RON95 and diesel prices to be determined by float system

The retail price for RON95 petrol and diesel will be fixed on a managed float system from Dec 1, effectively marking the removal of all fuel subsidies.

Under the managed float, similar to that now used for RON97, retail prices would be based on the monthly average world price of crude oil.

Domestic Trade, Cooperatives and Consu­merism Minister Datuk Seri Hasan Malek, who announced the Cabinet’s decision on this yesterday, said the average price difference in the cost of the fuels in a month would determine the retail prices for the following month.

“This means, if the price of world crude oil increases, so will retail prices of RON95 and diesel and vice-versa. We monitor the world oil price every day to get the average price.

“So for Dec 1 prices, we will calculate the average price between Nov 20 to Nov 31 and make the necessary announcement,” he said.

The current price of RON95 is RM2.30 per litre while the price of diesel is RM2.20.

Under the existing Automatic Pricing Mechanism (APM), introduced in 1983, retail prices are not affected by fluctuations in the cost of fuel production.

The difference between the actual prices and the retail prices are borne by subsidies and sales tax exemptions, standardising of prices at stations, margins of oil companies and dealers, securing distribution channels and minimising disruptions.

Citing an example, Hasan said under the managed float the retail prices of RON95 would have been RM2.27 per litre based on the average oil price between Nov 1 and 19, which was lower than the RM2.30 set through the APM.

“If this trend continues, it is expected that the retail price of RON95 for December will be lower.

“The prices would, however, be rounded to the nearest figure and if we based on the example, it will be RM2.30 per litre,” he added.

Hasan said the Government had conducted a study on the managed float mechanism before deciding to implement it for RON97.

The price of RON97 dropped by 20 sen on Tuesday to RM2.55 a litre due to the drop in world oil prices.

Ministry secretary-general Datuk Seri Alias Ahmad said that RON95 and diesel would not come under the Good and Services Tax (GST) after the managed float mechanism is used to determine prices.