On the 5th of June 2008, the same day of World Environment Day, a day after Malaysian government announcement that the petrol and diesel price in Malaysia have been increased by 41% and 63% respectively! In short and long term basis, what would be the impact of this petrol price hike over the construction industry in Malaysia? Before this the petrol and diesel were selling for RM1.92 and RM1.58 with the government subsidy each year. Further to the unstoppable price hike of crude oil from USD80 to over USD140 per drum, the Malaysian government subsidy budget had reached to a record new high of more than RM500 Million a year if the government insist to maintain the selling price in the local market! Furthermore, the total government annual expenditure budget is only RM400 Million! After reviewing all these factors, the government had no choice but to increase the control price of petrol and diesel to RM2.70 and RM2.58 respectively. Afterall, the selling price currently is still way below the open market price which our neighbouring countries Thailand and Singapore is selling. However, this drastic move has impeccable cut down the government yearly subsidy budget by over RM300 Million which is definitely a healthy saving to be utilised for other productive development of the country!

Having said so, petrol price has been the most critical factor in inflation control measure. It is the key element in all sort of industrialization. What is the impact in the construction industry? When we look at the construction industry, majority of the material cost is going to increase in the very short future or has even started. Ready mixed concrete has announced their new pricing which is 24% more. Reinforcement steel bar is the most effected element which has been increased by over 100%! On top of that, the transportation and machineries play an important role also in the industry. Crane services have been marked up their price by 25% or more while lorry and truck rental also been increased by 30%! Added all in, the overall inflation to the contract value is expected to be more than 20%! For the industrial norm, margin of a contract is projected at about 7% and that petrol price hike alone has already ruined not only their whole profit but even their capital investment as well for all those running project and which is tremendous!

Although the petrol price hike is unavoidable in the long run unless alternative resources is available, this sudden increase of petrol price should not be happened for whatever reason realising that investors would retract their capital investment in Malaysia and the KLSE index has already shown the impact.