Gradual Reduction of Subsidies on Energy Prices
Policy measure

According to APERC (2010), “energy prices [in Malaysia] are regulated by the Government and are heavily subsidized. Under the Ninth Malaysia Plan (2006-2010), the Government has stated the policy to review the energy pricing structure to closely reflect market prices. As such, the Government took steps to gradually reduce subsidies on energy prices. Oil products prices, gas prices for the primer and non-primer sectors and electricity tariffs have been reviewed to reflect market prices.”


Under the Tenth Malaysia Plan gas prices will be revised every six months in a move to gradually reduce subsidies to curb a ballooning fiscal deficit (Su-Lyn, 2010).

Implementation
No identified implementation measures.
Challenges

The deduction scheme of a subsidy programme needs to be gradually implemented. “This may indicate the Government is more likely to remove its subsidy gradually over 3 to 5 years. This is because accelerated implementation of subsidy cut will spike up the inflation and lead to an unhealthy economy growth.” (iFast, 2010)  

Outcomes

The first round of subsidy deductions in July 2010 led to savings of  MYR 750 million (USD 242 million). In December 2010, the government announced a second round of subsidy cuts, expected to generate savings of MYR 1.18 billion (USD 380.7 million). (The Associated Press, 2010)

References

APERC (Asia Pacific Energy Research Centre), 2010. Compendium of Energy Efficiency Policies of APEC Economies – Malaysia. Tokyo. Available at: http://www.ieej.or.jp/aperc/CEEP/2010/Malaysia_2010.pdf.


iFast, 2010. Subsidies Cut - Making Malaysia More 'Palatable'. Available at: http://fundsupermart.com.my/main/research/viewHTML.tpl?articleNo=658.


Su-Lyn, B., 2010. Energy prices to be revised in line with subsidy cuts. The Malaysian Insider Business. Available at: www.themalaysianinsider.com/print/business/energy-prices-to-be-revised-in-line-with-subsidy-cuts/.


The Associated Press, 2010. Malaysia cuts fuel, sugar subsidy to trim deficit. Available at: www.businessweek.com/ap/financialnews/D9JSEI100.htm.