Two-Tiered Pricing For RON95 Poses Troubles

The Petrol Dealers Association of Malaysia (PDAM) says that implementing the targeted RON95 subsidy through the use of MyKad at gas stations will present challenges and be impractical, particularly for the operators of the stations.
If subsidized RON95 gasoline is sold through MyKad, gas station operators may encounter a number of difficulties, according to its communication and media secretary Gordon Lim. The current subsidised diesel control system (SKDS), which went into effect in June, should be adopted instead, he suggested, and the price of RON95 should be floated.
The largest drawback of a two-tiered pricing structure, according to Lim, is that it may interfere with the efficient operation of gas stations as a result of customers lining up at counters to obtain permission to purchase subsidized gasoline.

According to Lim, petrol pump operators will have to pay a higher merchant discount rate to customers who choose to pay electronically using their debit or credit cards.

He added that operators would also have to deal with a rise in capital due to the price increase because the government might postpone paying back the subsidy. Because consumers may choose to buy fuel from larger stations in order to avoid the long lines, smaller gas stations may also be at risk of closing.

"PDAM also foresees abuse of the system due to eligible individuals swapping their MyKads or using them fill petrol for vehicles owned by those who are ineligible for the subsidy"

Assoc Prof Dr Azeem Fazwan Ahmad Farouk, director of the Universiti Sains Malaysia Centre for Policy Research and International Studies, agreed with Lim that two-tiered fuel pricing for RON 95 petrol is unfeasible because using the MyKad could make a sale more difficult.
“Subsidising fuel encourages overconsumption and smuggling. This has been evident time and again. What should be done is to float the price of RON 95 and subsidise the individual by returning cash to those who qualify. This is the best solution,” he said.

A two-tiered pricing system, according to Dr. Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat, would result in higher expenses for gas station operators since they might need to upgrade their infrastructure, particularly in rural areas where telecommunications coverage may be inadequate.
“If there is no cap on each eligible recipient for subsidised RON 95, it can be abused when ineligible parties buy fuel through them. However, putting a cap on the entitled quantity can be cumbersome as consumption may vary from one to another. Some may need to travel long distances to commute to work. It is best to allow the RON 95 petrol price to be floated and then reimburse the middle- and low-income motorists with direct cash transfers,” he further explained.

On the other hand, Herby Dhillon, secretary-general of the Malaysia Consumers Movement, proposed that the government directly deposit funds into the bank accounts of qualified recipients based on the kind and quantity of vehicles they own as well as their typical usage.

“This is the only way to avoid leakages, and vehicle ownership data can be obtained from the Road Transport Department and Inland Revenue Board. The subsidies can be paid monthly and the authorities can periodically investigate at random if there is suspicion of abuse,” he added.