MoF: Fuel subsidy to be reviewed, RM 28 billion subsidy cost for 2022 if no intervention

Malaysia’s current fuel subsidy which caps RON 95 petrol at RM 2.05 and Euro 5 B10 diesel at RM 2.15, will be reviewed in light of escalating crude oil prices, says Finance Minister Datuk Seri Tengku Zafrul.

Zafrul told the Dewan Rakyat today that Malaysia could be paying up to RM28 billion in subsidies for petrol, diesel and liquefied petroleum gas (LPG) for 2022, as the Russian-Ukrainian war has pushed crude oil prices over USD 100 per barrel.

Prior to the war, oil prices have already been trending upwards since 2021, from USD 55 in January 2021 to USD 85 in January 2022.

The Finance Minister also said that the increase in prices has forced the government to pay 10 times more in fuel subsidies – RM 200 million in January 2021 versus RM 2 billion for the same month in 2022.

“If the global crude oil prices remain at over US$100 (RM418), the overall cost of subsidy for the whole of 2022 is expected to reach RM28bil compared to RM11bil in 2021," added Tengku Zafrul.

The current subsidy structure unfairly benefits the rich more than the poor, because someone who is driving a Mercedes-Benz S-Class will definitely use more RON 95 petrol than someone riding a Yamaha 135LC.

“Therefore, the government will review the fuel subsidy mechanism in order to implement a more targeted and focused aid and subsidy to the vulnerable and those really in need,” said the Minister.

“For example, every time we refuel with a value of RM100 or about 49 litres, the amount paid by the government is RM81 because the actual cost based on market price is RM181 for 49 litres of RON95," he said.

“This means the government subsidy is up to 45% of the total price. As for diesel, consumers only pay RM2.15 per litre while the actual cost has exceeded RM4 per litre,” he continued.

Zafrul's comments came a day after WapCar's op-ed on removal of fuel subsidies.

Also read: Oil price highest since 2008, but Malaysia is not profiting from it, here’s why