MALAYSIAN PETROL STATION’S FACE MARGIN SQUEEZE

 

Anwar Ibrahim maintains that he will drop fuel prices within 24 hours of Pakatan Rakyat taking power of the Federal Government.
 

His populist proposal has worried petrol retailers because excessive government market intervention will create a difficult operating environment for them.
 

Shell Malaysia operates one of the country’s largest networks of retail stations with over 900 stations serving 500,000 customers daily.

 

The company is therefore vulnerable to any drastic reductions in fuel prices. Doing so will force them to make only razor-thin margins on their pump sales.

The margin is the difference between the cost of running a service station and what can be made from selling its fuel. Poor margins and spiralling operating costs directly and indirectly threaten businesses and jobs.
 

State-regulated pricing mechanisms are anathema to the free market. They will hurt the size of the retail station networks even in the face of rising local fuel demand.

Earnings of other fuel retailers such as Petronas, Esso, Petron, Caltex and BHP will also be affected by any immediate reduction in fuel prices.

Malaysia's economy should be moving away from market-distorting subsidies and not retaining and encouraging a culture of dependence and entitlement.

 

Sorry Anwar, this sounds like a step in the wrong direction.