Consumers to bear brunt of diesel subsidy cut
KUALA LUMPUR, May 17 — The removal of the super subsidy for diesel next month will have a major impact on consumer prices as associations affected by the cut prepare to pass on additional fuel costs to end users.
The Domestic Trade, Co-operatives and Consumerism Ministry announced last night that diesel subsidies for nine categories of commercial vehicles will be abolished effective June 1.
The nine categories comprise prime movers, general cargo movers, Luton box vans, vans, rigid lorries for bottled beverages, rigid tanker lorries for flour transport, rigid lorries for refrigerated goods, water tankers and limousine taxis.
The ministry said that all nine categories of vehicles would no longer be allowed to purchase diesel at a subsidised price of RM1.481 per litre but would still be able to purchase subsidised diesel at RM1.80 per litre at petrol stations nationwide.
The Najib administration expects to save RM659.3 million this year by removing the diesel subsidy but will still have to fork out RM116 million to subsidise the public transportation sector.
Pan-Malaysia Lorry Owners Association (PMLOA) immediate past president Er Sui See said lorry operators would almost certainly pass the additional fuel cost to consumers and manufacturers as the subsidy cut would have “a very great impact” on thin profit margins.
He said lorry operators already engage in “unhealthy practices” like overloading their trucks by at least 100 per cent just to stay profitable as tariffs for general cargo movers have been frozen by law at 16.6 sen per tonne per kilometre since 1958.
Er pointed out that a 32-sen hike from the subsidised diesel price of RM1.48 per litre to the pump price of RM1.80 was a big jump in percentage terms, saying the PMLOA might make use of a “loophole” and levy a fuel surcharge like airlines do to get around the rate cap.
“If the airplanes can add fuel surcharge why can’t lorries add fuel surcharge,” he told The Malaysian Insider.
“So we will pass back to the consumer under miscellaneous items.”
He also said the association would likely ask the government to raise tariffs first but doubted anything would come of it.
The Association of Malaysian Hauliers (AMH) similarly told The Malaysian Insider yesterday that it would only bear part of the increase as fuel costs already account for about 30 per cent of operating cost at present.
“Definitely, at the end of the day, we’ll have to absorb some (cost) and pass some on to users,” its president Datuk Ahmad Shalimin Ahmad Shaffie said.
AMH, whose members control 70 per cent of the local container haulage market, announced last month that it would raise transportation tariffs by 20 per cent on June 1 due to escalating maintenance and operation costs.
Malaysian Taxi Drivers, Limousines and Hired Car Operators Association (Petekma) president Yusuff Lahir, on the other hand, said the subsidy cut would not affect limousine taxis as they were able to charge significantly higher rates than regular taxis.
He said limousine taxis charged RM160 for a trip to Kuala Lumpur International Airport from the capital while regular taxis could only charge RM60.
He pointed out that limousine taxis could use natural gas or even petrol and still turn a handsome profit, unlike regular taxis.
“The rich man’s taxi has nothing to fear,” Yusuff said.
“I won’t appeal (the subsidy cut) on behalf of limousine taxis... They shouldn’t expect to get everything cheap from the government.”
He added that he was thankful the government did not cut subsidies for regular taxis, which he characterised as “the poor man’s taxi”.
Citigroup Singapore and Malaysia country chief economist Kit Wei Zheng said it was highly likely that a large chunk of the additional fuel cost would be passed through to consumers owing to producers’ greater pricing power in the “fairly okay” Malaysian economy.
“The risk is that a larger portion of this will be passed through to the consumer at this stage of the economic cycle,” the Singapore-based economist said.
He added that it was possible that those affected by the subsidy cut would pass on even more than the extra 32 sen per litre cost to pre-empt further price increases in future as the government rationalises its subsidy programme.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng said yesterday that consumers could expect to see “almost concurrent” price hikes for goods with few substitutes and high demand.
He added that the amount and speed of pass-through would also be determined by the level of competition in the industry as well as the ability of players to absorb price increases.