Finding the middle ground in fuel pricing

HANDLING the issue of price of fuel at the pump has always been an explosive affair.

Too cheap a price and the Government complains it encourages wastage and that subsidies are burning a hole in its pocket. Too high a price and consumers will balk and scream, saying the spillover on inflation and cost of living is too great.

The debate now is, where is the middle ground?

Whether to set a floor price or to have managed float is now being worked on. Government officials will have a tough time arriving at a decision between the two, especially when times are getting tougher and the economy is slowing down.

Reports recently have highlighted how the Government is collecting revenue from the sale of every litre of petrol and diesel at the pump and the estimate is that it is collecting RM16mil a day from the sale of RON97 petrol. Add in diesel and RON92 petrol and the collection would be more.

Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad said in a news report that the average price of petrol at the pump for November after industry profits were added should be RM1.50 a litre. The price of RON97 petrol was lowered to RM1.90 a litre on Dec 3 and the price in November shuffled between RM2.15 and RM2 a litre.

The Government said that subsidies for 2008 amounted to RM18bil and used that as justification to start collecting revenue from the sale of petrol at the pump.

Collecting such revenue is not new but until recently, it was last done in March 2007. But the issue before us now is not about subsidies or revenue. There are more important issues to tackle and it starts with the economy.

It is said that half the world is in recession and the rest that’s not will be nervously looking over its shoulders wondering if the mist of economic woes will catch up with them.

The Government has been proactive. It knows that bad times would affect the Malaysian economy and not wanting to be caught unprepared, hatched a RM7bil stimulus plan.

But it will be months before the package really kicks in and knowing there will be a lag effect, it is therefore essential that money be put into the pockets of Malaysians as quickly as possible and the fastest way is to reduce the price of fuel.

Lowering the price of fuel to, say world prices, which some say is closer to RM1.20 a litre now, and based on the return of RM16mil a day to consumers and the some 17 million registered vehicles on the roads, that would see RM480mil a month being put into a big number of hands every month.

And should the price of fuel drop that low, Malaysians will understand the need to waive the Government’s promise of maintaining a 30 sen subsidy.

The consumer is the main driver of the Malaysian economy now as domestic demand and the services sector have taken over as the locomotive of the economy.

The RM7bil package calls for construction activities to be lifted and one of the centrepieces of the package was the two percentage point reduction in worker contributions to the Employees Provident Fund. But that will only take effect in January.

And seeing how fast economic conditions are deteriorating globally, no effort must be spared to make sure money is ready to be spent on keeping the Malaysian economy out of a recession.

When the global economy stabilises, the price of oil should surely resume its upward trend once again. And then the Government can think of the best formula of juggling between keeping prices manageable and yet ensuring that the subsidy burden is reduced.

Jagdev Singh Sidhu is a deputy news editor at The Star. He thinks there should be a balance between the price of fuel and taxes on automobiles.