Malaysia’s diesel subsidy removal fuels inflation fears

But businesses across sectors from transport to restaurants are now warning they may have to pass on rising costs to customers, amid an end to what had been Southeast Asia’s second-cheapest diesel.

Domestic tour bus operators have already been forced to increase their rates by as much as 35 per cent, after prices at the pump surged overnight to 3.35 ringgit (71 US cents) from 2.15 ringgit before the subsidy cut.

“Even if the tour bus is not moving, we still need to leave the air conditioning on, otherwise our customers will complain,” Tai Pok Kim, secretary general of the Peninsular Malaysia Tour Bus Operators Association, told This Week in Asia.

To cover an average of 400km (250 miles) per day, tour buses typically need about 150 litres (39.6 gallons) of fuel – meaning the daily cost of operation for each has increased by some 200 ringgit (US$42), he said.

“If a company has 10 buses, you’re looking at 2,000 ringgit in losses a day.”

Under the new subsidy system, selected logistics vehicles are allowed to buy diesel at the old 2.15-ringgit rate, while vehicles used for public transport and essential services – such as school and long-haul express buses, ambulances and fire engines – can still buy the fuel for 1.88 ringgit a litre.

But tour buses were excluded, with the government reasoning they mainly cater to foreign tourists. Heavy machinery typically used for construction does not qualify for the subsidised rate either, driving up downstream costs.

Small-scale farmers, smallholders and some drivers of diesel vehicles who fall into a specified low-income bracket are eligible to receive 200 ringgit in monthly cash aid by way of compensation.

The subsidy cut, which does not apply to the states of Sabah and Sarawak on Malaysian