- According to the Domestic Trade, Cooperatives and Consumerism Minister Datuk Hasan Malek on Friday, subsidies for RON95 petrol and diesel will be abolished effective 1 December.

- The retail prices for RON95 petrol and diesel will be fixed according to a managed float system which will be similar to the mechanism dictating the petrol pump price of RON97.

- Hasan said there would be an announcement at the end of each month to set the following month's fuel prices.

- Also, Deputy Finance Minister Datuk Ahmad Maslan said on the same day that the RON95 petrol price could decline as global crude oil prices continue to drop.

- For 2015, the government’s estimates are based on the assumption that the average crude oil price for Brent is USD100 per barrel.

- Based on the national budget announcement in October, the provision for overall subsidies amounts to RM37.7bil (or -7.1% YoY) for 2015.

- Given the lower-than-expected global crude oil price, overall government expenditure on fuel subsidy will probably be lesser than its budgeted amount. Similarly, lower global oil price results to lower government revenue.

- Should the Brent crude oil price remains below USD100 per barrel in 2015, total government revenue is expected to fall short of its current projection of RM235.2bil (2014E: RM225.1bil).

- Assuming that the Brent crude oil price hovers at an average of USD90/ USD80/ USD70 per barrel in 2015, government revenue is likely to reduce to RM232.7bil/ RM230.1bil/ RM227.5bil respectively.

- Meanwhile, overall subsidy for 2015 is expected to decrease by RM2.2bil/ RM4.3bil/ RM6.5bil from the government’s initial estimate if the Brent crude oil price hovers at an average of USD90 per barrel/ USD80 per barrel/ USD70 per barrel respectively.

- Note that the government has guided for a fiscal deficit of 3.0% of GDP for 2015 vs. its estimate of 3.5% for 2014.

- On a net basis, budget deficit will likely increase by 0.1ppt from the current estimate to 3.1% of GDP in 2015 should the Brent crude oil price reduces to as low as USD67 per barrel on average.

- On Friday, the Brent crude oil closed at USD80.36 per barrel (or -27.5% as at YTD). On average, it had traded at USD103.4 per barrel as at YTD 21 November 2014.

- For 2014, the government has allocated RM40.6bil (or 18.0% of total revenue) for subsidies. However, that is a reduction of RM2.8bil from a year ago (or -6.4% YoY).

- The government’s provision for fuel subsidies amounts to RM23.2bil (or 57.2% of total subsidies) for 2014. The full-year assumption for Brent crude oil price is averagely USD105 per barrel for 2014.

Source: AmeSecurities