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Malaysia to scrap fuel subsidy
The government sets August deadline to lift price cap on fuel.
Last Modified: 03 Jun 2008 10:01 GMT

Measures will be introduced to protect the country's poorest citizens [Reuters]

The Malaysian government has announced that it will remove controls on the prices of petrol and diesel, and allow pumps to sell fuel at world market prices.
 
The new price structure, scheduled to start in August, is an attempt to reduce the government's ballooning subsidy bill.
Shahrir Abdul Samad, the minister for domestic trade and consumer affairs, said the retail cost of the fuel "will depend on global market prices".
 
"You can't have a price increase without giving some form of subsidy to Malaysians."

The government says Malaysians who can afford to pay global prices should do so, while the lower-income group will be subsidised in other forms, either as cash handouts or fuel quotas.

Details of the new fuel subsidy system, expected to cost the treasury RM45bn ($14bn) this year, are expected to be released on Wednesday.


Petrol, diesel and gas are heavily subsidised in Malaysia, ranking the country's fuel prices among the lowest in Asia. 


On Monday, Malaysia began enforcing a ban on petrol sales to foreign-registered vehicles near the border to Thailand, where regular petrol is sold at $1.01 a litre.

 

In Malaysia, petrol sells for $0.60 a litre which is less than half the price in neighbouring Singapore. The average per litre price of petrol in the US is about $1.

 

Gains and losses

 

As a net oil exporter, Malaysia gains from high oil prices, reaping $77.6m a year in revenue for every $1 rise in crude prices.

 

But the government's fuel subsidy bill has jumped along with skyrocketing prices of crude oil in the world market, forcing it to find alternatives to ease the burden on its finances.

 

Domestic fuel prices in many developing countries remain capped despite the doubling of oil prices in the past 12 months.

 

Critics of fuel subsidies say they promote demand by allowing consumers to continue guzzling oil, pushing up world prices.


Governments, however, are beginning to respond as they see their subsidy bills shoot up.


Indonesia and Taiwan cut fuel subsidies last month and India is debating action.


In Sri Lanka, local media reported a government proposal to float fuel prices and suspend the import of vehicles for a year.

Source:
Agencies
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