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Special Press Summary: Malaysia Prepares For Fuel Hikes
(Top Left) A customer returns a fuel nozzle after filing up his vehicle at a gas station in downtown Kuala Lumpur, Malaysia. Source: AFP (Top Right) A workers pumps petro into a Thai-registered car at a petrol station near the border town of Rantau Panjang in Malaysia’s state of Kelantan on 1 June. Source: Reuters (Bottom Left) Foreign invasion: Thai motorists queuing up at a petrol kiosk in Rantau Panjang, Kelantan, on Sunday night as world of the impending ban got around. Source: The Star (Bottom Right) Children arrange bottles of petrol for sale at a village on the outskirts of Kuala Lumpur on 4 June, 2008. http://news.yahoo.com/nphotos/slideshow/photo//080604/ids_photos_wl/r441773030.jpg/
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Special Press Summary: Malaysia Prepares For Fuel Hikes 1. Assessment: In an effort to cut back the government’s $17.3 billion expense on consumer fuels, Malaysia is preparing to raise its prices at the gas pumps as part of a sweeping subsidy reform package in August. Petrol prices will jump 40% on Thursday, a significant amount for a nation, which until now has paid half the price of its neighbors (Singapore, Thailand) for fuel. Considering the domestic population’s heavy reliance on personal automobiles for transportation, the social and economic impact will be felt almost immediately and could trigger public backlash against the government’s reform policies. Already facing intense public and political pressure for the failure of the ruling Barisan Nasional party to secure its parliamentary standing in the 8 March elections—a setback credited to outrage over rising food and fuel prices—Kuala Lumpur’s plans to hike its prices could prove costly (support-wise) for the Badawi administration. 2. Summary: In an effort to cut the bill for its expensive petrol, diesel and gas subsidies, which is expected to cost $17.3 billion this year, Malaysia is planning to hike its pump prices as part of a sweeping fuel subsidy reform package in August. On Wednesday, PM Abdullah Ahmad Badawi announced that the petrol prices will jump 40% on Thursday. The government will be able to save $4.2 billion as a result of the restructuring of the subsidies on petrol, diesel and gas and from the levy that will be charged on independent power producers and palm oil manufacturers, he said. PM Badawi also said that electricity tariffs will rise, depending on usage. It is the first time in two years that electricity and fuel prices have been increased. "God willing I hope Malaysians will not demonstrate over this," he said, referring to fury over earlier hikes in two years. Kuala Lumpur says that new subsidies would be on a needs-based system, rather than the current arrangement which lowers the cost of petrol for all users no matter what their income. (No Foreign Sales) The government has decided to do away with the ban on the sale of fuel to foreign-registered vehicles up to 50 km inside the country from its borders with Thailand and Singapore. The ban, which came into effect on Monday at the border with Thailand, is to be lifted Thursday and the ban to be imposed at the border with Singapore on 9 June will not come into force. The government was targeting Singaporeans and Thais who make day-trips across the border to fill their tanks with fuel that is substantially cheaper in Malaysia. A total of 296 petrol stations in the northern states bordering Thailand, and 197 in Johor state were affected by the ban. Fuel prices in Malaysia are among the cheapest in Asia, where regular gasoline costs $2.34 a gallon. Thailand sells it for $3.87 per gallon. (Public Reaction) The government is bracing for a public backlash over any further increase in a country where public transport is poor and many people depend on their cars. Motorists throughout the country are making a beeline to petrol stations, jam-packing major roads in cities and towns in a mad rush for fuel before the midnight deadline for the new fuel price takes effect. (Regional Reaction) Many Singaporeans took the latest announcements by the Malaysian government in stride. "It's reasonable since everything is going up. I am only pumping about RM25 (~ US $7.70), so it is not much of a difference to me. The impact isn't really there," said one Singapore motorist. (Impact) The subsidy cut was deeper than anticipated, said Yeah Kim Leng, chief economist with the research firm Ratings Agency Malaysia. "A price increase has been seen as inevitable and expected, but what happened is way beyond expectations," he told AFP. " We were looking at 20 to 30% but 40% means the government must be trying to make up for not raising prices last year as well." Economists have described the government's decision to increase fuel prices as good for the nation's economy in the long term. "It's a short-term pain, but a long-term gain, in terms of better economic stability and reducing the imbalances," said RAM Consultancy Services' chief economist Dr Yeah Kim Leng. 3. Prepared by: Virtual Information Center; (808) 477-3661 Ext. 2900 on 04 June 2008
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Special Press Summary: Malaysia Prepares For Fuel Hikes Table of Contents GOVERNMENT RESPONSE .......................................................................................................... 4 Malaysia Planning Petrol Price Hike In August: Minister .................................................... 4 Malaysia To Reform Fuel Subsidies ....................................................................................... 4 New Fuel Subsidy Scheme To Be Announced Wednesday .................................................. 4 Malaysia Raises Petrol Prices By 40% ................................................................................... 5 [Malaysia] Petrol To Cost RM2.70 From Midnight .............................................................. 5 Govt Saves RM13.7 Bln From Restructuring Of Subsidies .................................................. 6 PUBLIC RESPONSE ......................................................................................................................... 7 [Malaysia] Abdullah Hopes People Will Not Demonstrate Over Fuel Price Hike .............. 7 Fuel Price Increase Sparks Concern Over Spiraling Effect On Other Consumer Items...... 7 A Mad Rush For Fuel .............................................................................................................. 7 REGIONAL RESPONSE .................................................................................................................. 9 S'porean Motorists Take Malaysia's Petrol Price Hike In Stride .......................................... 9 No More Ban On Sale Of Fuel To Foreign-registered Vehicles At Borders ....................... 9 MARKET IMPACT ......................................................................................................................... 10 Malaysia Stops Selling Gasoline To Thais ........................................................................... 10 Ensuring A Successful Fuel Subsidy Reform ...................................................................... 10 Local Firms Ride The Tide .................................................................................................... 10 Increase In Fuel Prices Good For The Economy In Long Term, Say Economists ............ 11 PHOTO COVERAGE ..................................................................................................................... 12
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Special Press Summary: Malaysia Prepares For Fuel Hikes
GOVERNMENT RESPONSE
Malaysia Planning Petrol Price Hike In August: Minister Malaysia is planning to hike its pump prices as part of a sweeping fuel subsidy reform package in August, a minister said Monday. "It will happen... petrol prices will increase, I think the idea is in August this year when the subsidy system is re-structured," Domestic Trade Minister Shahrir Samad was quoted as telling state news agency Bernama. He earlier told reporters Malaysia had shut off petrol sales to Thais on its northern border today and would also ban sales of petrol to visiting Singaporeans in the southern border state of Johor from June 9. "This is a temporary measure, not a permanent one, and this will continue until the restructured... plan is announced," he said. Malaysia is moving to cut the bill for its extensive petrol, diesel and gas subsidies, which Shahrir said are expected to cost 56 billion ringgit (17.3 billion dollars) this year. The government is initially targeting Singaporeans and Thais who make day-trips across the border to fill their tanks with fuel that is substantially cheaper here. Shahrir said that 296 petrol stations in the northern states bordering Thailand, and 197 in Johor state would be affected by the ban on sales to foreigners, which extends 50 kilometers (31 miles) into Malaysia. (cont) Source: AFP http://afp.google.com/article/ALeqM5heRWFx3rbxn-I9Tn7JSoRh_M0X7Q Malaysia To Reform Fuel Subsidies Malaysia will embark on a revamp of its fuel subsidy scheme this week that may lead to higher petrol and diesel prices later in the year, a government minister said on Monday. Its government could become the latest in Asia to ease its ballooning subsidy bill before the pressure from record crude oil prices leaves cracks on spending, but it needs to tread carefully to avoid deepening its unpopularity. Domestic Trade Minister Shahrir Samad told Reuters Malaysia will take the first step towards reforming its fuel subsidy system on Wednesday. "This announcement is an incremental step towards the total restructuring in fuel subsidies in August," Shahrir said. "Wednesday's announcement will be an indication of the direction we will take." Although he declined to give details, local media have reported the proposals may include direct cash income subsidies and quotas for Malaysians. Shahrir earlier told reporters that Malaysia will eventually raise pump prices for petrol and diesel in August but subsidies will remain for the poor. "Petrol prices will increase," he said, without specifying how much prices would rise. (cont) Source: Reuters http://www.reuters.com/article/bondsNews/idUSKLR32148720080602 New Fuel Subsidy Scheme To Be Announced Wednesday KUALA LUMPUR: A new fuel subsidy scheme will be announced Wednesday and take immediate effect to prevent speculations. Prime Minister Datuk Seri Abdullah Ahmad Badawi said the anti-inflation committee will decide Tuesday on the various proposals by the Cabinet. He was speaking to reporters Monday after chairing the national small-and-medium enterprise development council at Bank Negara here. Abdullah was asked to confirm an announcement made by Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad that a new fuel subsidy scheme would most probably implemented in August. Abdullah said: “He said
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might be. As far as the subsidy management scheme is concerned, the final decision will be made on Wednesday. “It was to be decided last Friday but it so happened that many of the ministers (involved) were attending conferences overseas. We wanted all to be present to make the decision.” Asked whether the announcement would take effect immediately, he said: “We want it to be effective immediately. If not, there will be a lot of speculation.” (cont) Source: The Star http://thestar.com.my/news/story.asp?file=/2008/6/2/nation/20080602224744&sec=nation Malaysia Raises Petrol Prices By 40% KUALA LUMPUR - Malaysia has said petrol prices will jump 40 percent from Thursday, as it moves to cut the spiraling cost of subsidies despite the prospect of public outrage. Prime Minister Abdullah Ahmad Badawi said the price hike could suppress economic growth and drive up inflation as high as 5.0 percent this year, from current levels of 3.0 percent in April. "The cost of petrol and commodities has risen drastically and so subsidies have to be restructured," he told a press conference. "God willing I hope Malaysians will not demonstrate over this," he said, referring to fury over earlier hikes in a country where public transport is poor and most people are reliant on their cars. Abdullah indicated that further increases were in the pipeline as Malaysia moves to completely abandon fuel price controls that would have cost 17.4 billion dollars this year -- about a third of the national budget. "We are moving towards a market price regime but it has to be step by step, we cannot do it immediately," he said. The new pump price for petrol will be 2.70 ringgit (0.84 dollars) and 2.58 ringgit for diesel. Petrol currently costs 1.92 ringgit, among the cheapest in Asia. Abdullah is taking a major political risk in removing price controls even as he attempts to recover from disastrous March elections that dealt the ruling coalition its worst results in half a century. (cont) Source: AFP http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/351883/1/.html [Malaysia] Petrol To Cost RM2.70 From Midnight KUALA LUMPUR: Prime Minister Datuk Seri Abdullah Ahmad Badawi on Wednesday announced price hikes for petrol, diesel and electricity. He said the new price for petrol is RM2.70 a liter, effective midnight tonight. The price goes up by 78sen from the current RM1.92, a hike of 40%. Abdullah also announced that the price of diesel would be increased by RM1 from RM1.58 to RM2.58. He also said that Tenaga Nasional Bhd would be raising electricity rates by 18% for homes and 26% for business users. The announcements are part of the new fuel subsidy plan. Abdullah also announced a RM625 annual cash rebate per vehicle, for owners of private vehicles with engine capacities of up to 2,000cc, as well as pickup trucks and jeeps with engine capacities of up to 2,500cc. Owners of private motorcycles with engine capacities of up to 250cc will receive RM150. Payment will be made via Money Order upon renewal of road tax, from July 1. For owners of private vehicles with engine capacities exceeding 2000cc, road tax will be reduced by RM200. Owners of private motorcycles with engine capacities above 250 cc will get RM50 reduction in road tax. Source: The Star http://thestar.com.my/news/story.asp?file=/2008/6/4/nation/20080604175025&sec=nation
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Govt Saves RM13.7 Bln From Restructuring Of Subsidies The government will be able to save RM13.7 billion a result of the restructuring of the subsidies on petrol, diesel and gas and from the levy that will be charged on independent power producers and palm oil manufacturers, said Prime Minister Datuk Seri Abdullah Ahmad Badawi. He said the increase in the federal government's revenue as a result would be used and distributed for the food supply guarantee policy (RM4 billion), cooking oil subsidy (RM1.5 billion), subsidizing import of rice for uniformity of price of the staple in Sabah and Sarawak (RM0.4 billion), subsidize flour (RM0.2 billion), bread subsidy (RM0.1 billion) and contributions towards subsidizing petrol, diesel and gas (RM7.5 billion). He said the steps taken to restructure the subsidies were efforts in the direction to ensure market prices reflected reality, improving market efficiency and to encourage Malaysians to save on energy resources. "The commercial and industrial sectors will be more motivated to implement measures to make their operations more efficient while households will practice prudence in using energy and avoid wastage," he said when announcing the restructuring of fuel subsidies at his office here Wednesday. He also announced an increase in the threshold for service tax for restaurant services outside hotels. Restaurants outside hotels which have an annual turnover of more than RM500,000 have to pay service tax at the rate of five per cent. (cont) Source: Bernama http://www.bernama.com/
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PUBLIC RESPONSE
[Malaysia] Abdullah Hopes People Will Not Demonstrate Over Fuel Price Hike Prime Minister Datuk Seri Abdullah Ahmad Badawi said he hopes that the people of Malaysia will not take to the streets to vent their anger over the fuel price hike announced Wednesday. He said although there had been an increase in prices of fuel and goods in the country, their costs were still the lowest in Asia. "I hope the people will not resort to street demonstrations because what we are doing now is the best decision under the circumstances," said Abdullah after announcing the Subsidy Restructuring Package here. He said this when asked if Malaysians were expected to demonstrate in light of the hike in fuel and diesel prices starting Thursday. Asked who is to be blamed for the spiraling price of oil in the international market, forcing many nations to face unrest and instability, Abdullah said there are many parties to be blamed for the global shortage of oil. However, Abdullah said he was pleased that the issue was being addressed at the global level before it spread further and caused more instability. Source: Bernama http://www.bernama.com/ Fuel Price Increase Sparks Concern Over Spiraling Effect On Other Consumer Items The increase in the prices of petrol and diesel -- by 78 sen and RM1 per liter respectively -- is an eye-opener to consumers in planning their expenditure more wisely in the wake of costlier commodity. Malaysian Muslim Consumers Association Executive Secretary Datuk Nadzim Johan said the increase was beyond control and the consumers should now strive to spend within their means. "The price increase is inevitable. What's important now is that the people should be thrifty and try to find additional income. "What we are concerned of is the effect on other consumer goods. Normally, when the prices of fuel go up, the price of food items will similarly increase. We hope the government will put in place a mechanism to prevent such an increase because there bound to be people who take advantage of the situation," he told Bernama here. Honorary Secretary of the Muslim Consumers' Association of Malaysia Mohammed Mosin Abdul Razak said the fuel price increase had not affected his business yet. "We shall see. If the price of food items increase, it will not be good for the food business. We hope to be able to hold on to the old price," he said. In JOHOR BAHARU, the National Fishermen Association said the increase in the price of diesel for fishermen's use, from RM1 to RM1.43 per liter, was still low compared to the price in other countries. (cont) Source: Bernama http://www.bernama.com/ A Mad Rush For Fuel Motorists throughout the country are making a beeline to petrol stations, jam-packing major roads in cities and towns in a mad rush for fuel before the midnight deadline for the new fuel price takes effect. In the national capital, thousands of cars were moving bumper-to-bumper as they inched towards petrol pumps for the last drop of "cheap" fuel before the price increased to RM2.70 per liter for petrol and RM2.58 per liter for diesel at the stroke of midnight. In Kuala Lumpur, a massive traffic jam began to build up in the capital city as soon as the new prices were
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announced by Prime Minister Datuk Seri Abdullah Ahmad Badawi. In just minutes after the announcement, petrol stations here were already "seized" by motorists who wanted to fill up the tanks full. A check by Bernama showed that Jalan Kuching, Middle Ring Road II, Jalan Tun Razak, Jalan Bangsar, Jalan Sultan Ismail, Cheras and Ampang were among the roads packed with thousands of cars. A Shell petrol station manager in Mile 5, Gombak, Abdul Selamat, 45, said he was shocked to see hundreds of cars rushing to the station. "This has not happened since 1998. We have asked for replenishment," he said when met. In several roads, police had to be deployed to keep the traffic in order. There were also cars that run out of fuel because of the long wait on the road. A petrol station in Taman Melawati had to be closed early because it had run out of supply. (cont) Source: Bernama http://www.bernama.com/
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REGIONAL RESPONSE
S'porean Motorists Take Malaysia's Petrol Price Hike In Stride SINGAPORE : In a much anticipated move, petrol prices at stations across the causeway will go up by over 40 percent from June 5. The current pump price of RM1.92 (S$0.81) will increase to RM2.70 (S$1.13) per liter, while diesel will cost RM2.58 (S$1.08) per liter. Many Singaporeans took the latest announcements by the Malaysian government in their stride. "It's reasonable since everything is going up. I am only pumping about RM25, so it is not much of a difference to me. The impact isn't really there," said one Singapore motorist. "At RM2.70, it's still worth it for Singaporeans to come here. It's S$2.17 in Singapore," said another. "It will not affect the Singaporeans, but for the Malaysians, they will be affected," said a third. Market watchers said Malaysia's petrol prices are currently among the cheapest in this region. But if Malaysia decides to sell petrol at full market prices, then each liter could cost as much as RM4 per liter. And when that happens, probably in August, many Singaporeans said they would think twice before filling up their tanks in Malaysia. Source: Channel News Asia http://www.channelnewsasia.com/stories/singaporelocalnews/view/351930/1/.html No More Ban On Sale Of Fuel To Foreign-registered Vehicles At Borders The government has decided to do away with the ban on the sale of fuel to foreign-registered vehicles up to 50 km inside the country from its borders with Thailand and Singapore. The ban, which came into effect on Monday at the border with Thailand, is to be lifted Thursday and the ban to be imposed at the border with Singapore on June 9 will not come into force. This was disclosed by Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad after Prime Minister Datuk Seri Abdullah Ahmad Badawi announced an increase in fuel prices nationwide effective midnight tonight. After midnight, the price of petrol will be RM2.70 per liter, up by 78 sen, and the price of diesel will be RM2.58, up by RM1. As part of several incentives announced along with the price increases under the restructured subsidy scheme, owners of private cars and of engine capacity of up to 2,000 cc and pick-up trucks and jeeps of up to 2,500 cc will get a cash rebate of RM625 per year when they renew their road tax. Owners of private motorcycles of engine capacity of up to 250 cc will get a cash rebate of RM150 per year. Shahrir said that with the restructured fuel subsidy scheme and higher fuel prices, the ban on sale of fuel to foreign-registered vehicles along the border with Thailand and Singapore was no longer deemed necessary. "When I proposed the ban, foreign vehicles were enjoying government subsidies meant for Malaysians," he told reporters package at his office here. Source: Bernama http://www.bernama.com/
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MARKET IMPACT
Malaysia Stops Selling Gasoline To Thais Malaysia began enforcing a ban on gasoline sales to foreign-registered vehicles near the Thai border Monday, causing some stations' business to trickle nearly to a halt. The ban is aimed at curbing the costs of Malaysia's fuel subsidies, which keep retail fuel prices at nearly half those of neighboring Thailand despite soaring global petroleum prices. Thousands of Thais and Singaporeans drive into Malaysia every day to fill their tanks and take advantage of the subsidized prices, which were expected to cost Malaysia's government $14 billion this year. Government authorities say the ban is a temporary measure until they revise the subsidy system so that it more directly helps its intended beneficiaries: low-income Malaysians. Abdul Wahid Bidin, acting president of the Petroleum Dealers Association of Malaysia, said 90 percent of the usual customers of some fuel stations near the border were from Thailand. "There are complaints from the dealers that they've got no business, no customers at all," Abdul Wahid said, expressing hope the ban will be lifted soon. Deputy Prime Minister Najib Razak said Sunday that the ban would be postponed for 300 stations within 30 miles of Malaysia's borders with Thailand and Singapore. (cont) Source: Associated Press http://ap.google.com/article/ALeqM5ic67p6VJ8SuPJjxmHbYfJ0SFhj-wD912127O0 Ensuring A Successful Fuel Subsidy Reform CIMB, in a research report, says the success of fuel subsidy reforms hinges on three aspects: strengthening governance, institutions and transparency. SKYROCKETING fuel prices have compelled some governments in Asia to review the present fuel subsidy system as part of ongoing economic and market reforms to rebalance fiscal priorities. Hefty fuel subsides will not only undermine the Government’s fiscal budget but will also distort economic efficiency and the allocation of resources. According to Asian Development Bank’s August 2007 survey of the retail fuel price policies in developing Asia, more than 50% of the economies sampled still controlled fuel prices either through direct or indirect means. The survey data indicate that 31% of the economies used indirect methods of ensuring lower fuel prices, including regulated pricing, compensatory tax changes and the use of national oil companies to subsidize the fuel cost and absorb losses. Lift them or leave them? While subsidies and controlled prices persist in some economies, there is a shift in fuel price policy in the context of rebalancing budget priorities. We observe a greater degree of tolerance in allowing the pass-through of rising fuel prices to consumers and businesses. (cont) Source: The Star http://biz.thestar.com.my/news/story.asp?file=/2008/6/2/business/21404695&sec=business Local Firms Ride The Tide CONCERNS by economists and analysts that rising costs, coupled with the new political scenario, might severely impact many of the local listed companies’ performance appear unsubstantiated, going by their first quarter results. Many companies on Bursa Malaysia
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reported decent earnings, despite operating in a tough environment. But economists believe the worst is not over yet, as rising raw material and fuel costs have not abated and appear to be on the uptrend, at least in the near term. EONCAP Securities research head Pong Teng Siew said the current economic climate was different compared with that of the 1997/98 Asian financial crisis or when exchange controls were instituted in the late 90s. Those events had caused local stocks to fall out of favour with many foreign investors. Pong said rising raw material and fuel costs were a global phenomenon affecting all companies worldwide. The other two occassions - Asian financial crisis and exchange controls - had generally impacted Malaysia and Asian countries. “(No doubt), our local companies are now more resilient. Many are also more export-oriented and less dependent on markets like the United States to prop up their earnings,” he said, adding that there was also greater trade among Asian countries. (cont) Source: The Star http://biz.thestar.com.my/news/story.asp?file=/2008/6/2/business/21402618&sec=business Increase In Fuel Prices Good For The Economy In Long Term, Say Economists Economists have described the government's decision to increase fuel prices as good for the nation's economy in the long term. "It's a short-term pain, but a long-term gain, in terms of better economic stability and reducing the imbalances," said RAM Consultancy Services' chief economist Dr Yeah Kim Leng. He said the increase was basically to ease Malaysia's fiscal position so that in the longer term, it would be more efficient and better prepared to cope with rising prices. "No doubt the 40 per cent increase is the biggest jump in the history, it's significant and sizeable, but if it is properly channel for development projects and for the improvement of public transportation, the public will be able to support it," he said when contacted. Prime Minister Datuk Seri Abdullah Ahmad Badawi announced Wednesday that petrol and diesel prices will go up by 78 sen and RM1 per liter respectively at midnight tonight. The new price for petrol at the pump would be RM2.70 per liter and diesel, RM2.58 per liter. Dr Yeah said the government had no choice but to allow the price to increase as it had been holding back such a move or adjustment since one and a half years ago, despite the higher fuel prices. (cont) Source: Bernama http://www.bernama.com/
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PHOTO COVERAGE
Heavy subsidies keep petroleum costs low in Malaysia http://news.bbc.co.uk/2/hi/asia-pacific/7421921.stm
http://biz.thestar.com.my/news/story.asp?file=/2008/6/2/business/21404695&sec=business
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A worker pumps petrol into a Thai-registered car at a petrol station near the border town of Rantau Panjang in Malaysia's state of Kelantan June 1, 2008. Malaysia will hand out fuel subsidies directly to deserving buyers instead of supplying subsidized petrol and diesel to filling stations under a new mechanism aimed ensuring that only the poor get cheap fuel, a newspaper said on Sunday. REUTERS/Aden Kidir (MALAYSIA) http://news.yahoo.com/nphotos/slideshow/photo//080601/ids_photos_wl/r1703915878.jpg/
A customer returns a fuel nozzle after filling up his vehicle at a gas station in downtown Kuala Lumpur http://afp.google.com/article/ALeqM5heRWFx3rbxn-I9Tn7JSoRh_M0X7Q
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