The increase in the price of diesel to RM2.23 per litre despite a plunge in global crude oil prices was due to the fuel subsidy removal, a minister said yesterday.
In explaining the three-sen hike, Datuk Seri Abdul Wahid Omar said that the retail price of diesel in November, based on the Automatic Pricing Mechanism (APM) which used the average oil price in the preceding month (October), was RM2.31 per litre.
However, he said, in November, the price of diesel at petrol stations was set at RM2.20, meaning there was a subsidy of 11 sen per litre.
â€œWith lower global oil prices in November, the actual price based on APM effective Dec 1 was RM2.23.
â€œIf we were to maintain the subsidy of 11 sen per litre, the diesel price (in December) would have dropped by eight sen to RM2.12,â€ the minister in the Prime Ministerâ€™s Department told the New Straits Times.
Wahid said since there was no more subsidy for diesel under the managed float system, the price increased by three sen to RM2.23.
Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the new pricing regime was timely as the supply glut in the crude oil market had become prevalent.
He said the savings from the subsidy rationalisation could offset any potential decline from oil revenue.
â€œThe way I see it, it is credit positive from the sovereign rating standpoint,â€ he said.
On Nov 1, Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Hasan Malek had said fuel subsidies for RON95 and diesel would be removed from Dec 1 following the implementation of a managed float system similar to that used for RON97.
Hasan said through the system, the average change in the cost of the product would determine the price of fuel in the following month.
Following the implementation of the system this month, the prices of RON95 and RON97 were set at RM2.26 and RM2.46 per litre, respectively, while diesel cost RM2.23.
Hasan had on Monday cited the high cost of producing diesel as a reason for the hike.-NST