Effects of Diesel Subsidy Rationalisation on Construction Industry

The recent move by the Malaysian government to rationalise diesel subsidy has been a topic of intense discussion, especially concerning its impact on the construction industry. The decision to set the pump price at RM3.35 per litre is part of a broader strategy to address the increase in the cost of living and curbing cross border diesel smugglers by focusing on targeted subsidies. However, this may not seem as simple as it is. Diesel subsidy rationalisation also appears to be a hidden strategy to expose and catch local businesses that were profiteering from using subsidised diesel for commercial activities.

Abusers Among Us

First of all, construction businesses were never entitled to subsidised diesel before this subsidy rationalisation kicks in. Therefore, any price increases in materials and services using the subsidy rationalisation as a justification could be seen as unjustified. The implementation of diesel subsidy rationalisation has exposed unethical construction businesses that were securing subsidised diesel illegally for commercial use. Prior to this, the blanket subsidisation mechanism makes it difficult and complex to catch any abusers. The Domestic Trade and Cost of Living minister has said his ministry will investigate those construction businesses that are calling for price hike after diesel subsidy rationalisation on June 10. Efforts from Domestic Trade and Cost of Living ministry will definitely be a deterrent to those that have abused diesel subsidy and profiteered from taxpayers’ money.

Greater Accountability

Government’s action on exposing and catching the abusers in the industry has profound effect on construction industry. Developers, contractors and suppliers are now being held accountable when it comes to their prices in relation to energy and transportation cost. Prior to this new mechanism, construction businesses that use subsidised diesel illegally will have the unfair advantage of undercutting competitor’s pricing due to their lower cost. Diesel subsidy rationalisation has now levelled the playing field and promotes greater accountability and greater equity among all developers, contractors and suppliers regardless of the scale of their businesses.

Good Apples

As in many industries, this could well be a case of a few bad apples tarnishing the reputation of the rest. The good ones are definitely worth to be highlighted, such as Malaysian Resources Corporation Bhd (MRCB), have stated that they have consistently used diesel fuel at commercial rates for their projects, including those managed by subcontractors. Therefore, they anticipate that the diesel subsidy rationalisation will not affect their operational efficiency, project timelines, service delivery, or cost base. This shows that diesel subsidy rationalisation has little to no impact on the fair players in the industry.

Will construction prices still go up?

The diesel subsidy rationalisation is a welcomed policy shift that will benefits Malaysians in the long run, if well-implemented. Revisions and improvements on this targeted subsidy mechanism are definitely expected. However, this does not guarantee prices will remain the same as it also depends on how hard government is policing the abusers of subsidised diesel in construction industry. Last but not least, in an inflationary economic regime, prices of any goods and services are going to increase sooner or later due to various factors beyond fuel cost.

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