Patrolling Petrol

According to news reports, the government plans to introduce a new fuel subsidy mechanism on May 1st which will see the amount of subsidised fuel tied to the engine capacity of a car. The Government had planned to introduce a tiered pricing system for petrol, depending on engine capacity, while foreigners would have to pay the market price. According to reports, the plan called for the mandatory use of MyKad to differentiate Malaysians from foreigners, requiring the need for MyKad readers at petrol stations.

The plans however have been shelved.

Who came up with that idea? Aren’t the government aware that cars with small engine capacity are not necessarily cheap? The RM195,000 Mini Cooper has an engine capacity of 1,598cc and the 1.8L Mercedes E200CGI cost in excess of RM300k. The 2 litre variants of the Accord, Camry and Mazda 6 cost RM150k. These are not exactly cars for the low income group but yet they fall under the <2,000cc category. So how does giving subsidised petrol to those driving cars below 2,000cc help the lower income group?

"A new structure, merely based on engine capacity, does not solve any problem,’’ said Mercedes-Benz Malaysia Sdn Bhd in a statement to StarBiz.

“As BMW Malaysia views the situation, the problem with designing a fuel subsidy programme around the engine capacity of a vehicle is that small engine capacities alone do not necessarily mean better economy,’’ said BMW Group Malaysia managing director Geoffrey Briscoe.

Making policy u-turns seems to be a regular feature of the Najib administration. Well, this time it’s not really a policy but it was officially announced so it makes it an almost policy.

It was also rumoured that the MyKad will be used as a mechanism to allocate the subsidies. The details were sketchy but if fully implemented it could effectively distribute the subsidy to those deserving but at the same time may lead to abuse if there is no limit to the amount of petrol each person is allowed to buy. For example, a wealthy person who is not entitled to the subsidy may use his driver’s Mykad to purchase petrol thus enjoying the undeserved subsidy.

In order to make the Mykad to buy petrol system work, the card must have the income details of the MyKadholder, which is to be updated every year based on, perhaps, LHDN records. It should also be tied to JPJ records, which will disallow the non-car/motorcycle owning MyKad holders from enjoying (and abusing) the subsidy.

Subsidies would be preferred for essential goods and services such as foodstuff, healthcare and ummm … fuel. Having said that, subsidies are not something favoured because it distorts free market pricing as well drains the public finances. Then again, it is the duty of the government to assist those genuinely in need of assistance; to lower their cost of living by in this case, lowering the cost of fuel. Subsidies are only good if it reaches the intended recipients.

“The public has to realise the fuel subsidy scheme is not sustainable as it impacts the Government’s finances. Removing the subsidy would reduce over-consumption and promote more efficient use of our country’s resources, a “fully market-driven” system is a better option in the long run,” said RAM Holdings Bhd chief economist Dr Yeah Kim Leng when contacted by StarBiz.

For the record, many countries, including those less developed such as Indonesia and Sri Lanka are practising a free-float system, where fuel prices were based on global oil prices.

Maybe the government could introduce a system whereby car owners above the age of 18, earning less than RM3,000 per month be given an entitlement to say, 150 litres of petrol a month at a subsidised price. Motorcycle owners will get a lower entitlement. For those owning both, two entitlements will be issued. The entitlement can be in the form of a card which can be read by the machines at the petrol station (if kad mesra and bonuslink can, I’m sure this is possible too). Every time petrol is purchased, the card is credited. I’m sure the forgers will immediately work on forging the card but that is something the authorities will have to ensure does not happen.