KUALA LUMPUR: The government is expected to save up to RM7.5 billion annually, almost twice as much as initially projected, from its targeted diesel subsidy initiative.
Finance Minister II Datuk Seri Amir Hamzah Azizan said the initial estimate for savings from the diesel subsidy rationalisation, introduced in July last year, was about RM200 million a month, or RM4 billion annually.
"We are tracking about RM600 million a month (in savings), so that should give us RM7.2 billion to RM7.5 billion a year.
"We're doing so much better because the leakages were a lot more than we thought, and that's only in Peninsular Malaysia.
"The most important thing for the government is to introduce a system that reduces the risk of leakages.
"Because the system was effective enough, we received better results in reducing leakages," he said during the Forum Ekonomi Malaysia yesterday.
On May 21 last year, Prime Minister Datuk Seri Anwar Ibrahim said the cabinet had agreed to implement a targeted diesel subsidy for consumers in Peninsular Malaysia.
He said traders using commercial vehicles, as well as sectors such as public transportation, would continue to be protected through subsidies and assistance.
Diesel subsidy leakages had jumped ten-fold to RM14.3 billion in 2023 from RM1.4 billion in 2019.
Meanwhile, Amir Hamzah said diesel leakages primarily occurred in the commercial sector.
He said Malaysia also saw leakages from border crossings as its diesel price was lower than that of other countries.
"If we do not close the arbitrage that exists between Malaysia and other countries, the leakages will persist.
"As such, we applied a two-tier mechanism. Segments that we wanted to protect were allowed to buy subsidised diesel. We used technology to facilitate control by using fleet cards."
Cash transfers of RM200 are also given to certain segments under the Budi Madani initiative.
He said these methods enabled the government to establish a market price for diesel.
"The good thing is people have become used to the weekly fluctuation of prices."
On the targeted subsidy for RON95, he said the government would implement a two-tier pricing system to protect 85 per cent of the population.
The Finance Ministry is working with the Economy Ministry to outline the mechanism for the subsidy rollout, which will be clarified in a couple of months.
"I understand that many people are wondering about the kind of mechanism that we will implement, but that will take some time. "We cannot take shortcuts because we have to make sure everything goes smoothly," he said.
Meanwhile, economists said the revised estimates show that the government is on track.
Economist Professor Geoffrey Williams said the savings could be used on health, education and social protection to show a direct link between subsidy rationalisation and improved social infrastructure.
"Those who were sceptical of the government's commitment to reform should now be reassured that reforms are underway and are delivering results."
Sunway University economics Professor Dr Yeah Kim Leng said the savings were good news not just for the government but also the people.
"The savings can be channelled to public healthcare or public transportation systems or to vulnerable groups, especially for the bottom 10 per cent or 20 per cent income groups."
Professor Niaz Asadullah, an economist and associate fellow of the Social Wellbeing Research Centre at Universiti Malaya, said the savings should be channelled to two key pillars of the Madani initiative: increasing wages and addressing the rising cost of living.