Malaysia is looking into the possibility of scrapping diesel subsidies in stages within the next two to three years, local media said today.

"We cannot depend on subsidies forever," Domestic Trade and Consumer Affairs Minister Mohamad Shafie Apdal was quoted as saying by the official Bernama news agency.

However, when asked when the government might abolish the subsidy, Mohamad Shafie said "I don't know, maybe in two years' time or three years."

"We can't depend heavily on subsidy, it will stop the market system. If there was too much subsidy, it will be difficult for us to compete with other developed countries," he said.

He said many other countries had already stopped subsidising diesel, including neighbouring Thailand and Indonesia.

Billions in saving

The removal of diesel subsidies would likely be done in stages, particularly for the transportation and fisheries industries both of which were the main users of subsidised diesel, he added.

The government in May raised the price of petrol by seven percent and diesel by 23 percent in a bid to cut the soaring cost of government subsidies and the smuggling of diesel to neighbouring countries where prices are higher.

The government had estimated that with the new rates, the expected fuel subsidy this year would be RM6.70 billion, a saving of some RM2.20 billion.

Subsidies for petroleum cost the government RM4.8 billion last year and would reach RM8.9 billion this year if prices were not increased to help cope with sharp increases in international fuel prices, the government said.