KL may increase petrol price for first time in two decades

KL may increase petrol price for first time in two decades

KUALA LUMPUR (Reuters): Malaysia said on Wednesday that petrol
prices were likely to be raised for the first time in nearly two
decades, spurring concerns of higher inflation.

"There's a big possibility of an increase, but the quantum of
the increase will be decided by the Ministry of Finance,"
Domestic Trade and Consumer Affairs Minister Muhyiddin Yassin
told reporters.

"It's still being studied by the Ministry of Finance," he
said.

Malaysia is considering allowing petrol prices to rise for the
first time since 1983. It has also proposed a hike in bus fares
of up to 33 percent.

Muhyiddin said the government would have to take into
consideration the impact of higher petrol prices on various
sectors such as transportation as well as on the inflation rate.

"We will consider all these factors so that it will not burden
consumers. At the same time, it should also not burden the
government," he said.

Muhyiddin's comments came after the government voiced concerns
over rising energy prices. The price of North Sea Brent crude oil
has doubled to about $30 a barrel since last year.

He said the government had spent nearly five billion ringgit
($1.3 billion) on petrol subsidies over the last eight to 10
years and would have to fork out another 500 million ringgit this
year to keep pump prices for unleaded petrol at 1.10 ringgit (29
U.S. cents) a liter.

"The government cannot continue to bear the burden of
subsidizing petrol prices forever," he said.

Muhyiddin said than even if petrol prices were to increase,
they would still be the cheapest in the region apart from
Indonesia.

Malaysia is a major non-OPEC oil producer and a net crude oil
exporter.

"It will definitely have an impact on the inflation rate, but
without knowing the quantum it's difficult to say how much of an
impact," said Jason Chong, head of research at Merrill Lynch in
Kuala Lumpur.

Markets consultancy firm Standard & Poors MMS agreed, saying
the extent of the impact would depend on the size of the price
hike and when it is implemented.

Malaysia's consumer price index, the barometer for inflation,
increased by 1.5 percent between January and June compared with
the same period last year.

The central Bank Negara has forecast inflation at 3.2 percent
in 2000, up from 2.8 percent in 1999.

But a recent Reuters poll forecast year-on-year inflation at
2.7 percent in 2000.

Fuel and power sub-group constitute about five percent of the
consumer price index.

Rating Agency Malaysia (RAM) on Wednesday sharply raised its
economic growth forecast for 2000, but warned that inflationary
pressures would mount on the back of a pick up in demand.

It forecast inflation to climb up to 3.1 percent in 2000 from
2.8 percent in the previous year.