This article first appeared in The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

Malaysia is already seeing the early benefits of the rationalisation of diesel subsidies from June 10, with total retail sales of diesel at the pumps down nearly eight million litres per day, or nearly 30% on average in the first week of rationalisation between June 10 and 17, compared with the week before diesel prices were raised from RM2.15 to RM3.35 per litre. Diesel sales near the borders are also down some 40% per day.

Meanwhile, sales of (unsubsidised) commercial diesel increased by 44% or four million litres per day on average in the first week of rationalisation compared with the preceding week simply because there is no longer a price difference between retail and commercial diesel.  Prior to the rationalisation, the commercial diesel sales volume fell two billion litres in 2023 versus 2019.

The data reinforces Putrajaya’s stance that diesel prices needed to be raised nearer to market levels with subsidies retargeted to eligible groups and individuals to reduce incentives for smuggling as well as cut leakages from illegal domestic commercial usage by industries, construction sites and even plantations.

As Malaysians have previously found creative ways of circumventing rules on subsidised fuel, enforcement agencies need to remain vigilant and be tough on wrongdoers to stamp out future attempts. Enforcement officials near the borders need to be well equipped to deal with smugglers, given that Malaysian fuel prices are still cheaper than those in neighbouring countries (save for Brunei).

There is also a need to ensure that unscrupulous businessmen do not make opportunistic and unjustifiable price increases while continuing to enjoy subsidies.

An estimated diesel subsidy of RM10 billion a year covering some 51% of diesel vehicle users, while RM4 billion below last year’s RM14.3 billion, is still sizeable compared to RM1.4 billion in 2019. Rather than arguing for blanket subsidies, which perpetuate smuggling activities, politicians looking to score brownie points would be doing our people and country a greater service by redirecting those eligible for aid to sign up with the relevant agencies. Malaysia, which has already lost billions to those undeserving of subsidies, cannot afford to lose more.

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