Malaysia plans measures to soothe fuel hike anger

Abdullah, already fighting a challenge to his leadership following a poor showing in a general election in March, said the fuel hike decision was a difficult one to make, but there had not been a choice.

Petrol prices were increased by 41% and diesel 63% in line with a global surge in oil prices, a measure that would drive inflation to a 10-year high of 4.2% in 2008.

“In all honesty, it was a difficult and agonizing decision to make. Many times, we have been tempted to walk away from such a difficult decision,” Abdullah told an energy conference.

He said the administration planned to announce more measures to lessen the pain for ordinary people after a meeting of the National Anti-Inflation Council on Monday.

Spiraling crude oil prices, which were trading at $136.80 a barrel on Monday, have driven up the cost of fuel subsidies for many governments to near crippling levels.

Malaysia followed India, Indonesia, Taiwan and Sri Lanka last week, raising pump prices and provoking a public outcry and protests by opposition groups.

Analysts said Abdullah's political future remained at risk, but he could contain the political backlash if he carried through the measures aimed at reducing the impact on low-income individuals.

“He will have to deliver his promises. The outcome is obvious, he can be thrown out if he fails,” said Khoo Kay Peng, a Kuala Lumpur-based political analyst.

On the other hand, if Abdullah succeeded, “he will be seen as a prime minister who can bring the country, which is accustomed to artificially low production costs due to subsidies, to a new level,” Khoo said.

State media reported last week that the government planned measures such as widening the social safety net for the poor, increasing the number of price-controlled items and improving public transport.

The government says it will save 13.7 billion ringgit ($4.2 billion) as part of a broad overhaul of its heavily subsidized energy pricing system, and days after the hikes were announced there has been some recognition of the government's plight.

“Either we bear the pain now and become more efficient and productive, or let our future generations carry the burden of high national debts and continuing with our wasteful ways,” The Edge financial daily said.

Pump prices for petrol in Malaysia are still among the cheapest in Asia.

But consumers grumble about having to face a steep rise in prices despite the fact Malaysia, Asia's largest net oil exporter, earns 250 million ringgit ($76.8 million) a year in revenue for every $1 rise in crude prices.

“Three years ago the selling price of crude was about $30 per barrel. Today it is $130, an increase of $100,"”former prime minister Mahathir Mohamad wrote on his blog

“By all accounts the government is flushed with money. I feel sure that maintaining the subsidy and gradually decreasing it would not hurt the government finances,” Mahathir, who is adviser to national oil firm Petronas, said.

But Petronas chief executive Mohd Hassan Marican dismissed the suggestion that the company's coffers had grown at the same rate as the surge in oil prices.

“In terms of the acceleration of cost increase, it's much faster than the oil price increase except for this year,” Hassan told Reuters in an interview.

“I think to say that the price has gone up from $30 to $130, therefore there is a $100 profit element is taking a very simplistic arithmetic model without inputting the other costs.”

He said the cost of human capital as well as the exploration, development and production of oil had all gone up. (Reuters)