Why the BUDI Diesel scheme matters

From Tarmizi Anuwar

Diesel subsidy retargeting isn’t an easy policy to defend. Any time the government touches subsidies, people worry. That fear is understandable because the fuel issue is not an abstract matter. It affects work, transport, food prices, school runs, small businesses and daily survival.

The BUDI Diesel scheme shouldn’t be judged by emotion alone, but against the simple reality: Malaysia is trying to keep fuel affordable in a world where supply is unstable, prices are unpredictable; public money cannot be allowed to keep leaking forever.

The first point is price. Malaysia’s subsidised diesel price of RM2.10 per litre works out to about US$0.51 per litre, far cheaper than the US$0.84 per litre in Vietnam, US$1.13 in Thailand, US$1.12 in the Philippines, US$1.19 in Indonesia and US$2.83 in Singapore.

Even unsubsidised, Malaysia’s market diesel price of RM3.97 (US$0.97) per litre is still lower than several regional peers.

That tells us something important: the subsidised RM2.10 price is very cheap! If diesel is much cheaper than elsewhere, and if the system is not tightly controlled, leakage, misuse and smuggling become almost inevitable.

That is why the old blanket subsidy system could not be allowed to continue. It helped genuine users, yes, but also allowed subsidised diesel to be drained by those who were never meant to receive it.

The second point is supply. Malaysia is not living in normal times. Global energy markets have been shaken by conflict and disruption, especially in West Asia. When shipping routes, oil flows and fuel supply chains are under pressure, every litre matters.

Reports have also framed Malaysia’s fuel supply in terms of a managed forward horizon, with energy supplies secured only up to a certain period. This means fuel should not be treated as unlimited.

So when subsidised diesel leaks out of the system, the loss is not just money, but also litres of fuel that should have gone to genuine domestic users: farmers, small traders, rural households, school bus operators, transport companies and people who actually need diesel to earn a living.

That is the part of the debate many people miss. Retargeting is not just about saving money for the Treasury, but protecting subsidised fuel from being wasted, misused or smuggled when supply is under pressure.

The third point is cost. Fuel subsidies are not free. They are paid for by public money, which means the subsidies compete with funds for hospitals, schools, roads, public transport, rural infrastructure and targeted cash aid.

Malaysia may spend up to RM40 billion on fuel subsidies in 2026 if energy prices remain high, compared with an initial allocation of about RM15 billion. Meanwhile, fuel subsidy spending rose from about RM800 million a month in January and February to around RM5 billion a month in March and April.

That is a huge burden. No responsible government can look at numbers like that and pretend nothing needs to change.

There is also evidence that diesel consumption under the old system was abnormal. Before diesel rationalisation, Malaysia’s average diesel consumption between January and May 2024 was reportedly about 770 million litres a month. After rationalisation, diesel sales between June and December 2024 fell to about 465 million litres a month.

A drop of more than 300 million litres a month cannot be ignored. It strongly suggests that part of the previous consumption was not ordinary domestic demand.

This is why the BUDI Diesel scheme matters. It does not abolish the subsidy, but it changes how it is delivered.

Eligible private diesel vehicle owners can still buy subsidised diesel at RM2.10 per litre through MyKad, with a monthly quota. Those who need more, such as eligible owners of pickup trucks and utility 4WD vehicles can apply for additional quota.

The principle is straightforward: protect genuine users, but stop allowing the system to be abused. That is a fairer approach than giving cheap diesel to everyone and hoping it does not leak, especially amid the global supply crisis.

Indonesia has also struggled with fuel subsidies, leakage and the political risk of price changes. Its MyPertamina system uses QR-based verification to identify eligible users and monitor subsidised fuel purchases.

Malaysia does not need to copy Indonesia wholesale. But the lesson is clear: when subsidised and market prices are far apart, verification becomes necessary to curb price arbitrage opportunities.

But support for BUDI Diesel doesn’t mean giving the government a blank cheque. The government must make sure genuine users are not punished by poor implementation. The appeal process must be fast. Rural users must not be left behind. People with legitimate special circumstances must have a clear route to be heard.

Enforcement must also be serious. The government should focus on high-risk petrol stations, border areas, industrial zones and abnormal purchasing patterns. If the public is asked to accept subsidy reform, they must see that the big leakages are being tackled, not just ordinary users being squeezed.

The government should also be transparent about the savings. If BUDI Diesel saves billions, people deserve to know where the money goes. Whether it is being invested for better public transportation networks, stronger rural infrastructure, targeted cash support, healthcare, education et cetera.

That is how the government can win public trust, by showing that the savings are returned to the people.

BUDI Diesel is not perfect. No reform is. But the old system was too expensive, too leaky and too vulnerable to misuse, especially when global supply is unstable.

The real question is not whether Malaysians should be helped, but whether help should go to everyone blindly, or whether it should go to those who truly need it. The answer should be clear.

Tarmizi Anuwar is a Malaysia country associate with the US-based advocacy group Consumer Choice Centre.

The views expressed are those of the writer and do not necessarily reflect those of FMT.