How Fuel Prices are calculated in Malaysia

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Do you know how the fuel prices are calculated here, in our country? Are you familiar with the Automatic Pricing Mechanism (APM)? This is the method used in calculating the fuel’s price, which was implemented way back in the year 1983. The main purpose of its establishment is to stabilize and maintain the prices of petrol and diesel. It was done by including the variation in amount of sales tax and subsidy, so that the retail price will only change in situations in which the difference in prices exceed the threshold and limit of the tax and subsidy.

Many people are not aware of how APM works leading to an increase amount of complaints in regards to lack of understanding of the method. Some has already come out with explanation in trying to educate the public about the APM. One term that need to be understand as well is the Mean of Platts Singapore (MOPS). Again, what is it? MOPS is one type of swaps that is actually a future price. A buyer of a certain refined oil product will be referring to the MOPS index as a more reliable indicator of world prices instead of crude oil prices. Our country’s government is using the MOPS in order to determine the fuel prices as the MOPS price is typically more premium than the crude oil prices. Besides Malaysia, most of the ASEAN countries and Australia are using the MOPS as the base for their fuel prices. Platts is a McGraw-Hill company in Singapore that track, assess and update the index of MOPS based on the daily average of all the trading transactions between all the petroleum-based products’ buyer and seller.  

For the breakdown of the fuel price in Malaysia, the price of Alpha is fixed at 5 cents per litre for petrol and 4 cents per litre for diesel which act like a buffer for oil companies. For example, oil companies will need to bear the additional cost if they purchase a product that is higher than the price published by MOPS. Conversely, the companies will gain extra if they buy the product with a price lower than the MOPS published price. For operational cost which covers both the transport and marketing costs, they are set at 9.54 cents per litre for the Peninsular of Malaysia. For Sabah and Sarawak, they are set at 8.98 cents and 8.13 cents respectively.  

In regards to sales tax and subsidies, these are combined. Referring to the Sales Tax Act 1972, our government is allowed to collect maximum sales tax of 58.62 cents per litre for petrol and 19.64 cents per litre for diesel. Do take note that this is effective when the fixed retail price of the petrol and diesel is higher than the actual price at the pumps. Inversely, the government can pay a subsidy of the same range if the fixed retail price is lower than the actual cost of the petrol and diesel at the pumps. Expert says that the 30 cents maximum subsidy, as part of the improved APM is a way to stabilize the retail prices of the fuel. Thus, this allows the players in the industry to manage their expenditure and expenses in a more organized manner.