MALAYSIAN GOVT TO REDUCE SUBSIDIES FOR PETROL, DIESEL AND LPG

KUALA LUMPUR, July 16 (Bernama) -- The Malayisian government Thursday
announced subsidies for petrol, diesel, liquefied petroleum gas (LPG) and sugar
will be reduced as a first step to the gradual subsidy rationalisation programme
effective Friday (July 16.)

Subsidies for RON 95 petrol and diesel will be reduced by five sen a litre
and LPG by 10 sen a kilogramme, said Prime Minister Najib Tun Razak in a
statement Thursday.

This means RON 95 grade petrol will cost RM1.85 (US$1=RM3.2) a litre while
LPG will be sold at RM1.85 per kilogramme.

"RON97 petrol will no longer be subsidised. It will be subjected to a
managed float under which the price will be determined by the automatic pricing
mechanism," he said. RON 97 is only 13 per cent of fuel consumption in Malaysia.

"For sugar, the upward price adjustment is 25 sen a kilogramme, he said.
Currently, sugar is sold at RM1.65 a kilogramme.

Najib said the minimal changes would help Malaysia achieve a position
of fiscal responsibility and "put us on a path towards reducing our deficit."

"To meet these objectives, we have chosen to make adjustments to our
subsidies," he said.

Even after these changes, the Government would still spend an estimated
RM7.82 billion on fuel and sugar subsidies this year, he said.

The Prime Minister said fuel and sugar prices in Malaysia would still be
among the lowest in the region.

Najib said the subsidy rationalisation would allow Malaysia to reduce
Government expenditure by more than RM750 million this year.

"The decision to reduce fuel and sugar subsidies was based on the fact that
reducing fuel subsidies would have the greatest impact on Government
spending and reducing sugar subsidies "will allow us to promote healthier
lifestyles," he said.

Najib said the decision was also based on three main concerns.

Firstly, the subsidies also benefit foreigners and wealthier Malaysians who
can well afford to pay unsubsidised prices.

"Our focus should be on helping the family sharing a motorcycle or Kancil to
get to work and school, but instead our spending on subsidies has provided the
same benefits to those driving imported luxury cars.

"The sugar subsidy disproportionately benefits industries, not families.
Businesses have been using almost twice as much subsidised sugar as
Malaysian households," he said.

Secondly, the highly subsidised prices often lead to illegal smuggling of
these goods.

"Subsidies make these products the cheapest in the region. In 2009 alone,
smugglers were caught heading out of Malaysia with more than 200 metric
tonnes of sugar to be sold across borders," he said.

"Also, subsidised diesel continues to go to the black market or across our
borders, instead of to those we want to assist," he said.

"Thirdly, unless the government reduces our fuel and sugar consumption, we
face potentially serious consequences as a nation," he said.

Najib said the Government arrived at this decision after robust
consultations with the people.

He said thousands of Malaysians participated in the policy labs, Open Day
and an unprecedented public feedback process.

"As with subsidy reforms, the budget, Government Transformation Programme
and now the National Key Economic Areas, the Government has made a determined
effort to engage the public, listen and learn, and then act in the best interest
of the nation.

"These measures are designed to have minimal impact on individual
families,
but long-term benefits for the nation. The Government has made a difficult, but
bold decision.

"By choosing to implement these modest subsidy reforms, we have taken a
crucial step in the right direction towards meeting our commitments to reduce
the fiscal deficit, without overburdening the Malaysian people," said Najib.

The Prime Minister said these measures are a demonstration of the
Government's fiscal responsibility.

They would enhance Malaysia’s financial stability, while also
protecting the people, he added.

-- BERNAMA




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