Malaysia: Government to Discuss Introducing Petrol Retail Pricing Mechanism

Last week, the government unexpectedly announced a reduction in pump petrol price by 15 sen to RM2.55 per litre and diesel by eight sen to RM2.50 per litre, effective the following day.  Prime Minister Datuk Seri Abdullah Ahmad Badawi had said the government would announce the new market adjusted fuel prices by month-end and to take effect from next month if prices of global crude oil continued to fall.

He had also said pump prices would not be reduced before the Aug 26 Permatang Pauh by-election. A source said there was little room for errors in the implementation of a proper mechanism to determine the fixed prices of fuel each month, and its proposal could be fine-tuned in parliament. “I understand that if the petrol review mechanism works, fuel prices may even be reviewed twice a month. As such, various views should be taken into account,’’ the source said.

The price revision for pump petrol and diesel follows the recent downward trend in crude oil, dropping from a high of US$147 per barrel in July to US$115 (RM385.25) early this month. It had prompted the government to announce that petrol prices at the pumps would be switched from the fixed price of RM2.70 per litre (before Aug 23) to a floating rate according to the month’s average current market rates with a fixed subsidy of 30 sen per litre.

According to reports and based on Aug 1’s crude oil price of US$128.19 per barrel, the price of RON97 petrol can dip from RM2.70 per litre to RM2.64 per litre after taking into consideration transport charges, commission and subsidy.

The source also said the petrol review mechanism must ensure that it would not encourage hoarding by unscrupulous parties should the price of petrol go up. With a transparent mechanism, the government is also hoping  to win the public’s confidence in the manner the flotation of petrol prices to market rates was implemented over the long term.

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