Social activist Ong Boon Keong has described the latest hike in fuel prices as a 'cover up' of government inefficiency in curbing oil smuggling.

Ong, who is Save Ourselves secretary, said it is "an open secret" that billions of litres of diesel have been smuggled each year through domestic and cross-border activities.

Subsidised fuel sales at service stations increased from 2.5 billion litres in 2001 to 5.5 billion litres last year, while industrial purchases went down from 8 billion litres to 4.1 billion litres over the same period.

"This indicates that the industrial sector has been buying more smuggled fuel in recent years to reduce production costs," he said.

"Smugglers would surely have used many tanker trucks, vessels and depots to steal and store diesel and enforcement officers would have noticed them. But cases of fuel smugglers being caught and charged have been rare and far in between. Why?"

He said the extent of oil smuggling indicates that there are corruption issues to be addressed and eradicated.

Instead of doing this, the government has chosen to implement a punitive price hike on consumers, he said.

Suspicions raised

Ong also said the price hike was unwarranted because revenue from the sale of petroleum products each year has been more than sufficient to cover the subsidies for local consumption.

He said the government was wrong in increasing the fuel prices to save money, especially considering that Malaysia is an oil producing country.

Ong said the price hike would hit consumers and the industrial sector the hardest as it will lead to an escalation of production costs and cost of living, while reducing purchasing power.

The majority consumers are already facing financial constraints due to stagnant salaries and business opportunities.

"They will suffer tremendously... the industrial sector will be hit by inflated energy and transport costs. All these will badly affect economic growth," he said.

Penang DAP organising secretary Danny Law Heng Kiang said price hike had fueled suspicion that the government engineered a sudden 'artificial' shortage of diesel last week to achieve its aim.

He argued that reducing the subsidy is not the solution to smuggling, pointing out that only "effective and honest enforcement" could resolve the situation.

He said Malaysia can afford to sustain the subsidy since the country has benefitted from the hike in the international oil price, which is at an all-time high of US$50 per barrel.

"Instead of transferring the gains to the people, the government has made people suffer by having to cope with the inflated cost of living caused by the fuel price hike," he said.

Pros and cons

The price of petrol went up by 10 sen per litre and diesel by 20 sen per litre last Thursday, the sharpest hike in recent years. Last year, the price of petrol was increased twice - 2 sen on May 1 and 5 sen on Oct 1.

Previously, petrol prices had increased by 1 sen on Nov 1, 2002, while diesel was increased by 2 sen.

Fuel prices have gone up eight times over the past five years with petrol price increasing by 38 per cent and the diesel price by 66 per cent.

The cabinet said the increase was to put a lid on the government's oil subsidies, arguing that it would otherwise have to foot a subsidy bill of RM8.96 billion and forego RM7.85 billion in tax exemption. The government would then incur a loss of RM16.8 billion.

With the new prices, the government would only need to pay RM6.7 billion in subsidies, saving RM2.2 billion a year. In 2004, it had paid out RM4.8 billion in subsidies for petroleum products.

The Prime Minister's Office said subsidies are not the best way to help the poor and certain sectors because these create market distortions which led to inefficient utilisation of resources.

The subsidies also lead to abuse like the sale of subsidised products to those not entitled to them, and cross-border smuggling of petrol.

It added that the hike in oil prices would narrow the gap between the market price and the subsidy price, and could lead to a reduction in abuse and smuggling activities.

ATHI VEERANGGAN is malaysiakini's Penang-based stringer.