Friday March 5, 2010the proposed two-tier fuel subsidy scheme based on vehicle engine capacity has been scrapped, analyst and economists say.
The proposed fuel subsidy scheme was originally set to be implemented on May 1.
Maybank Investment Bank analyst Mohd Khair Mirza said: “We may see an increase of about 10 sen in petrol prices post May 1.” He added that it was the only viable option for the moment unless the Government came out with a better fuel subsidy scheme.
Mohd Khair said the two-tier fuel subsidy scheme proposed in theory appeared good on paper but issues such as implementation and enforcement were questionable.
He said: “At least with the slight increase in fuel prices over time it is applied across the board and the Government is able to close the gap on the fuel subsidy which remains unsustainable.”
Mohd Khair said that based on US$80 per barrel of crude oil, the Government was currently subsidising fuel at the pump at around 40 sen per litre.
An economist from a rating agency said although the proposed two-tier fuel subsidy scheme has been scrapped, it should not deter the Government from continuing to look for other schemes that were more practical and viable.
He said a viable scheme should meet two objectives – ensure the hardcore poor are not badly affected and address the fuel subsidy.
A local economist from a broking house said the Government’s decision to scrap the proposed two-tier fuel subsidy scheme based on vehicle engine capacity came as no surprise.
“We figured it (scrapping of the scheme) would happen. There was a lot of talk that the subsidy scheme was not practical, despite a lot of effort by the Government to implement it,” he said.
The economist believed some individuals were waiting to exploit the scheme (if implemented) thinking they could benefit from the scheme.
“Thankfully the Government realised the proposed subsidy scheme was not foolproof and decided to scrap it,” he said.