THERE is a stronger case for the government to embark on subsidy-rationalisation measures in Malaysia as across-the-board subsidies for essential products such as fuel tend to benefit the richest segment of the population.
In fact, global surveys reveal that about 80 per cent of fuel subsidies in many countries benefit the richest 40 per cent of the population. Subsidies also send wrong signals to the market and lead to misallocation of resources.
As such, it is quite prudent for the government to shift its resources to help the lower-income earners who are deeply affected by the rising of cost of living.
Across-the-board assistance such as fuel subsidies should be fine-tuned to curb overconsumption by the higher-income segments.
Our energy subsidy bills are staggering. In 2013, we spent a total of RM23.5 billion on fuel subsidies, against RM24.7 billion in 2012 and RM20.3 billion in 2011. Of the total RM23.5 billion, RM11.7 billion was for petrol, RM9.6 billion for diesel and RM2.1 billion for liquefied petroleum gas (LPG).
According to a research by the Maybank Investment Bank, households with income of below RM3,000 per month consume only 30 per cent of subsidised RON95 petrol.
The government’s huge fuel subsidy bill is also putting a strain on a more productive spending on health, education, roads and other basic infrastructure.
Recently, the government has received several proposals from parties keen to provide the solution on the best scheme for subsidy rationalisation.
All the parties came up with totally varied proposals which offer the government a diversity of approaches. These include the proposals on the use of MyKad, fuelcard, nano technology and even CCTVs.
Business Times was made to understand that after receiving the various proposals for evaluation, it was a proposal by Fuelsubs House Sdn Bhd (FSH) that underwent intense and vigorous process of evaluation and scrutiny by the Economic Council and the Fiscal Policy Committee.
FSH has partnered smart-card solutions provider Datasonic Group Bhd to act as a service provider alongside Pos Malaysia Bhd.
The government views the FSH proposal that incorporates the use of MyKad and fuelcard as a platform to disburse subsidised RON95 and diesel using a multi-tiered price-setting and quota system being the most palatable.
The collaboration with Datasonic is crucial as the proposal by the consortium will require the public to register for the programme using MyKad and use it every time they fill up the petrol or diesel based on their approved monthly quota. This is to check the programme from being abused.
“Datasonic is a total solutions provider when it comes to smart cards security, the quality we provide for the Malaysian MyKad as well as the passport is of the highest. In fact, we bonded security features into our passport that makes it virtually impossible to forge,” Datasonic deputy managing director Chew Ben Ben told Business Times.
Unlike other proposals by other bidders, FSH proposes that subsidies be given on a multi-tiered basis based on individual income, not on the size of engine capacity. Monthly allocations should be fair or all.
The synergy created by Datasonic and Pos Malaysia, which has unparalleled access through its 730 post offices nationwide, is giving a good value proposition to the government, consortium members said.
“We have given our good value proposition,” Fuelsubs managing director Habibul Rahman Kadir Shah said. Motorists will only need to sign up for the programme using their MyKad at any of the 730 post offices or through online registration. They can then fill up at any of the 3,326 petrol stations throughout the country to enjoy the subsidised fuel by producing their MyKad.
“We expect 10 million people to register within 10 weeks of the programme being activated and that’s fine because we have 17,000 Pos Malaysia employees to help them. The transition will be as convenient, seamless and as cost effective as possible,” Pos Malaysia group chief executive officer Datuk Iskandar Mizal Mahmood said.
“Once the targeted subsidy programme is activated, there will be a need in reaching out to the rakyat and through our existing 730 offices, we are the only firm that is capable of such deep reach,” he said.
“Integrating the targeted subsidy into the MyKad will be able to save the government between RM150 million and RM200 million, as compared to the use of other fuel cards. Utilising Pos Malaysia’s already established presence in deepest Malaysia will save them more.”
Datasonic’s flagship product is the MyKad, and therein also lies its strength in its aspiration to clinch the government’s fuel subsidy rationalisation contract. Datasonic aspires to integrate the card as the key towards targeted distribution of subsidised fuel, based on individual’s income.
“Right now, we are the only company in the country that has this software and the expertise for total security against forgery for the MyKad and passport,” Chew said.
As Habibul puts it: “We respect all other bidders. We are able to create a strong synergy with Pos Malaysia and Datasonic which makes our proposal fairly competitive”.
Datuk Razali Naina Merican, a shareholder and director of FSH, said the use of existing old and new MyKad and a simplified card reader approach at the petrol kiosk counters were essential to meet the tight deadline for project implementations as well as to minimise project cost.
FSH said the use of multi-tiered pricing on consumer income level and not engine capacity was seen as more equitable.
Chew was upbeat of his project partners. He said Habibul brought to the table his strategic thinking and analytical skills. Chew said: “He is able to look at financial equations in multiple dimensions and always seeking practical solutions to problems”.