PETALING JAYA: An economist has suggested the loosening of regulations on petrol prices, saying it will best serve Putrajaya’s desire to encourage competition in the industry.
Carmelo Ferlito, a fellow at the Institute for Democracy and Economic Affairs, said the current government practice of setting a ceiling price would always discourage competition because no company would want to compromise on its profit margin.
“The companies would silently and spontaneously agree to sell at the ceiling price, like in a cartel,” he told FMT.
He said the higher the degree of liberalisation, the higher would be the level of competition.
Ferlito was commenting on a statement that Domestic Trade and Consumer Affairs Minister Saifuddin Nasution Ismail made on Tuesday, in which he said the government was prepared to give “certain benefits” to petroleum companies working on reducing their prices.
Saifuddin said the idea was to encourage competition.
Yeah Kim Leng, an economics professor at Sunway University, welcomed the proposal, but he told FMT he did foresee that it would lead to stiff competition, at least among petrol station operators.
He said the idea could be tried at certain locations in a pilot project to enable Putrajaya and petroleum companies to assess its effectiveness, although he expects dealers to put up a fight.
“It is likely that there will be a pushback from the station dealers since their margins will be lower.”
However, he also said dealers wanting to increase sales volumes could take up Saifuddin’s proposal, adding that stations with low business traffic could benefit from it by attracting customers who are prudent in their spending.
Yeah said healthy competition would ensure an efficient market.
“A responsive local market where prices are set by the players competing with one another will benefit consumers who are more price-conscious,” he added.