The Petrol Dealers Association of Malaysia (PDAM) said since the implementation of the monthly fuel pricing mechanism in December 2014, petrol station operators have found it difficult to finish off their oil stocks.

PDAM president Khairul Annuar said since 2014, between 30 and 40 petrol stations had been forced to cease operations due to their inability to cope with the losses.

“And now there’s a new weekly pricing mechanism. As a result, petrol station operators are feeling the pinch really badly,” he told FMT.

Khairul added that more petrol station operators were expected to close down, mainly due to the falling fuel prices.

Not just about mechanism

Previously, consumers were used to fuel prices being announced on the last day of every month.

This came after the fuel subsidy was removed in December 2014 and a managed float system implemented in which fuel prices were set based on a monthly average price.

Subsequently, Domestic Trade, Cooperatives and Consumerism Minister Hamzah Zainudin said a ceiling price for fuel would be announced weekly, starting April 2017.

However, Khairul said it was not just the mechanism that was bringing down business as petrol station operators also have a binding agreement with oil companies.

This leaves them with no room to control their own prices, he said.

“Like when Raya comes, petrol companies will give the dealers stock, sometimes to a maximum of 150,000 litres. So we have stock for up to 10 days.

“But when we near the end of the fifth day and the new price revision is announced downwards, the dealers either have to sell off their stock that day or operate at a loss for the next five days.”

He said other factors in the closures include the minimum wage scheme, rising energy cost, and 1% credit card fee which is absorbed by petrol station operators.

“It’s called the merchant discount rate,” he said.

“The government has set for petrol station operators to absorb the cost to encourage electronic payments. But this comes under our operating cost and we have to bear it.”

Khairul added that petrol station operators bear at least RM3,000 to RM5,000 in weekly losses because of the mechanism.

‘Give more space to dealers’

According to PDAM data, there are 3,500 petrol station operators nationwide, with their losses estimated at between RM25,000 and RM30,000.

“With a combined workforce of between 35,000 and 50,000, this will affect most of the workers at the stations,” Khairul said.

He said the government should allow petrol station operators to decide on their own how much fuel they need to purchase from petrol companies to avoid overstocking.

He added that a protection mechanism should be laid out by the government to protect petrol operators when they suffer losses due to excessive stock.

“Right now, there aren’t any policies backing these operators or dealers, and they have to bear it all on their own,” he said.

Petrol station operators want protection

Ramasamy Chandran, 45, who operates a petrol station in Shah Alam, said business was tight and he operates almost at a loss whenever fuel prices trend downwards.

“When the new revision is announced and it is downwards, we have to sell our remaining fuel stock at a loss.

“I gain little to no profit margin most of the time,” he told FMT.

Another petrol station operator, Saiful Md Junos from Damansara, said his business was barely breaking even, adding that he might have to close down his station if the current situation worsens.

“My station doesn’t have a mart like the others, so I have no other sales besides my fuel,” he said.

Another operator in Klang, who has been in the industry for more than 10 years, said the weekly fuel pricing mechanism has really affected his business as the sales volume was not very high.

“Our sales have never reached 500,000 litres per month.

“If there are continuous losses, I might have to close down my business,” said the operator who preferred not to be named.

Fuel pricing mechanism nothing new

Malaysia is not the only country that implements a specific fuel pricing mechanism.

Countries such as India have made the shift towards a daily revision of fuel prices since May this year.

According to a report by research firm Kotak Institutional Equities, a daily change in fuel prices will have a positive impact on the industry as it can eliminate irregularities due to inventory management by dealers on expectations of upward or downward revisions in fuel prices.

Qatar, which is a member of the Organisation of Petroleum Exporting Countries (Opec), has liberalised its petrol and diesel prices since May and now uses a monthly pricing mechanism to cope with the fall in global oil prices.

Similarly, in Kuwait, the monthly revision of fuel prices is seen as a step towards “partially liberalising” its petrol prices.

The Kuwaiti government liberalised its prices in line with its economic reforms to reduce the impact of low global oil prices.

Nurul Azwa contributed to this article.