This article first appeared in The Edge Financial Daily, on March 23, 2017.

KUALA LUMPUR: The government will implement a weekly retail ceiling price for petrol and diesel starting next Wednesday, with new prices to take effect after midnight that day, according to Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Hamzah Zainuddin.

“The matter was presented to the cabinet on Feb 22 this year, and the ministry has agreed to implement the system starting next Wednesday, March 29. The new price will be reflected at 12.01am the following day, which is [next] Thursday,” Hamzah said in a live telecast yesterday.

According to Hamzah, the new system, which would still be on the managed float mechanism, would mean that any fluctuation in global oil prices and foreign exchange will be reflected on a weekly basis instead of a monthly basis.

“After we implemented the managed float system on a monthly basis, we found that there was a significant fluctuation in retail pump prices. This has created panic among consumers and fuel station owners,” he said as explanation for the new weekly system.

Hamzah said the government will allow any retailers to sell below the ceiling price, provided that it has obtained prior approval from his ministry to do so.

“Any retailers wishing to provide any discount below the approved weekly price will be able to do so, but they must get the government’s approval first,” he said.

Petroleum Dealers Association of Malaysia president Datuk Khairul Anwar Abdul Aziz lauded the weekly ceiling price as a positive for the industry, saying it will provide healthy competition among fuel dealers and retailers.

“I hope there will not be a price war that can kill each other’s margin. As long as the [ceiling] price does not fluctuate more than five sen, I think retailers, especially smaller players, will be happy,” said Khairul Anwar, whose association represents more than 3,200 retail pump stations nationwide.

According to a senior official from one of the big four petrol station names in the country, petrol companies currently enjoy a gross margin of 12 sen per litre. However, Khairul Anwar refuted the sum when asked, saying it is “preposterously high”.

“No retail operators would be able to chalk such a high margin. What I can say is that the current margin is sufficient to keep us afloat and we hope it (the weekly ceiling price) will not choke any players. Everyone must be kept happy,” he added.

Meanwhile, Institute of Democracy and Economic Affairs director of research Ali Salman said the government should gradually move to a fully deregulated regime, where prices are dictated by market forces.

“In the long run, if consumers are exposed to open market prices, then they will adjust their consumption pattern [accordingly]. There should not be a cartel in the industry — that is the best. Instead, there should be healthy competition,” Ali added.

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