Finally, the much overdue price reduction of fuel is here. While Americans enjoyed gasoline as low as US$1.49 a gallon or RM1.63 a litre, Malaysians had to pay RM2.20 a litre for RON95. Effective 12.01am Saturday (Jan 5), RON95 and RON97 will see a reduction of 27 sen from RM2.20 per litre to RM1.93 per litre and from RM2.50 to RM2.23 per litre respectively.

 

Diesel, on the other hand, will see a reduction of 14 sen from RM2.18 per litre to RM2.04 per litre. Exactly why diesel is given a lower price reduction is beyond comprehension. Finance Minister Lim Guan Eng announced today that under the Automatic Pricing Mechanism (APM), weekly fuel prices will be announced every Friday.

 

It was also revealed that the fuel price could be lowered further, if not for the complaints lodged by the Petroleum Dealers Association of Malaysia (PDAM). Heck, the petrol price reduction was supposed to be lowered effective January 1, but had to be postponed to facilitate a request from the petrol station operators for a meeting with Prime Minister Mahathir.

As revealed by Mr. Lim – “The government has also agreed that the margins of the petrol dealers be standardised to 15 sen per litre for RON95 and 10 sen per litre for RON97, while it will be 10 sen per litre for diesel. This is an increase of 2.81 sen per litre for petrol and 3 sen per litre for diesel compared with current rates, which are 12.19 sen per litre for petrol and 7 sen per litre for diesel.”

 

In short, consumers would have enjoyed more saving – RM1.90 and RM2.20 per litre respectively for RON95 and RON97. Although the extra 2.81 sen per litre looks ridiculously small, when you multiply it over 100,000 litres of petrol sold every month, the extra profit is RM2,810 per month or RM33,720 annually. Not bad for a session of bitching with PM Mahathir.

 

But for those lucky petrol station operators who can sell more, probably due to the excellent location, the extra monthly profit could skyrocket accordingly. For example, if they can sell 200,000 litres of petrol every month, their extra profit would double to RM5,620 monthly or RM67,440 yearly. And since their profit is now 15 sen a litre, their effective profit will be RM30,000 every month.

Of course, the profit margin can be considered razor thin. Enter 24-hour petrol mart where the owners make their killing selling over-priced snacks, food and beverage. They also make extra revenue renting out spaces for car wash. Still, the petrol station operators continue crying, whining and bitching about the potential losses due to the latest fuel price reduction.

 

Petroleum Dealers Association of Malaysia (PDAM) President Khairul Annuar Abdul Aziz complains that petrol station operators are expecting to make losses of up to RM40 million when the new fuel pump prices come into effect at midnight. He said – “We do not want to buy fuel at a higher price only to sell for lower.” In short, the operators wanted the privilege to only buy low and sell high – every time.

 

Mr. Khairul talks like a business moron, as if the business will always guarantee profits and never loses. Amazingly, the same petrol station operators would keep quiet, and never complained when the fuel price goes up. So when they could not manage any business losses, they would thump their chest crying. But when they make a sudden windfall, they would laugh quietly all the way to the bank.

Considering that the crude oil has dropped more than 30%, the downside is quite limited because Saudi Arabia and Russia would take aggressive actions to prop up prices. Therefore, the PDAM should stop throwing tantrums like a small kid trying to prove they have very few surviving skill in the business world and need “crutches” all the time.

 

In the same breath, the new government should not be held hostage by such incompetent and lazy petrol station operators who monopolize the market. They increasingly looked like the Big Blue Taxi Facilities Sdn Bhd, whose advisor Shamsubahrin Ismail had threatened to protest simply because they could not compete with the e-hailing services offered by Grab.

 

Instead of giving in to the demands of the petrol station operators, who greedily want guarantees of profits, the Mahathir administration should open up the industry to more players. If the gasoline price can fluctuate every day and yet the station operators in the United States can make profits regardless if the crude oil goes up or down, something is very wrong with local operators.

Earlier last year (2018), when the previous Najib administration suggested a change from the weekly pricing mechanism to a daily format, the same method used in developed countries, the Bumiputera Petrol Dealers Association of Malaysia (Bumipeda) exploded in disagreement – foaming at the mouth that such business model would drive retailers out of business.

 

Why should the government protect 2,700 Bumiputera (son of the soil) petrol station operators over the 32-million consumers? Although PDAM is an affiliation of all the petroleum brand association of petrol dealers in Malaysia, including BHPetrol, Petron, Petronas, Shell and Caltex, almost 70% of petrol stations in the country were operated by Bumiputeras as of 2009.

 

Today, that percentage is most likely higher as the government has been carrying out a more streamlined license distribution system in favour of the ethnic Malay and Bumiputera. That’s fine as long as they do not consistently whine and cry over business competitiveness. If they can’t even manage a station, perhaps they should close shop and let other people take over the business.

According to former Prime Minister Najib Razak, the sales of RON95 alone in Malaysia are about 1.1 billion litres every month. Essentially, operators of petrol stations are looking at an additional profit of RM31 million every month or RM372 million each year with the latest rise in profit margin – the money which would otherwise go into the pocket of every motorist.

 

Hence, the Mahathir government must stop being threatened by the greedy and hopeless petrol station operators. There is no business that guarantees profits. Like any other business, the operators must learn the hard truth of “survival of the fittest”. Nobody should lose sleep over a bunch of so-called businessmen who know only how to sulk and demand for handouts whenever face business challenges.

 

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January 5th, 2019 by financetwitter

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