Revision to the fuel subsidy formula

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Toffeeman

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JOHOR BARU: The subsidy on petrol may be revised with the bulk going to the regular type so that prices will be kept down for the average motorists. Under the plan, the existing classes of petrol at the pump — Octane 92 and Octane 97, commonly referred to as RON 92 and RON 97 — will be abolished and replaced by Octane 95 and Octane 99. Octane 92 is used mainly by motorcycles while other vehicles normally use Octane 97. Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad, who disclosed this yesterday, said Octane 95 could be used in most vehicles and would be the fuel of choice for low- and middle-income earners. The government would also introduce Octane 99, a premium fuel that costs more than Octane 95 or 97, that is usually used in performance luxury cars and Sports Utility Vehicles (SUVs).Under the proposed system, Shahrir said, subsidies would be mainly used to keep the price of Octane 95 low. The price of Octane 99 will still be subsidised but to a lower extent. "The goal is to have subsidies targeted and more focused at those who need it, such as the lower- and middle-income group, and giving a choice to the rich on what petrol they want to fill in their tanks," Shahrir said. "We are subsidising a form of petrol that is of a high quality, but I was informed by Proton that a majority of cars can use Octane 95. "The Octane 97 that we use benefits luxury cars." The new system is expected to benefit lower- and middle-income groups as the subsidies are targeted at a fuel that they would most likely use, Octane 95. The rich can use Octane 95 in their Mercedes cars, BMWs and SUVs but it would not give them the performance that comes with the higher quality Octane 99. The proposal is being considered by the government following a meeting of the Cabinet Committee on Inflation chaired by Prime Minister Datuk Seri Abdullah Ahmad Badawi recently. In January, Second Finance Minister Tan Sri Nor Mohamed Yakcop was reported as saying that the government would have to spend up to RM35 billion a year to subsidise the price of Octane 92, Octane 97 and diesel if world oil prices remain above US$100 (RM320) per barrel. Octane 92 is sold at RM1.88 per litre at pumps in Peninsular Malaysia, Sabah and Sarawak. Octane 97 is priced at RM1.92 per litre in Peninsular Malaysia while in Sabah it is RM1.90 and RM1.91 in Sarawak. Shahrir said the government was expected to save more money by allocating most of the subsidy into a single type of fuel, Octane 95, as opposed to subsidising two types of fuels, Octane 92 and Octane 97. Octane 95 is lower in quality than Octane 97, but it can be used in most vehicles in Malaysia and is commonly used in a number of Asian and European countries. "The system is a shift in how we price petrol, but it is necessary if we are to lessen the burden on the lower- and middle-income groups." ================================================= What do you guys think of the statements made above? My personal views are as follows:
  • Subsidy should not have been an issue if our general income level improves FASTER than we should. The fact that we still need subsidy is a sign of a fundamental problem that our economy is in.
  • Lowering fuel from Octane 97 to 95 is likened to lowering our standard of living - Again a sign of the fact we as a country is not doing very well. Sigh - We ARE indeed living in a third world country. So much for 2020 vision. We seem to be heading backwards
  • It was mentioned Protons can use Octane 95 fuel effectively. This is on presumption the level of engine technology for the likes of Proton remains the same for a long time. I think this is not a sustainable proposition. But of course having said that, not sure how long Proton will last anyway.
Meanwhile, what are you guys views how it will affect the BMW owners like us eh? Would our engine able to take the beating of Octane 95 or we will be forced to swallow the price imposed on Octane 99. Why can't they continue with Octane 97 fuel??
 
Toffeeman,

Thanks for the interesting news article. My comments on your salient points.

Point 1.

You are right. From an economist' point of view, a subsidy is like a crutch. An ideal economic system is one where the market forces determine the allocation of factors of production. Having a subsidy means there is an inherent distortion in the economic system.

As fuel price increases, the cost of fuel subsidies will increase. Malaysia being a net producer of oil will benefit from fuel price increase. The additional revenue from exporting oil can be put to good use to increase the education of the workforce and thereby increasing the population's productivity. And as we all know, economic growth and improvement in the welfare (i.e. quality of life) of the population ultimately rest on productivity.

However, fuel price increase is dynamic, and short-term fluctuations introduce shocks to the quality of life of the population faster than the government can correct it via long-term measures. A subsidy acts like a buffer to buy time for the government to implement their policies.

This article below comments on how subsidies on domestic firms hurt the economy. Interesting reading.

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http://www.geocities.com/TimesSquare/1848/subs.html
"One of the most important argument against subsides is based on economic theory. Subsidies and price supports have existed for centuries, but now they are incredibly wasteful and completely outmoded for world markets. Subsidies, fostering the protection of domestic industries have a negative effect on employment, the budget deficit, and other economic aspect. The economic implications of subsidies are significant. Government subsidies given to the private industry usually end up hurting the economy. A subsidy sponsors unprofitable business enterprises and often favors one firm over another. Therefore, subsidies effectively interferes with the concept of a free market economy."
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So, Dato Shahrir Samad's announcement is a timely one. Our government's move to reduce subsidy is correct (and inevitable in my opinion) in the long term. It must however be matched by government policies aimed at improving the productivity of the people (via investments in education, training, reducing brain drain, attracting foreign brain power, attracting foreign investments, etc.) I.e. the money that is saved from the reduction of subsidies must be spent wisely elsewhere.

Point 2.

Looks like lowering the fuel from Octane 97 to Octane 95 is aimed at moving the higher-income group into the higher-taxed fuel, while according subsidies to the lower-income group.

Similar to the progressive distribution of tax, where the tax rate increases as the economic well-being increases, the government is trying to make subsidy progressive rather than the current flat rate, equally enjoyed by the rich and poor. The move to use fuel rating as the criteria instead of "luxury vehicles vs non-luxury vehicles" as was previously proposed is a smart one. Using vehicle types as a criteria is impossible to enforce. If one is rich, buying a Kelisa to be used as a fuel-buying mule is no issue.

Item 3.

Now, the rich would have to contemplate putting Proton engines into their luxury cars...

Maybe Proton sales may even be helped by this move, further delaying the improvements in the quality of Proton cars (specifically the engine.) Protons will either produce inferior Octane 95-tolerant engines which will not be able to compete in the world market, or will produce two types of engine variants, domestic and international.

As said earlier, subsidy is a distortion to the economic system (allocation of factors of production) equilibrium. The longer subsidies are in place, the harder it will be to remove.



Here's a good article.

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http://www.ipsnews.net/new_focus/subsidies/newsletter/5_note.asp


Excerpt :

The economic costs of energy subsidies can be big. Subsidies can place a heavy burden on government finances, weaken foreign trade balances and stunt the growth of economies. Depending on how they work, they can also undermine private and public investment in the energy sector, impeding energy conservation and the expansion of distribution networks. Subsidies to specific technologies can also hinder the development of competing technologies that might be more economic in the longer term. And very often, it is more affluent people who end up with the largest share of subsidies intended for the poor.

Removing subsidies that are both economically costly as well as harmful to the environment would be a win-win policy reform. However, governments are often faced with awkward trade-offs between the economic and environmental benefits of reforming those subsidies and the short-term social costs of higher fuel prices or of lower employment in indigenous energy industries. In some poor countries, including many of those of the former Soviet Union, removing subsidies to modern household cooking and heating fuels has had a dramatic short-term impact on living standards. And removing subsidies to coal can have a devastating effect on employment and incomes in local communities that depend heavily on mining. That is why, in Europe, reform of coal subsidies has often involved redirecting public money towards retraining and other adjustment measures, as well as aid for regional economic development.

Energy-subsidy reform requires strong political will to take tough decisions that benefit society as a whole. Implementing reforms in a phased manner can help to soften the financial pain of those who stand to lose out and give them time to adapt. This is likely to be the case where removing a subsidy has major economic and social consequences. The authorities can also introduce compensating measures that support the real incomes of targeted social groups in more direct and effective ways, where that goal is deemed socially desirable. ... Whatever the precise design of reform policies, politicians need to communicate clearly to the general public the overall benefits to the economy and to society as a whole of cutting subsidies, and consult with stakeholders in formulating reforms to counter political inertia and opposition.
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i'd go for non subsidized fuel and let market dictate fuel price at the pumps. that's a good way to deter ppl from buying what they can't really afford. Less jam. i guess suffer a bit.
 
I am mostly agree with LEE.
I for one welcome the RON99 fuel, and don't mind pay a little more.
Looking at the increasing number of BIG SUV in Malaysia, increaing fuel price is a smart move. Poor people don't buy SUV, Merc, Bimmer or cars that require high RON fuel.

The money saved from subsidising petrol, should go into rice, flour, cooking oil, and etc.
We don't need any more inflation, and another round of "rising $$ flour".

But I would like to see RON92 remain at fuel pump. My mini & Vios run better, cleaner, quicker in RON92.

Maybe Proton sales may even be helped by this move, further delaying the improvements in the quality of Proton cars (specifically the engine.) Protons will either produce inferior Octane 95-tolerant engines which will not be able to compete in the world market, or will produce two types of engine variants, domestic and international.
Proton does have the technology for Variable valve management, and all the fancy cool stuff to put in a car. But how many people will buy a Proton just because it has "VTEC" and extra cost that comes with it ?
And fuel-savings car don't need high octane fuel. :) Cheers
 
i'd go for non subsidized fuel and let market dictate fuel price at the pumps. that's a good way to deter ppl from buying what they can't really afford. Less jam. i guess suffer a bit.
 
i'm all for a free market and removal of subsidies.

but the government must ensure that the Public Transport system is 'A' OK.

With such a screwed up system - how on earth are the middle and lower middle income people supposed to commute?

Anyways i'm all for the removal of subsidies.

Cheers
 
Just to add another point - fuel subsidy should be removed together with the excessively high motor vehicle tax
 
Statement from BMW Group Malaysia today stated that our UDMs are "built to perform on RON95 fuel" (The Star).

So that means we could still buy the "cheaper subsidised" fuel anyway
 
fuel subsidy

greetings all....

interesting comments and views. everybody has a valid point and i do agree that the subsidy should be taken off to a certain extent. like what deviladvocate said...an improvement in the public transport is a must...however, as abolishing the subsidy affects the whole country, improvement of public transport cannot and will not improve automatically for the whole country. Public transport in JB is pretty awful and I don't see it improving either. Therefore the burden goes back to the public. On a more serious note:

Does using Ron95 have any side effects to the car's engine?:top:
 
shazani;311316 said:
Does using Ron95 have any side effects to the car's engine?:top:

According to "Owner's handbook", your BMW's rated performance and fuel consumption are based on high-grade RON95.
You will get better performance with super-grade RON99.
Since newer BMW equipped with knock sensors, our cars will run just fine with minimum requirement of RON91, just not as powerful :)
 
some say you can put RON92 at 70% and add 30% RON99 you will get RON95. so we still bang on RON92 dont we?
 
Article taken from MotorTrader site,

FEATURE
RON and your car's engine
April 07, 2008 12:20 AM Author: Chips

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The present octane grades of RON92 AND 97 have been in use for decades and in recent years, the government has asked stations to put up such boards to show how much is being subsidised
Now that the general elections have passed, the expected increase in fuel prices is quite likely to occur before long (for obvious reasons, the government had delayed any increase earlier - in spite of oil prices rising substantially in the past year). Over the weekend, the new Minister of Domestic Trade & Consumer Affairs gave an overview of a new approach for the petroleum business which will see a change in the grades of petrol (referred to as RON, or Research Octane Number). If the proposal is implemented, the present grades of RON92 (also referred to as 'Regular') and RON97 (Super), which have been at the pumps for decades, will be replaced by RON95 and RON99. It is likely that the increase in RON will justify an increase in the price per litre, unavoidable since oil prices are very high now and the government subsidies have become a heavier burden.
According to the minister, RON92 has been used 'mainly by motorcycles' but he is probably misinformed by his technical advisers. RON92 is also suitable for many modern engines and even the latest Honda models such as the Civic and CR-V sold in Malaysia are tuned to use RON91 so RON92 is not a problem (in fact, some Honda models sold in Indonesia are even tuned for RON88). All Perodua models are tuned to run on RON90 and that is a very large number of cars on the road. Those who can use RON92 can save a few sen per litre which, over the long term, still represents a saving in motoring costs (enough for one roti canai breakfast a week!)
Many motorists have not purchased cheaper RON92 even though their car engine may be able to use it either through ignorance, lack of understanding and even being discouraged by pump attendants who often call this grade of fuel 'Lama' (old). However, there are also valid reasons why some motorists have avoided RON92 even though it can be used for their car. This concerns the additives in RON92 petrol which vary from company to company. The additives are a vital part of the formulation and help to keep the inside of the engine (especially the fuel delivery system) clean so it runs efficiently. It is these additives, upgraded from time to time, which are often the subject of advertising claims of 'cleaner running', 'better fuel economy', etc.

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Chevron Malaysia gives the same additive package, called 'Techron', in both its RON92 (Silver) and RON97 (Gold) petrol. The Platinum grade is not sold in Malaysia.
The thing is that because it was perceived in earlier years that RON92 was used by 'low-tech' engine like marine engines, lawnmowers and motorcycles, the petroleum companies felt that it was unnecessary to spend extra money on additives and according to a source in one company, there is almost no additive in that company's RON92 petrol.
Companies like Chevron Malaysia do, however, provide an identical additive package (which the company calls 'Techron') for both grades of their Caltex fuel. As such, the superior benefits which are advertised are not limited only to the RON97 grade. The other company known to also adopt the same approach was ProJet, which is no longer in business here.
Statistically, it may be that the limited number of pumps offering RON92 has led decision-makers to conclude that this grade is 'not in great demand' when in fact, carmakers have been heading in the direction of lower RON for many years now.
The proposed new grade of RON95 is, nevertheless, a good compromise and should be fine for the majority of cars on Malaysian roads. This grade has been a popular one with Japanese manufacturers, possibly because in Japan, their Regular grade has been RON95 for a long time.
The other part of the proposal is to introduce a higher grade of RON99 in place of RON97, which does not make much sense. It will cost more to produce for one thing and less than 1% of all vehicles here would require such a high octane. Even high-performance engines like the Volkswagen/Audi/Skoda FSI engine, the 1.6-litre engine of the Suzuki Swift Sport and the 1.8-litre engine of the old Ford TX3 need only RON98 at most to run at optimum.
However, the interesting thing is that the government will provide a smaller subsidy for RON99 petrol because it is assumed that those who own cars which require such fuel can afford to pay more for their fuel. A larger proportion of the billions of RM in subsidies will be allocated for RON95 to keep its price down since a larger proportion of the rakyat will use it.
"The goal is to have subsidies targeted and more focused at those who need it, such as the lower income and middle income groups, and giving a choice to the rich on what petrol they want to fill in their tank," said Datuk Shahrir Samad, the minister.

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High-performance models like the Civic Type-R, Swift Sport and Lancer Evo need high octane fuel (RON98) but such cars are sold in very small numbers in Malaysia
There are often misconceptions with regard to the technical aspects of high and low octane fuel so here's what it is all about. Firstly, if your car's engine is tuned and recommended by the manufacturer for a minimum of RON92, then you are not going to get increased performance using RON97 or RON99. Just because the octane is higher does not give you more 'power' because it does not work like that in combustion.
P3160009.JPG
Latest Honda CR-V, a SUV, can run on RON92 without any problem
The second thing is that octane requirements are not dependent on bodystyles so it is incorrect that 'SUVs run on higher octane' (which appeared in the news reports). As mentioned earlier, the Honda CR-V has been tuned to run on RON92 and a number of other SUVs can also use this fuel. It is all dependent on the manufacturer and the engine and even then, large engines can also run on low octane. The Ford Escape 3.0 V6, for example, is tuned for RON92.
There was also mention that RON95 will be of a 'lower quality' than RON97 and this is probably what is causing concern among motorists now, as evident in the discussions in our MTM Forum. The quality will be lower only if the additive package is minimal compared to the higher octane fuel which petrol companies have typically promoted more strongly. However, under the new plan, if RON95 becomes the lower grade and it is intended for the majority of motorists, it would be irresponsible of the petroleum companies (with the exception of Chevron) to do what they have been doing with their RON92 petrol, ie putting in little or no additives. If RON95 becomes the high-volume fuel in Malaysia, then it would only be logical that it would get a superior additive package.

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The powerful FSI engine of the VW Group requires RON98 petrol but if a lower octane is used, its knock sensors will adjust the ignition timing to prevent improper combustion
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Knock sensors which are attached to the engine and detect knocking
Having cleared away some myths, let's now look at some issues concerning the use of petrol which is of an unsuitable octane for the engine. If the engine is tuned to run with RON93, then you cannot use a number lower so RON92 is out and you would have to use RON97 (at this time). If you use RON92, a condition called 'pinking' or 'knocking' is likely to occur and this is the result of improper combustion. The condition gives off a sound like marbles rolling inside the engine, especially if you are going uphill. If it happens long enough and often enough, damage can occur to the engine because those are sounds of unwanted explosions inside the combustion chambers. In some cases, these explosions occur as the piston is rising and create a downward force on the piston. Loss of power also results during pinking.
Using the right fuel octane or a higher one prevents this condition. In more expensive engines, there are also devices called knock sensors which are like little microphones that detect knocking. When such a condition is detected, the engine control unit (ECU) will adjust the ignition timing to compensate. This usually eliminates the knocking but there will also be slight reduction in power output.
However, a Shell engineer did once make a case for using an octane higher than recommended, mainly for older engines. His explanation was that with older engines, the accumulation of deposits inside the engine can cause a slight increase in the compression ratio and though not always the case, a higher compression ratio usually requires higher octane fuel. This being the case, if the compression ratio in an older engine gets higher, then there is a remote possibility that pinking can occur so it may be better to use the higher octane petrol even if a lower one is recommended.
How would you know what is the right RON for your engine? This information is usually stated in the Owner's Manual and the minimum RON is specified. There may also be a sticker on the fuel lid cover which indicates the correct RON. What's important is that you do not use an octane lower than that specified. When in doubt and the manufacturer or local representative cannot help, then the safest bet is to use the highest octane possible which, at this time, is RON97. Only a small number of models would need a higher octane than that and quite likely, they would have knock sensors in their engines.

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The inside of the fuel lid on many cars will have a sticker to indicate the correct petrol octane required
There are also 'octane boosters' available in some stores and these are additives which are added to the fuel by pouring into the fuel tank. Engineers in oil companies usually avoid commenting on such additives as they feel that there is a possibility that adding something else could upset the optimised formulation of their petrol and instead reduce benefits. There is also the possibility that these additives may leave behind deposits after combustion, an undesirable by-product that will affect performance in the long run. So it's up to you to use them if you are convinced that there are benefits to be gained.
While on the subject of petrol, it would also be useful to make it very clear that unleaded fuel is no longer sold at the pumps in Malaysian stations. A law was passed some ten years ago on this but it seems that many motorists still believe that Regular RON92 petrol contains lead. This confusion could be due to lack of initiative by some petrol companies in removing stickers on the pumps which used to specify that they were dispensing leaded fuel or simply ignorance of facts.
The introduction of unleaded petrol (ULP) occurred in the early 1990s in Malaysia as a prelude to the requirement for petrol engines to have catalytic converters. Lead was a component in petrol for decades but it is poisonous and decades of spewing tons of fumes into the atmosphere meant that the air became unhealthy. So lead was phased out and it was also necessary to do so because the catalytic converter, which chemically removes most of the toxic emissions in exhaust gases, will get damaged by lead.

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Older nozzle (top) with larger diameter for pumps which dispensed leaded fuel and the one with a narrower diameter for unleaded fuel
During the transitional period up to the mid-1990s, leaded petrol was sold alongside ULP because cars with very old engines needed the lead to protect the valves from wearing out (hardened valve seats were introduced to address this issue when ULP was used). Leaded petrol was confined to RON92 and in most cases, it had a red dye to make it more obvious.
Another measure to prevent motorists from accidentally filling leaded petrol was the industry-wide adoption of different nozzle sizes. In collaboration with carmakers, a smaller opening was provided for the fuel tank pipes in newer cars with catalytic converters. The petrol companies installed nozzles on ULP pumps with a smaller diameter while maintaining the larger diameter nozzles for leaded petrol pumps. In this way, it was almost impossible for a motorist to accidentally pump in leaded petrol because the nozzle would not go in.
When the Malaysian government finally phased out leaded petrol and RON92 was also ULP, the replacement of nozzles was not done speedily and even as recently as a year ago, there were stations still having the larger diameter nozzles on their RON92 pumps. Because of the perceived 'lack of demand', the petrol companies probably saw no urgent need to make the change, again influencing statistics of the true demand for this grade of petrol.
As for diesel fuel, well, that's another matter altogether and the car companies as well as many motorists are waiting for the government to actually upgrade the standards rather than talking about 'going to do it' year after year.
 
I thought higher octane will improve combustion? So I was wrong all this while... Meaning those who pour in Octane Booster into RON97 petrol are a bunch of jokers literally burning their Ringgit with no benefits what-so-ever??

I wonder what does the sticker says on my E90 320i.. ? :rolleyes:
 
astroboy;311850 said:
I thought higher octane will improve combustion? So I was wrong all this while... Meaning those who pour in Octane Booster into RON97 petrol are a bunch of jokers literally burning their Ringgit with no benefits what-so-ever??

I wonder what does the sticker says on my E90 320i.. ? :rolleyes:

Not really la dude.

It all depends on your compression ratio. If you run a 10.8:1 or higher compression ratio then perhaps 97 Octane will make a difference. I think most BMWs have compression ratio from 10.2:1 to 10.5:1, except the ///M cars.

The old e36 M3 has a compression ratio of 10.8:1 and the E46 M3 is 11.0:1. These cars will probably benefit from the higher octane fuel. Just like the new Civic Type-R, it will only produce the hp quoted if RON 99 fuel is used, otherwise with RON 97, lesser hp than quoted figures.

I have tried 92 Octane before, and honestly I CAN'T feel any difference but since its only 4 cents/liter, it doesn't matter much to me.:burnout:

Cheers
 
High octane do not improve combustion. Instead, it slow down combustion.

Newer BMW, starting from E36, equipped with Knock Sensors.
You WILL benefit from higher RON octane gas.
But if you pour in RON92, ECM in our car will pick it up from knock sensors, retard timings, and your car will run just fine. Just less performance, and less KM per tank.

In most Proton, and Perodua, it doesn't come with knock sensor.This include City, and Vios. So, getting RON97 is a waste of money, create more carbon deposits in your engine, and perform slower too.

I still remember back in 90s, BP had RON100, and Mobil has 102+. That was SWEET. :)
 
I found this article which I can understand better about Octane in fuel and what it actually means..

Source: http://auto.howstuffworks.com/question90.htm

The octane rating of gasoline tells you how much the fuel can be compressed before it spontaneously ignites. When gas ignites by compression rather than because of the spark from the spark plug, it causes knocking in the engine. Knocking can damage an engine, so it is not something you want to have happening. Lower-octane gas (like "regular" 87-octane gasoline) can handle the least amount of compression before igniting.

The compression ratio of your engine determines the octane rating of the gas you must use in the car. One way to increase the horsepower of an engine of a given displacement is to increase its compression ratio. So a "high-performance engine" has a higher compression ratio and requires higher-octane fuel. The advantage of a high compression ratio is that it gives your engine a higher horsepower rating for a given engine weight -- that is what makes the engine "high performance." The disadvantage is that the gasoline for your engine costs more.


Next question is what is limit of compression each RON level can tolerate?

I check my E90 fuel cap. Its just written there UNLEADED PETROL RON91, 95, 98, 100 or higher :stupid: Does that mean if RON98 not available, stick to RON95 ??! :D And I'm running at Compression 10.5:1 compare to my Toyota at 10:1 which that one lagi best. The fuel cap just label "Unleaded Petrol" in RED.. :D :D
 
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