FUEL subsidies have shot up 10-fold and may continue to do so due to the war in Ukraine, Finance Minister Tengku Zafrul Tengku Abdul Aziz said in Parliament today.

According to Tengku Zafrul, since the beginning of 2021 the price of crude oil worldwide has seen a significant upward trend.

“The price of crude for January this year was US$85 (RM355) a barrel, compared to January 2021 when it was US$55.

“Due to this, the government has to bear the increase of subsidised petrol, diesel and liquefied petroleum gas, which have gone up 10-fold,” he said in reply to Wong Hon Wai (Bukit Bendera-PH), who asked about the impact of the war and whether subsidies should be co-ordinated.

Tengku Zafrul said subsidies had increased from RM200 million in January 2021 to more than RM2 billion in January this year.

“The price of crude has gone up to more than US$100 per barrel, the highest since 2014. 

“With this increase the subsidy for petrol, diesel and liquefied petroleum gas will exceed RM2.5 billion a month.”

He said that if world oil prices remain at US$100 a barrel, annual subsidies will hit RM28 billion, compared to RM11 billion in 2021.

Tengku Zafrul also said that consumers currently pay RM2.05/litre for RON95 petrol but the actual cost has reached RM3.70/litre.

“This means that the government has to cover the difference.”

He said for example, every time someone goes to the petrol station, and puts RM100 or about 49 litres in the tank, the government picks up RM81 of this (RM1.65 x 49 litres = RM80.85).

“The total actual cost based on the market price is RM181 for 49 litres of RON95.  

“This means that the government subsidy is up to 45% of the total amount to be paid.  

He said for diesel consumers pay RM2.15/litre, but the actual cost has exceeded RM4/litre.  

“The large gap between retail prices at petrol stations compared to actual market prices will result in a higher risk of subsidy leakage due to smuggling of petroleum products.

“The government also cannot borrow to finance operating expenditure (OE), such as subsidy costs.  

“Thus, the increase in subsidy costs needs to be offset by increased revenue as well as cost savings.”

Tengku Zafrul said the current subsidy programme does not discriminate between rich or poor. 

“Furthermore, the high-income group will benefit more based on a greater level of consumption compared to the low-income group.

“With that, the government will review the oil product subsidy mechanism so that it can be implemented in a more targeted manner, and focus aid and subsidies on the vulnerable and those who really need help.

“This is expected to optimise the government’s financial resources and the savings achieved can be redistributed for more effective programmes to contribute to the well-being of the people.”  – March 10, 2022.