No direct subsidy from Petronas for petrol

The domestic trade and consumer affairs minister today put to rest the myth that Petronas directly subsidised petrol usage every time a vehicle refueled at the pump.

Speaking after the launch of the Companies Commission's 2007 report this morning, Shahrir Abdul Samad explained that apart from gas usage, Petronas does not subsidise petrol or diesel usage directly.

He was responding to reports that Petronas wants oil subsidies fully removed.

According to him, what the government did was to take taxes and royalties, paid by Petronas, and put them into a consolidated fund.

Subsidies for food, fuel, agriculture, education and welfare are then taken out from this fund.

"As such, there is no direct link between subsidies, fuel retail price (RM2.70 for petrol and RM2.58 for diesel) and Petronas," said Shahrir.

"Fuel subsidies for public consumption are paid from government income and revenue from oil companies.

"The direct subsidy that Petronas does give is for gas supply to consumers and industries."

Prior to the hike, gas supplied to independent power producers and Tenaga Nasional Bhd is cheaper than the market rate.

"Anyway, this is not a decision (oil subsidies) for Petronas to make, it is the government's," said Shahrir.

Distorting the real value

However, Shahrir warned that total removal of subsidies (especially fuel) is something that Malaysians must face up to eventually.

"The question of subsidies raises all sorts of problems. Currently, for our country, we have to balance the subsidies given so that people will not be encouraged to waste."

Subsidies also distort the true value of goods, he added.

"So, if we don't know how much something costs, we won't value it," he argued.

For the time being, subsidies are not 100 percent, nor will it be fully lifted, said Shahrir.

"But because we don't have very large oil reserves, we have to find ways to balance out the situation while helping people cope with the escalating cost of living.