ALOR STAR: The government's decision to rationalise diesel subsidies for targeted groups may impact the cost of new and existing development projects.
Malaysian Malay Contractors Association (PKMM) vice-president I Mohamad Fauzee Mohamad said that project costs would significantly rise due to the removal of diesel subsidies for some of the industry's suppliers.
He said that the increase in diesel prices from RM2.15 to RM3.35 per litre, exceeding 50 per cent, would cause the cost of materials, particularly precast concrete, to rise between 25 and 60 per cent.
"Additionally, the cost of equipment and machinery will increase by more than 35 per cent. For example, backhoe rental rates will rise from RM450 per day to RM600.
"The increase in machinery rental rates, such as for backhoes, excavators, cranes, trucks and piling machines, is unavoidable. Consequently, the overall project cost will rise significantly by 30 to 65 per cent," he said today.
Fauzee said this would cause contractors to incur losses of 15 to 40 per cent, depending on the project scope.
"As a result, many contractors will go out of business. The impact of price increases post-Covid and the Sales and Service Tax (SST) issue have not yet subsided, and contractors, especially those classified as G5 and above, are facing cost increases in three stages due to project completion times exceeding 36 months," he added.
Hence, he urged the government to reinstate the Variation of Prices (VOP) clause for government contract projects, covering all items involved in project completion.
"The price variation rate should be based on the actual prices. We are concerned that if this issue is not studied and taken seriously, many contractors will go bankrupt and be blacklisted.
"The government should also allow the 'mutual termination' clause, where contractors can return projects without facing penalties or agree on a VOP together," he added.
He expressed hope that the government would consider the impact on the construction industry before implementing any measures or proposals.
"Diesel subsidies should also be provided for government projects, especially for contractors with their own machinery to handle the projects.
"The purchase of diesel for machinery is often done through unofficial means, as obtaining approval from the authorities is difficult," he added.
On Sunday, Finance Minister II Datuk Seri Amir Hamzah Azizan announced that the price of diesel at all retail stations in the peninsula would rise to RM3.35 per litre effective midnight yesterday.
He said this was the unsubsidised market price based on the May 2024 average of the Automatic Pricing Mechanism formula.
The fixed price and implementation of targeted diesel subsidies would save the government RM4 billion per year and strengthen the country's financial position in the long run.