A petrol station owner shares that the blanked diesel fuel subsidy may be just weeks away from ending.
Back in October 2023, the Malaysian government essentially confirmed that the blanket subsidy on diesel fuel would be coming to an end with the introduction of Budget 2024. Well, a petrol station owner shared a rumour with us this week that the new targeted fuel subsidy with “fleet cards” for eligible companies could be rolled out as early as March 2024. The rest of the diesel fuel users may have to start paying the market rate of about RM3.75 per litre of fuel…
About The New Targeted Diesel Subsidy
During the Budget announcement, few details on the mechanism for this subsidy was shared. All we knew was that you wouldn’t see RM2.15/L for diesel by default at the pumps, certain goods and logistics vehicles would qualify for the scheme and still get the lower rate. Vehicles that do not qualify under the targeted subsidy, such as privately-registered pick-up trucks or the not-so-common diesel-powered passenger vehicle would have to pay the market price.
There were rumours and fake news about how the subsidy would come to an end immediately in 2024, but these were dispelled. Instead, the government clarified that it was running an experiment with 6 companies to test out the mechanism of the targeted subsidy. It looks like a fleet card system will be introduced, allowing buses, taxis, ambulances, hearses, rental cars and fire engines to also benefit from the scheme.
Effects On The Economy
The whole aim of the targeted subsidy is to reduce the various leakages associated with the blanked subsidy. An unsupervised fuel pump could easily see fuel being pumped into a non-Malaysian vehicle, or directly into jerry cans to be used for other purposes such as gen-set operations or even reselling in the black market.
While it’s definitely going to be painful on everyone’s wallets when this new targeted subsidy comes into effect, the fact is that Malaysia has one of the largest fuel subsidy bills in the world and has been subsidizing diesel since October 1999. It may be necessary to relieve the government’s coffers but also for the economy to become more resilient in the long term. Plugging existing leakages will also be good and may show the government just how much has been lost to illegal activities with this shift. On the other hand, unless the new scheme is closely monitored, new avenues for exploitation will be waiting.
The knock-on effects will of course be immense. Lifestyle pick-up truck sales may plummet, and there are still many diesel-powered MPVs, SUVs and even passenger cars that will lose their appeal. The entire used car market may also have to re-calibrate pricing to reflect this change. Existing owners will also have to redo their budgets for fuel spending. That being said, diesel may still be more economical than petrol vehicles even when not subsidized. Modern diesels are more economical than petrols in general, hence their popularity in the European market.
