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ADB Hints at Rational Subsidy Policy
Source: freemalaysiatoday.com
Source Date: Thursday, October 17, 2013
Focus: Institution and HR Management
Created: Oct 22, 2013

Hinting at subsidy rationalisation as remedy for managing energy demands in Malaysia, the Asian Development Bank (ADB) said the country needs to strengthen its energy efficiency policies and programmes for more prudent use.


ADB’s suggestion comes as a reaffirmation to Malaysia’s work-in-progress subsidy rationalisation policy, the signs of which started with two continuous fuel price hikes during the last month.


“Rationalising or phasing out of fuel subsidies will also work to change consumer behaviour in relation to energy consumption, and eventually curb energy demand,” said ADB in its “Energy outlook for Asia and the Pacific” report released recently.


The regional multilateral lending agency said Malaysia is projected to remain a net coal importer and net natural gas exporter over the outlook period (2010-2035).


The country will continue to be a major liquefied natural gas (LNG) exporter to Asia and the Pacific from the Bintulu LNG complex supplied by gas fields off the shores of Sarawak.


ADB said oil demand in Asia and the Pacific is projected to increase by 1.9% yearly over the outlook period and reach 1,973 Mtoe (million tonnes of oil equivalent) by 2035, 59.3% higher than the 1,238.2 Mtoe in 2010. The demand, it said, will be driven by the transport sector which will account for 60.5% of incremental growth in oil demand between 2010 and 2035.


Natural gas demand in the region is projected to increase at 3.9% per year, reaching 1,463.2 Mtoe in 2035, 2.6 times the 2010 level of 566.7 Mtoe.


With regard to Malaysia, it said since car ownership is not likely to reach saturation level in the near future, a subsidy cut for transport fuels could be crucial to improve energy use in the transport sector.


It is estimated that a total eradication of oil and gas subsidies will save RM10 billion for the exchequer.


According to the government’s economic report for 2012, the government spent RM42.4 billion on subsidies which include fuel, rice, sugar, essential items and goods, plantations, fertilisers, medical etc. The subsidy amount for 2013 is estimated to be trimmed down to RM37.6 billion.


Taking small steps towards the subsidy rationalisation, RON95 petrol and diesel prices were raised by 10.5% and 11.1% respectively, from Sept 3, 2013. Fuel prices were last hiked in July and December 2010, by a total 5.7%.


Going by expectations from Maybank Investment Bank Research, gas and electricity prices could be next to see a hike.

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