Diesel Price Cut Expected To Lower Transport Costs And Goods Prices - Experts

By Rozainah Abdul Rahim and Nur Nadzmi Nasirah Mohamad Nasir

KUALA LUMPUR, June 22 (Bernama) -- The announcement of the reduction in subsidised diesel price to RM2.10 per litre from July is expected to help reduce logistics and transportation costs, thus lowering the prices of goods.

Professor of Economics at the Faculty of Management, Universiti Teknologi Malaysia (UTM), Dr Nanthakumar Loganathan, said that most sectors in the basic food supply chain, in particular, are affected by fuel costs.

"This move should be good news for the business supply chain, as most have cited fuel costs as a reason for increasing prices.

"We hope the announcement will have an impact on consumers, as goods in the market that rely on diesel-powered transport, such as vegetables transported by pickup trucks, should also see a decrease in price,” he said when contacted by Bernama today.

As such, he hopes that traders’ associations in the country would respond positively to the reduction in diesel prices, thereby generating significant savings compared to previous operational costs.

Asked whether the government could maintain the RM2.10 per litre rate if global oil prices rise again, he said the government would need to secure additional allocations to ensure the people continue to benefit from fuel subsidies through the BUDI MADANI RON95 (BUDI95) programme.

"We cannot predict what will happen, and the government may need to find alternative sources or supply guarantees, such as from Russia or countries outside the Arab region,” he said.

Yesterday, Prime Minister Datuk Seri Anwar Ibrahim announced the reduction of the subsidised diesel price for Malaysians to RM2.10 per litre starting from July, to be implemented through the BUDI95 programme, with verification via MyKad.

Currently, diesel is still sold at a subsidised retail price of RM2.15 per litre at all petrol stations in Sabah and Sarawak, compared to the unsubsidised retail price of RM4.37 per litre in Peninsular Malaysia.

Meanwhile, one expert said the nationwide coordination of subsidised diesel prices, including in Sabah and Sarawak, reflects the government’s efforts to create a more uniform national fuel subsidy policy.

Universiti Kebangsaan Malaysia (UKM) political sociology professor at the Centre for Development, Social and Environmental Studies, Faculty of Social Sciences and Humanities, Dr Novel Lyndon, said this was because the previous price differences between Sabah-Sarawak and Peninsular Malaysia had caused dissatisfaction and increased operating costs, which were ultimately passed on to consumers.

"From an economic and public governance perspective, this move can be seen as an effort to reduce subsidy leakages, while ensuring that subsidy benefits are more targeted to those who actually need them.

"Previously, Sabah and Sarawak enjoyed lower diesel prices compared to the Peninsula due to geographical factors, logistics costs and higher dependence on land and river transport. As such, this coordination sends a message that the government is moving towards a more standardised subsidy system based on the needs of the people rather than a purely regional approach,” he said.

However, Novel said the impact of the policy's implementation needs to be carefully scrutinised, especially in Sabah and Sarawak, which have different economic structures and development challenges compared to Peninsular Malaysia.

"Many rural areas still rely on diesel transport for agriculture, fisheries, goods transportation and daily movement. If a targeted assistance or subsidy mechanism is not implemented effectively, higher operating costs could put pressure on rural communities and small businesses. This will increase the cost of living,” he said.

From a social perspective, Novel said the government must ensure clear and transparent communication of the policy to the public, as people will not only assess diesel prices but also expect to see how savings from subsidy rationalisation are returned in the form of infrastructure development, basic facilities, education, healthcare and cost of living assistance.

“The success of this policy ultimately depends on the extent to which the people can directly feel the benefits of government savings. This is crucial in building a narrative about the government's honesty in assisting the people who elected them,” he said.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid described the government’s move to use MyKad as the primary mechanism for distributing diesel subsidy as an important step in strengthening the effectiveness of the country’s subsidy system.

He said the use of MyKad as the medium for verifying subsidy recipients will not only ensure the aid is channelled in a more targeted manner, but will also help reduce leakages that often occur in the existing system.

According to him, the experience of implementing the use of MyKad for the RON95 subsidy showed that the mechanism can function well and has the potential to be expanded to diesel subsidies as well.

"In my opinion, this measure is important, especially as it involves using MyKad as the primary mechanism for diesel subsidy distribution.

"This allows for more targeted assistance, while also enabling comprehensive and accurate fuel usage data collection, and helping to curb criminal activities, such as fuel smuggling,” he said.

-- BERNAMA