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Thursday, June 19, 2008

Did the Govt really subsidize our petrol?



While I was doing some rough calculation, I was wondering whether our Govt really did subsidize us RM0.30 per litre? When the crude oil price was about USD138 per litre, world market price was about USD178. And according to 2nd Finance Minister Tan Sri Nor Mohamed Yakcop (sources http://www.bernama.com/bernama/v3/bm/news_business.php?id=339088), Malaysia should adjust the price to RM3.15 with 30cents subsidy, which means the market price is RM3.45.

Do some simple calculation
3.45/178 = 0.01938

0.01938 * 154.50 = RM3.oo per litre
(USD 154.50 = world market price at the time fuel price increase in Malaysia - 5th June 2008)
Crude oil price on the 5th June 2008 is USD135

USD154.50 - USD 135 = USD 19.40
USD 19.40 = RM 61.89 (if USD exchange rate with RM is 3.19)

RM61.89 / 158.987 = 0.39
(1 barrel = 158.987 Litre
source: http://en.wikipedia.org/wiki/Barrel#Oil_barrel)

RM3 - RM0.39 = Rm2.61
Rm2.70 - RM2.61 - RM0.09


RM3 is the extra that we pay if we go according to world market price, so with Rm2.70, it seems that the government is subsidizing us. But if we look at the crude oil price index, the price is actually RM2.61. I would assume world market price is price with tax, etc. The situation might sounds a little bit confusing, but from here we can see that we at least paying RM0.09 per litre as tax.

My opinion is the government does not subsidize us, but reduce our petrol tax by RM0.30 per litre.

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