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Malaysia to Scrap Fuel Price Curbs, Use Market Rate

Malaysia will scrap fuel price controls in August and allow pump prices to rise in line with market rates as part of plans to cut the government's burgeoning subsidy bill, the domestic trade minister said on Tuesday.

Malaysia
CNBC.com
Malaysia

The government will instead use a quota system or cash payments to cushion the impact on a population used to fuel prices that are less than half those in neighboring Singapore.

"There will be no control prices ... by August. So it will depend on global market prices," Minister Shahrir Samad told reporters. "You can't have a price increase without giving some form of subsidy to Malaysians."

The government was considering two options as part of an overhaul of its fuel subsidy scheme -- offering direct cash or setting quotas, Shahrir said.

The government will provide details of the new fuel subsidy system on Wednesday, he said on Monday.

Fuel prices in Malaysia are among the cheapest in Asia, with petrol selling for just 1.92 ringgit (60 U.S. cents) a litre, less than half the price in neighboring Singapore.

Malaysia is a net oil exporter and gains from high oil prices, reaping 250 million ringgit ($77.6 million) a year in revenue for every $1 rise in crude prices.

But the government's fuel subsidy bill also has jumped along with skyrocketing crude prices, pushing it to find ways to ease the burden on its finances.

Domestic fuel prices in many developing countries remain capped despite the doubling of oil prices in the last 12 months. Subsidies allow consumers to continue guzzling oil, pushing up world prices.

But this is changing -- Indonesia and Taiwan cut fuel subsidies last month and India is also poised to take action. In Sri Lanka, President Mahinda Rajapaksa proposed floating fuel prices and suspending import of vehicles for one year, local media reported.