Malaysia

RON95 petrol could rise 20 sen next month, says AmResearch

By Yow Hong Chieh
May 24, 2011
Latest Update: May 24, 2011 06:44 pm

The cost of subsidising petrol has tripled following unrest in the Middle East and North Africa. — Reuters picThe cost of subsidising petrol has tripled following unrest in the Middle East and North Africa. — Reuters picKUALA LUMPUR, May 24 — The pump price of RON95 petrol could go up by as much as 20 sen next month to RM2.10 per litre as the cost of subsidising the fuel has tripled following unrest in the Middle East and North Africa, AmResearch has said.

The investment research firm estimated Putrajaya is now subsidising at least 90 sen per litre of RON95 versus the intended 30 sen per litre after global crude oil prices surged to US$99 per barrel from US$79 per barrel last year, matching the US$100 per barrel recorded in 2008. But it said the possible hike is still below the RM2.15 level that would have happened if a subsidiy rationalisation programme was carried out and below the actual RM2.80 a litre without any subsidies.

Petrol subsidies will push the government’s fiscal deficit over the projected 5.4 per cent of GDP towards six per cent if RON95 is kept at the current price of RM1.90 per litre for the rest of the year, AmResearch noted.

“All factors point to a gradual hike in RON95. Given the continuing increases in international prices for crude oil and more hikes potentially in the future, the government is currently straddled between adopting prudent fiscal governance and the need to portray a caring stance,” it said in a note today.

Putrajaya said yesterday it will announce the decision on controversial subsidy cuts next week, even as pressure mounts on it to call off the exercise amid growing inflation.

“Within this one week... we will decide whether to continue with the petrol, diesel and gas subsidies,” Domestic Trade, Co-operatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob was quoted by Bernama Online.

AmResearch said the government could provide rebates and revamp the civil sector salary scheme to help lower-income groups that will be hit by the subsidy cut, adding that “ration shops” and cost of living allowances in the private sector would also help.

The firm added that it expects Malaysia’s inflation to “shoot upwards” towards four per cent in the immediate term due to the first-round impact subsidy cuts will have on food, transport and energy prices.

“On average, the full-year inflation may exceed our earlier forecast of up to 3.5 per cent,” it said, adding that this would still be below the 25-year high of 8.5 per cent inflation experienced in July and August of 2008.

The Najib administration has embarked on its latest round of subsidy rationalisation to slash ballooning petroleum subsidies despite inflation hitting a two-year high of 3.2 per cent last month.

The government announced last week that diesel subsidies for deep-sea fishing vessels and nine classes of commercial vehicles would be removed on June 1, slashing RM886.1 million from the federal subsidy burden annually.

Ismail Sabri explained that while he earlier promised that petrol prices would not rise, he could not guarantee they would remain unchanged indefinitely as the government’s petrol subsidy cost was expected to more than double from RM8 billion in 2010 to RM18 billion this year.