By: Dr Safiah Omar
Malaysian citizens are now aware of the possibility for Ron 95 petrol subsidy will be discontinued starting June 2025. Although the decision has not yet been finalized, the news create worries among the people, particularly those within the B40 and M40 groups. The question here is whether the year 2025 is the right time to impose such a decision.
The country has gone through many tough changes in 2024 including the discontinuation of Diesel subsidy, floating pricing of certain commodities products, tariff increases on electric usages, and many others. In addition, the public sectors employees recruited after February 2024 are no longer able to choose pension for their retirement plan. On the same note, the public healthcare under the Ministry of Health (MoH) is facing major issues where more than 6000 doctors who work under contract leave their jobs for other opportunities.
Despite all the challenges in 2024, the country is still moving forward and doing its best to improve the economics conditions by reducing the deficits. Most of the decisions made last year were to generate more incomes to balance the needs for every industry in Malaysia. The decision to discontinue subsidy on diesel is essential due to high smuggling issues to neighboring countries with losses of RM 10 billion a year as reported by Bernama.
This is because the demand for diesel is huge for industrial purposes. Diesel has many uses such as for trucks, lorries, boats, ferries, generators, and these create the big demand for the ‘black market’. Since Malaysia has cheaper diesel those time, it’s always been the target for smugglers to operate their business.
However, the situation for RON 95 petrol is different. The demand for this type of petrol is not as high as RON 97, RON 100, and Diesel. This is because RON 95 is only suitable for small vehicles and the use for industrial purposes is very small. The demand for RON 95 in the ‘black market’ is not big and it can be controlled by the related authority agencies. This led to the question whether the savings generated from the discontinuation of subsidy will overcome the cost of changing the system for targeted subsidy as suggested by the government.
The discussions for the best practice for targeted consumers were highlighted in the Parliament sessions in November 2024. The options discussed range from Identity Card verifications to applying integrated system within the petrol stations provider. Both options have their own cost that the government must pay. The systems may require private sector expertise where the cost will be incurred for purchasing or leasing. Not to mention the maintenance cost and the repair cost in case of system breakdown.
Another risk is whether the system will work efficiently and will not cause any chaos or long que at the petrol stations. There are also potential total system breakdowns that may cause the targeted subsidized consumers not able to purchase their RON 95 within the stipulated rate, or the system may allow all consumers to purchase at the subsidized rate without being in the targeted groups.
To reduce the economics deficits, allowing discontinuation of subsidies may seem to be the faster solutions. However, RON 95 is used by most of the citizens, and it is essential for them to commute to the workplace, sending their children to schools, completing daily errands, and many more. There are many pressures endured by Malaysian in 2024 with the policy changes and the higher cost of living since post-Covid 19.
Perhaps giving some air for them to breathe in 2025 can be the best gift from the government by postponing the decision to discontinue RON 95 subsidy to later years.
The author is a Senior Lecturer at the Faculty of Business and Economics, Universiti Malaya.
Leave a comment