This article first appeared in The Edge Financial Daily on October 16, 2019 - October 22, 2019

KUALA LUMPUR: The government is conducting a study on the petrol subsidy mechanism for the middle 40% (M40) income group, with the outcome paving the way for the M40's inclusion in the government's targeted fuel subsidy programme (PSP).

"For the M40, it will be ready by March 2020, and we plan to follow the card [approach]. Let us study this matter, and when the mechanism is ready, we will make the announcement," Finance Minister Lim Guan Eng told reporters on the sidelines of the inaugural International Directors Summit 2019 here yesterday.

He is referring to Kad95, a special fuel subsidy card for motorists who are not Bantuan Sara Hidup (BSH) recipients to get a discount of 30 sen per litre of RON95 at petrol stations, limited to 100 litres for cars and 40 litres for motorcycles per month.

A measure under the PSP that he announced when tabling Budget 2020 last Friday, the subsidy card will be implemented progressively during the first quarter of 2020.

For eligible BSH recipients, a RM30 petrol subsidy will be given to car owners and RM12 for motorcycle owners per month. This subsidy, in the form of cash transfers, is deposited into a recipient's bank account every four months. The first payment will be made in April 2020 for the January to April 2020 period.

The PSP will be launched in Peninsular Malaysia in January next year, after which RON95 and diesel retail prices will be gradually floated to reduce leakages and cross-border smuggling of subsidised fuel, estimated to cost the government millions of ringgit.

The fuel subsidy scheme kicks in whenever the RON95 market price, determined by the Automatic Pricing Mechanism, is above RM2.08 per litre. Below this price, the fuel subsidy will not be given.

The government will allocate RM2.2 billion for the proposed scheme, benefitting more than eight million motorists.

Motorists in Sabah and Sarawak still enjoy a fuel price ceiling of RM2.08 per litre for RON95 and RM2.18 per litre for diesel.

If the governments of Sabah and Sarawak want to participate in the PSP, the federal government is ready to accept their request, Guan Eng said when presenting the national budget in Parliament.