Diesel subsidy: RM1.4b to RM14.3b in 4 years?

We know what triggered the abuse

THESE figures jump out screaming when talking about the recent diesel subsidy rationalisation.

One. Diesel subsidy went up from RM1.4 billion in 2019 to RM14.3 billion in 2023. That’s a 10-fold surge in a mere span of four years.

Two. Subsidised diesel increased from RM2.1 billion in 2019 to RM10.8 billion in 2023, even though diesel powered vehicles did not see a major jump.

Three. Three million litres of diesel are smuggled out of the country every day, resulting in daily losses of RM4.5 million. That works out to RM1.64 billion for the full year.

We know what triggered the abuse. Greed. Money. An opportunity to arbitrage.

The question that begs an answer is what has the authorities been doing in this period that saw such a big jump in the diesel subsidy abuse. How did it get so bad, so fast?

“You don’t want to mess with them. These officers are very powerful. If they find subsidised diesel in your tanks, they can immediately seal your tanks,” said a worker at a quarry run by a public-listed corporation, underlining the authority that government officials wield.

Starting June 10, the government has lifted the subsidy for diesel sold at pumps in Peninsular Malaysia, raising the price 56% to RM3.35 per litre. However, it will stay unchanged at RM2.15 per litre for Sabah, Sarawak and Labuan.

Along with the move, the government is providing direct subsidies to certain groups, especially in the transportation sector, to keep prices in check.

But quarries and other businesses do not qualify for subsidised diesel. Instead, they are supposed to buy industrial diesel sold at market prices. Some unscrupulous business owners buy subsidised diesel meant for retailers.

There is no shortage of people willing to buy the diesel from the pump stations, bulk up and sell it to them.

Overall, the nation’s subsidy bill started rising during Covid-19 and the global energy crisis. Additionally, the removal of the Goods and Services Tax (GST) in 2018 strained the country’s finances.

Bank Negara Malaysia records showed that the total subsidies bill rose 300% from RM23.9 billion in 2019 to RM71.9 billion in 2023. The majority, 74%, goes to subsidising fuels. Without a doubt, this is a massive fiscal burden on the government.

Malaysia’s fiscal deficit of around RM99 billion in 2021 and 2022 was the highest in its history — swelling from GST’s abolishment (2018), Covid-19 (2020-2021) and surging energy prices (2022), noted Hong Leong Investment Bank Bhd in a note released earlier this year.

The diesel subsidy rationalisation is part of the efforts to narrow the fiscal deficit to 4.3% of GDP as planned for this year.

What triggered the diesel subsidy removal were the huge leakages, Minister of Finance II Datuk Seri Amir Hamzah Azizan told reporters at a recent press conference to announce the latest measure.

“We have to put a stop to the leakages; we have to put an end to the smuggling at the borders. This is the rakyat’s money. We can return the savings back to the people by having more infrastructures for the people,” he added.

Agreed. Resolving the diesel subsidy abuse is very much necessary. But we come back to our earlier question: What were the authorities doing all this while?

When asked about controls to prevent leakages, a minister recently said that it was impossible with only about 2,500 enforcement officers.

There is more than meets the eye. As mentioned by the quarry worker, the government enforcement officials come armed with authority, able to throw the book at the culprits.

But, from the outset, the government machinery lacks efficiency.

I read two articles in a finance magazine that landed in my email inbox. Both of them had something to say about efficiency.

In the first article, Singapore-based UOB Group deputy chairman/CEO Wee Ee Cheong talked about how the financial institution is eyeing to be the top cross-border trade bank in ASEAN. The company recently acquired Citigroup Inc’s consumer banking businesses in four Asean markets — Indonesia, Malaysia, Thailand and Vietnam.

“We are also doubling down on productivity efforts by digitalising our processes, enhancing customer experience, deepening employee engagement and streamlining costs,” he told the magazine.

In another article, Lori Schwartz, a global head of liquidity and account solutions and digital and design at JP Morgan Payments, discussed fostering innovation within the corporate treasury.

One spoke about doubling down on productivity, the other about creating efficiencies and changing mindsets.

In our case, can we say the same for the civil service? We seem to be struggling even with the granular data collected via PADU, supposedly the nation’s central database hub aimed at consolidating information on Malaysian citizens.

When you think about the abuse, it makes you want to stamp your foot, tear your hair and gnash your teeth. For abuse of such magnitude, you should if you are managing the system. But it is difficult to say if the fire is raging to reign in the abuse.

Inefficacy and corruption have seeped deep into the system, making course correction an uphill battle. — pic TMR FILE

  • Habhajan Singh is the corporate editor of The Malaysian Reserve.

  • This article first appeared in The Malaysian Reserve weekly print edition