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Diesel Price Hike: What Is The Reason Behind Sharp Rise in Pump Price Of Diesel?

Diesel

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KUALA LUMPUR: Finance Minister II Datuk Seri Amir Hamzah Azizan has said that the government has set the diesel pump price at RM3.35 per litre in the peninsula at all retail stations.

He said that the diesel price is now up RM1.20 and will be effective from Monday, June 10. However, the retail price of diesel in Sabah, Sarawak and Labuan has not been hiked and remains at RM2.15 per litre.

Diesel Price Hike: Reason for Sharp Rise

The sharp increase in the pump price of diesel is part of the Madani government’s subsidy rationalisation measure. The government introduced electricity-specific subsidies in 2023; diesel is the latest fuel it has removed from its blanket subsidy.

Despite the RM1.20 increase, Malaysia’s pump price of diesel remains the second lowest in Asean, after Brunei, where diesel is selling at RM1.09 per litre. The pump price of diesel is RM4.24 across the northern border, which is a price difference of 89 sen per litre.

Expected Savings and Weekly Announcements

At a press conference, Amir Hamzah said the government is expected to save RM4 billion annually through the diesel-specific subsidy.

“Diesel price will be announced on a weekly basis, according to the ministry’s current financial practice. However, the government will continue to monitor the situation to avoid price instability,” he said.

Budi Madani Programme

He said 30,000 private diesel vehicle owners with a household income of RM100,000 a year or less will receive RM200 under the Budi Madani programme on Monday.

The targeted diesel subsidy will be implemented simultaneously with the Budi Madani cash assistance disbursement under the Targeted assistance to the Logistics Sector (SKDS 2.0).

Eligibility for Cash Assistance

According to the Ministry of Finance (MOF), those eligible for Budi Individu and Budi Agri-Komoditi and not yet registered can still receive their monthly cash assistance for June 2024 if they apply before the end of June.

Diesel Subsidy Increase Over Five Years

The Ministry of Finance statistics show that diesel subsidies increased tenfold in five years, from RM1.4 billion in 2019 to RM14.3 billion in 2023. The sharp increase in diesel subsidies was not only due to higher international subsidies but also to higher consumption volume.

The amount of diesel consumption raised from 6.1 billion litres in 2019 to 10.8 billion litres in 2023. The considerable increase in consumption, according to the Ministry of Finance, could be due to cross-border smuggling activities.

Impact of Subsidy Removal

It means that the blanket diesel subsidies have encouraged illegal diesel smuggling activities while putting pressure on the fiscal positions of the government.

“Malaysia can ill afford to continue losing billions of ringgit to smuggling, which could otherwise be better spent to benefit Malaysians and developing our nation,” Amir Hamzah said.

Economic Implications

Economists say rationalising diesel subsidies is unlikely to trigger strong inflationary pressures, partly because the logistics and transport sector continues to benefit from subsidised diesel.

Economist Nazmi Idrus of CGS International estimates that this year’s budget deficit “could decrease from 4.3% of GDP (gross domestic product) to 3.8% of GDP, assuming RM10 billion in savings from diesel fleet card deployment and the floating of diesel prices”.

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