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6/9/2008
Malaysia Drops Gas Subsidies, Keeps Tolls
Cost of subsidizing gasoline has become too great for Malaysian government.

Malaysia highway
Rising gasoline prices have forced Malaysia to cut back on fuel pump subsidies for residents. Since 1982, the oil-rich Asian nation has spent billions to ensure consumers could enjoy cheap gas while at the same time hitting motorists will tolls when putting that gasoline to use on most expressways. Last Wednesday the country announced the fuel subsidy would end by March 2009.

As a first step, the government raised the fixed price of gasoline from 1.92 ringgit per liter ($2.25 per US gallon) to 2.70 ringgit per liter ($3.17 per US gallon). Officials also moved to forbid motorists from other countries from taking advantage of Malaysia's cheap gas to top off their tanks. A decree issued late last month banned the sale of gasoline to foreign-registered cars at gas stations near borders with Singapore and Thailand. To soften the blow of the surprise price hike announcement, private cars with engines displacing up to 2 liters would receive a 625 ringgit (US $194) stimulus check.

"Giving subsidies is like giving opium," Senator Datuk Gooi Hoe Hin told the Malaysian national news agency. "Once the people get addicted, it is very difficult for you to take them away because they would start questioning why the subsidies had to be reduced."

Officials pointed out that without the changes the cost of fuel subsidy would have reached 28 billion ringgit (US $8.6 billion) annually and consumed nearly one-fifth of the government's total revenue. The subsidy is paid directly to oil companies such as state-owned Petronas. A similar subsidy is paid to private companies that operate toll roads minimize toll hikes.

Nonetheless, more than 2000 motorists protested toll road hikes in Kuala Lumpur last year and insisted the government provide full details on secret agreements made with concession operators. For example, a concession agreement ensures tolls will be collected on the North-South Expressway until the year 2038, even though the 16 billion ringgit (US $5 billion) collected to date represents 2.7 times the road's construction cost.



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