Malaysia to tackle diesel subsidies as priority

The cost in terms of direct subsidies and foregone income amounted to around RM53 billion, the domestic trade minister says

MALAYSIA plans to tackle diesel subsidies as its first priority in dealing with an energy-subsidy bill that is costing the government about US$17 billion a year, the domestic trade minister said today.

Datuk Shahrir Samad, speaking on the sidelines of a conference, said the government is looking at ways of targeting diesel subsidies at key sectors, such as the transport industry, while cracking down on fuel smuggling and “subsidy abuse”.

“We are looking perhaps first at diesel, as to how we can ensure that subsidised diesel gets to the right groups, especially for the transportation sector and certain economic activities,” Shahrir told reporters.

The pump price of diesel and petrol in Malaysia is among Asia’s lowest, providing an incentive for smugglers.

Shahrir declined to say when the government would reform diesel subsidies but said that with the crude oil price at US$117 a barrel, the cost in terms of direct subsidies and foregone income, amounted to around RM53 billion (US$16.9 billion).

“It’s quite a huge bill,” he said, breaking the costs down into about RM33 billion from fuel subsidies and RM20 billion in income foregone from natural gas sold at heavily discounted rates by state oil company Petronas to power generators.

Shahrir also said the government is moving to tackle rising food prices, firstly by raising production and also at targeting subsidies more narrowly on locally produced, basic foodstuffs.

But he ruled out the introduction of a special subsidy on imported rice, which is not subject to price controls, though prices are managed through a monopoly import authority.

“I don’t plan to give subsidies or control the price of imported rice,” he said.

Benchmark Thai rice prices hit a record US$1,000 a tonne this week — three times the price at the start of 2007. Thailand is the world’s biggest rice exporter. - Reuters