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# **Country E R Pricing** **<u>policy and strategy</u>**

# **Fuel supply conditions**

government stopped subsidizing 97 RON gasoline. The price difference between 97 RON and 95 RON gasoline has widened since, from RM 0.25 (US$0.08)/liter to RM 0.80 (US$0.26)/liter in early 2013. In May 2010, a five-year plan to cut subsidies that could save US$31 billion was proposed, but not approved by government which feared a voter backlash ahead of general elections in 2013. Retail diesel prices and average monthly benchmark FOB prices relevant to Malaysia since 2007 are shown below. After two relatively sharp price spikes followed by rapid reductions in 2007 and 2008, the retail diesel price has essentially been frozen since 2009. The plot shows a large subsidy, especially in the last two years.

residential use is nearly twice as expensive as that for households, leading to diversion. Illegal diversion of subsidized diesel has been reported. Vehicles and even motorcycles with modified fuel tanks to carry more fuel have been caught.

## **Response to fuel tourism and out-**

**smuggling** : Effective Dec 2009, foreign motorists are allowed to refuel a maximum of 20 liters within a 50-kilometer radius from the country’s borders; filling stations selling more than 20 liters would have their licenses revoked and the foreign cars would be confiscated. Vehicles from Singapore cannot fill their fuel tanks more than 3⁄4 full. **Response to commercial malpractice** : In Aug 2012, government announced that, in order to reduce abuses by fishermen receiving subsidized fuel for their boats, a representative of Malaysian Fisheries Development Authority would verify each catch landed, and those with insufficient catch would no longer be permitted to buy the lower-priced fuel.

<!-- Start of picture text --> 4.0<br>3.5<br>3.0<br>2.5<br>2.0<br>1.5<br>1.0<br>Singapore spot price<br>0.5<br>Retail in Malaysia<br>0.0<br>Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13<br> / liter of diesel<br>Ringgit<br><!-- End of picture text --> Prices in remote areas are higher and government has been taking steps to implement a “one nation, one price” policy to equalize prices across the country. An additional diesel subsidy scheme for eligible commercial vehicles and river passenger boats was introduced in the 2002 budget. Four groups of consumers have been entitled to additional diesel price subsidies: fishing boats, which paid the lowest price per liter; passenger river boards; fleet card holders; and public transport operators. In Jun 2011, government suspended the additional subsidy scheme for nine vehicle categories and certain fishing boats.

**Consequences of subsidies** : Annual subsidies for the three fuels increased to US$6.6 billion by 2011, with gasoline and diesel dominating in most years.

|Year|2005|2006|2007|2008|2009|2010|2011|
|---|---|---|---|---|---|---|---|
|US$ billion|2.2|2.0|2.6|4.6|1.6|2.8|6.6|
|% of GDP|1.6|1.3|1.4|2.1|0.8|1.2|2.4|

_Source_ : Government of Malaysia.

Energy subsidies have remained high in 2012, but increased revenues from high oil prices and strong tax collection have more than offset subsidy increases. **Hedging** : Malaysia Airlines lost US$183 million from fuel hedging in the first three months of 2009. **Information** : Ministry of Domestic Trade, Cooperatives, and Consumerism posts information on fuel price subsidies every month on its Web site, including comparison of retail prices in Malaysia with those in the neighboring countries. <mark>Mexico</mark> **<mark>Pricing</mark>** <mark>: Retail price adjustments are decoupled from world price</mark> √ √ <mark>movements and smoothed by adjusting the special tax on production and service. For gasoline and diesel, this tax was negative for three</mark> <u><mark>years until May 2009, when it became positive gasoline, and has</mark></u>

**<mark>Supply</mark>** <mark>: Mexico’s national oil company, Pemex, is the sole refiner. Its refinery modernization and capacity expansion</mark> <u><mark>projects have experienced substantial</mark></u>