Fuel subsidies surged by up to 10 times since 2021, says finance minister

Finance Minister Tengku Zafrul Aziz today said that world crude oil prices have shown a significant upward trend since the beginning of 2021, with the benchmark Brent crude rising to US$85 per barrel in January 2022 from US$55 per barrel in January 2021.

Following this increase, he said the government has had to cover a significant increase in subsidies for petrol, diesel and liquefied petroleum gas (LPG) of up to 10 times, increasing from RM200 million for January 2021 to more than RM2 billion for January 2022.

Coupled with the conflict between Russia and Ukraine, world crude oil prices have risen sharply to more than US$100 per barrel, the highest level since 2014, he said, adding that with this increase, the total petrol, diesel and LPG subsidies are expected to exceed RM2.5 billion a month.

“If the world crude oil price remains above US$100 per barrel, the total subsidy for the whole of 2022 is expected to reach RM28 billion compared to RM11 billion for 2021,” he told the Dewan Rakyat today.

Tengku Zafrul said consumers currently pay only RM2.05 per litre for RON95 petrol although the actual cost in March reached RM3.70 per litre for petrol.

“The government has had to cover the difference of RM1.65 per litre. For example, every time we go to the petrol station, if we refuel RM100 worth of petrol or about 49 litres, the amount paid by the government is RM81, as the total actual cost based on the market price is RM181 for 49 litres for RON95.”

He said this meant that the government subsidised up to 45% of the total amount paid. As for diesel, he said consumers paid only RM2.15 per litre at petrol stations while the actual cost had also exceeded RM4 per litre.

“The huge gap between retail prices at petrol stations compared to actual market prices will result in a higher risk of subsidy leakage due to the smuggling of petroleum products out of the country.

“The government also cannot borrow to finance operating expenditure such as subsidy costs. Hence, the increase in subsidy costs needs to be offset by increased revenue and cost savings,” he said.