KINIGUIDE | The price of RON95 fuel and diesel in Malaysia has been placed on a managed float since Dec 1, 2014, following the discontinuation of government fuel subsidies.

Following the latest fuel price revision for the month of November however, there was an unusual uproar over the fuel prices.

The increase of 15 sen per litre for diesel, RON95, and RON97 fuels would mean fuel prices are at its highest point yet for the year 2016, even as crude oil prices had been falling towards the end of October.

Brent crude oil prices were US$49.06 per barrel at the end of September, but had fallen to US$48.30 by Oct 31 when the new prices were announced. The fall was particularly pronounced in the second half of October.

How are fuel prices calculated, and why didn’t prices at the pump come down with the falling crude oil prices?

In this instalment of KiniGuide, we look at the Automatic Pricing Mechanism (APM) and walk through the calculations.

What is the APM?

The APM has been around since 1983. Since Dec 1 last year, the mechanism has been used to calculate RON97, RON95, and diesel prices since the discontinuation of fuel subsidies.

There are two main variables that affect the fuel price under APM, namely the Means of Platts Singapore (Mops) prices for these fuels, and the ringgit-US dollar exchange rate.

On top of these however, there are some fixed costs added to the final price.

What is the Mops?

Platts is an information provider based in Singapore, and among the information published by the firm includes the daily prices of RON97, RON95, and diesel fuels. These figures are denominated in US dollars per barrel.

Normally, the Mops average price for the respective fuels for the month is used for calculations.

However, in 2014, then Domestic Trade, Cooperatives and Consumerism Minister Hasan Malek had said that the average of the last 10 or 11 days of the month may be used if prices during the first 19 days of the month is significantly different.

Unfortunately, Mops figures are available to Platts’ subscribers only, but the October average price for RON95 is understood to have come to US$63.031 per barrel.

Since the figures are denominated in US dollars, the final price is subject to fluctuations in the foreign exchange rate as well.

It is unclear which rate the government uses as its benchmark, but for purposes of this guide, the Kuala Lumpur US$/RM Reference Rate published daily by Bank Negara is used. The average of this figure for October is RM4.1764 per US$1.

Note that crude oil prices are not taken into account, only the final price of the finished product.

What are the other costs added to the final price?

So, does determining the retail price of fuel in Malaysia come down to converting the Mops figures from US dollars per barrel to ringgit per litre? Not so fast.

This conversion merely serves as a starting point for the calculations, on top of which four other costs are added to it. Each of the four is fixed by the government.

The first is ‘alpha’, which is simply the difference between the Mops price and the actual price at which oil companies purchase their oil from refineries. This is fixed at 5 sen per litre for petrol, and 4 sen per litre for diesel.

The next one is for covering operating expenditure such as the transportation and storage of the fuels. This is fixed at 9.54 sen per litre.

Then comes the profit margin for oil companies, which is fixed at 5 sen per litre for petrol and 2.25 sen per litre for diesel.

And finally, the petrol dealer want their share of the pie, too. For this, the government has fixed their profit margin at 12.19 sen per litre for petrol and 7 sen per litre for diesel.

The APM used to account for sales tax and subsidies as well. However, sales taxes have been abolished following the introduction of the Goods and Services Tax (GST) scheme, although RON97 is still subject to GST whereas other fuels are not.

As mentioned before, fuel subsidies had been discontinued since 2014.

How does it all come together?

An oil barrel holds approximately 159 litres of oil. Hence, given the price of US$63.031 per barrel of RON95 and an exchange rate of RM4.1764 per US$1, the monthly average Mops price for RON95 is equivalent to RM1.656 per litre.

Now comes the other fixed costs, which total 31.73 sen per litre. This is simply added to the Mops per litre price.

This brings us to the final figure of RM1.97 per litre. This can then be rounded to the nearest 5 sen interval, which happens to be the actual current price at the pump: RM1.95 per litre.

But a minister said the actual price is 5 sen higher!

Finance Minister II Johari Abdul Ghani had said that the price increase for November is supposed to be 20 sen per litre, but Prime Minister Najib Abdul Razak intervened and reduced this to a 15 sen price increase.

The 5 sen difference between the calculations here and Johari’s RM2 per litre figure may be due to differences in the exchange rates used, but it’s hard to know for sure unless the government discloses which benchmark it uses for currency conversion.

Meanwhile, Kampung Tunku assemblyperson Lau Weng San had questioned the opacity in how fuel prices are determined, and whether the government is quietly subsiding fuel prices to keep it below market rates, while openly claiming that the subsidies have been removed.

Can I calculate the price myself?

While the Mops daily figures are available to subscribers only, weekly figures are available for free from the Australian Institute of Petroleum’s weekly prices report. It is available on its website, albeit denominated in Australian dollars instead of US dollars.

Currency exchange rates are widely available online, include on Bank Negara’s website.

From then on, it is a matter of crunching the numbers to arrive at the answer.

Alternatively, if RON95 prices is what you want, we’ve made this calculator below just for you! The October averages have already been keyed in for you, but feel free to change it and see how it affects the price.

This instalment of KiniGuide is compiled by KOH JUN LIN.