The Real Truth: Petrol Subsidy Removal

Just as we're glad that market fuel price is expected to fall, the government has decided to remove fuel subsidy on December 2014. As puzzling as this may seem, we reveal reasons behind this sudden measure.

One of our RinggitPlus team members made a quick stop at the nearest Petrol station last week. Swiped his card, picked up the hose, and started pumping fuel. But then he noticed an unusual price figure on the fuel dispenser display, other than the usual RM2.30 controlled price. "Harga Pasaran" i.e. the market price of RON95 has fallen as low as RM2.43, bringing the subsidy to only RM0.13 per litre?!

Today, a report by the Star online shed some light on the situation. It turns out that the subsidy for RON95 and Diesel will be REMOVED starting on the 1st of December onwards. Instead, fuel prices will be subjected to the floating price system.

The first reaction to the news can understandably be, "OMG no more subsidy means petrol prices going up again?", but actually the truth of the matter is that global fuel prices (and thus the market price for RON95) has been steadily dropping since July 2014. Here in lies the real story: If the price of RON95 was still at RM2.30 come 1st December, while market prices continue to plummet worldwide, say for argument's sake we expect the "Harga Pasaran" to come in somewhere between RM2.20-RM2.25 in December 2014, we'd hypothetically be paying a 'petrol tax' of RM0.05 to RM0.10  - do you see where we're getting at here? How would you feel if you knew that you were effectively paying a petrol tax while prices worldwide were low?

So to avoid a bit of egg on faces, just remove the subsidy and you avoid the topic completely, and you might even be able to announce a nice little price decrease (to that RM2.25 / l). Here's a quick graph depicting what would have happened if this announcement was not made today:

The table below shows descending fuel prices and subsidies starting from June to December 2014.

Period Market Fuel Price on RON95 (RM) Subsidy(RM) Control Price(RM)
June 2.81 0.71 2.10
July 2.85 0.75 2.10
August 2.78 0.68 2.10
September 2.57 0.47 2.10
October 2.58 0.28 2.30
November 2.43 0.13 2.30
December if no subsidy removal 2.25 -0.05 (tax!) 2.30
December with subsidy removal 2.25 *N/A 2.25

Obviously now that the announcement has been made that the subsidy has been removed from 1st December onwards, there is no risk of "Subsidi oleh Kerajaan" heading into negative territory and making our Govt look rather silly, but wouldn't it have just been easier to cut prices by 20 sen (after all, it was quite easy to raise them by 20 sen each time in the past 2 years)? Tell us what you think on the comments below and remember to stay tuned for more updates.


Agree or disagree with this post? Questions? You also have your word!

  • AlexArup

    I will put it in emoticon to summarize what I think: O_o

    • KT

      Subsidies weren't meant to last as long as it did. Falling oil prices just made it a good opportunity to remove it earlier than planned.

      • Anonymous

        Good read.
        Grammar Nazi: the table below shows*

        • RinggitPlus

          Glad you enjoyed the article!

          Also, thanks for spotting the error, we've corrected it :).

        • Ming Wei

          so confirm prices drop to 2.25 next week bo?

          • hameed

            Thi is exactly what I've been trying to convey to most people Iknow... unfortunately, they can't seem to comprehend... sigh...

            • khushairi

              Decreasing in oil price seems to be temporarily. We the people will hurt most from this floating system by the time there is shortage in the future supply, especially due to war in any major oil producer county. It is not that our government is stupid enough by just merely focussing on their image and not to learn from history , this is just an another way by them to cut us loose.

              • Benny G

                Please put a column for Crude Oil market price so that the real Market Fuel Price could be determined.

                • Timb

                  Eventually the petrol prices dropped, why should they remove the subsidy since our nation public transportation not as convenient as other countries. In addition our nation was exporting petroleum, why would this subsidy be removed in a reason of avoid negative subsidy value?

                  • A

                    Honestly I think that the petrol subsidy removal benefits the country; that said if the government is allocating the financial resources efficiently.

                    The only concern I have now is the fluctuation of petrol prices. Petrol prices are ought to raise someday (God forbid) and will further inflate prices of commodities. With GST into play, I am expecting RM10 per meal now in Klang Valley in the future? I hope I'm wrong in this.

                    • What happen if world oil price start to increase after sometime ( I believe it cannot stay low in long term ). If no subsidy , then a lot of item will very high price. Citizen will be suffer in long term.

                      • just wondering :
                        Question: who determine the "Market Fuel Price on RON95 (RM)" ?
                        Answer: Government.

                        Question: how do we know the "Market Fuel Price on RON95 (RM)" is the actual cost/price to sell RON95 OR its just a figure dictated by government, with 'fat' included in it?
                        Answer: I think the answer is - we don't know. We have to 'trust' the figure release by government is correct.

                        Question: why "Market Fuel Price on RON95 (RM)" is determined by government, and not the fuel supplier? Its like car price, why government did not set the car price, but its determined by car maker? Same question here. Does government know the cost related to make diesel? Did government get input from Petronas? Is there 'behind-the-scene' discussion? Why is the price determined by government?
                        Answer : beats me.

                        Question: now the government decides to remove the fuel subsidy. But why still 'managed the float'? It means why the market price is announced by government every end of month? Like RON97, its announced by government. Why is that not really free?
                        Answer : beats me. I can imagine if government determine the car price, for example proton is RM20k..... but government can simply released a figure saying proton cost RM100k. Who can say that is not market price? You? Me?

                        • Sempai

                          Nothing new abt our government cheating the citizen.

                          • Joe

                            Oil prices will fluctuate - it may be down in December, but it could just as easily shoot up again. Just like when Iraq was 'invaded'.

                            Since oil subsidy has been taken away, get rid of AP as well! We are paying a premium for cars here, easily double or even triple what a car costs compared to other countries.

                            • Nicholas

                              Wake up guys, our country generate oil everyday, it should subsidy more. Well, i can accept fuel without subsidy, but please remove car total tax including local car!

                              • zero

                                SInce the government want to remove the subsidy, why our country can not use back our own country oil.
                                do not sell our oil to other country and dun buy oil from other country.
                                Our oil is good grade, the buy lower grade oil for use to use.

                                • Lee

                                  people who goreng goreng Crude Oil one make them pay higher petrol price. According to research, the petrol supply is more then demand. Even the reserve petrol can last for whole world another 50 year.