devoted to the people who are truly in need, and there will be no leakage of subsidies to those who are more well off,” he added.