Capping pump prices will help dealers, says PDAM

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Introducing targeted subsidies leaves petrol dealers vulnerable to vagaries of price changes that only a price ceiling can avert.

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The merchant discount rate will eat deeper into the dealer’s cut if pump prices rise. (Bernama pic)

PETALING JAYA: As the government sets subsidy rationalisation in motion starting with modifications in the electricity rates, petrol subsidy has become a hot potato again.

For petrol dealers, a cap on pump prices is essential to ensure that they continue to get the same margin of 15 sen per litre.

“The current ceiling price is good for us,” Petrol Dealers Association of Malaysia (PDAM) president Khairul Annuar told FMT Business, adding that it was a safeguard for their business.

The merchant discount rate (MDR), which is paid by the dealer for purchases made on credit or debit card as well as eWallet, is the crux of the problem.

Fixed at 1% of pump price, it means that the higher the price at the pump rises, the more they have to pay in MDR. This eats into their 15-sen cut, which is fixed.

Pump prices are fixed weekly. The current prices are RM2.05 per litre for RON95, RM2.15 for Euro5 B10 diesel and RM2.35 for Euro5 B7 diesel.

Prices are determined by an automatic pricing mechanism (APM), which takes into account the evaporation rate and dealer’s cut.

The price of RON97 is similarly fixed by the APM but there is no provision for government subsidy. As a result, Khairul said, dealers usually incur a loss when selling RON97.

A way out of this fix 

Khairul expressed fears that without a cap, pump prices could even rise as high as RM4 per litre. At 1%, the MDR will amount to four sen, which cuts deeply into their profit.

“The higher the pump price, the higher the MDR charges. Yet our (petrol dealers) income is fixed at 15 sen a litre,” he said.

Variable pump prices is only one facet of the problem dealers face in the process of rationalising petrol subsidy.

Which way forward?

When it comes to the mechanism of subsidy rationalisation, the devil is in the details.

Various models have been put forward, with engine capacity and personal income being the most popular criterion.

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The evaporation rate is the percentage of liquid fuel that evaporates and turns to gas, and cannot be sold. (Source: PDAM)

However, PDAM has pointed out that cars with higher engine capacity are usually driven by older members of the B40 group, who should benefit from the subsidy but may be turned away based on the size of their cars.

“Without a proper model, it is difficult to determine who qualifies based on this distinction,” Khairul said.

Dealers say a better method would be for the government to give cash directly to those who qualify for petrol subsidy.

Khairul also shot down a suggestion by the Federation of Malaysian Consumers Association that the MyKad be used to determine who qualifies for the subsidy.

“It will lengthen transaction time and make service delivery less efficient,” he said.

Apart from checking their identity, dealers will also have to ensure that the customers do not exceed their quota. Dealers will also have to update the subsidy database after each transaction.

This could take anything from 30 seconds to three minutes.

Khairul said it is better for the government to just give the cash directly to the targeted recipients at the start of every month. “Then it is up to them to manage their spending for the month,” he said.

He said this would also eliminate leakages which is possible when the same item is sold at different prices to different customers.

Alternatively, he said, the government could introduce a minimum price to complement the maximum.

Any excess cash that comes when the market price dips below the floor price can be put in a stabilisation fund, Khairul suggested.

The fund can then be used as subsidy when prices rise again, he added.

Khairul said the ministry of domestic trade and cost of living has also engaged  PDAM in a study.

“However, we are still waiting for the ministries of finance and economy to come forward,” he added.

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