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Indonesian gov't urged to scrap fuel subsidy

Publication Date : 07-08-2014


A number of business associations in Indonesia have called on the government to entirely scrap the fuel subsidy, instead of just limiting consumption of subsidised fuel types in certain areas, to prevent further swelling of state spending.

Indonesian Food and Beverage Association (Gapmmi) chairman Adhi S. Lukman said on Wednesday that the recent regulation restricting subsidised diesel fuel consumption and the removal of subsidised fuel at gas stations along toll roads would discriminate against those could not access the subsidised fuel types.

“People in certain areas will no longer be able to use certain subsidised fuel types while those in other areas still can,” he said.

The regulation is a follow-up to a decision by the Downstream Oil and Gas Regulatory Agency (BPH Migas) to stop selling subsidised diesel fuel and subsidised gasoline in Central Jakarta, as well as prohibiting gas stations in Java, Bali, Kalimantan and Sumatra from selling subsidised diesel between 6pm and 6am, to stay within the national subsidised fuel quota of 46 million kilolitres (kL).

The agency started halting the distribution of subsidised diesel fuel in Central Jakarta on Aug. 1, while a similar policy was imposed in other areas in Java, Bali, Kalimantan and Sumatra on Aug. 4.

The agency will also stop distributing subsidised gasoline (known as Premium gasoline) to every gas station located along toll roads throughout the country.

Adhi said that the policy would confuse most food and beverage traders as well as consumers.

Those who were affected by the regulation would likely raise their product prices because half of their distribution cost was usually for fuel consumption, while those not affected would probably keep their product prices or follow their affected counterparts, he said.

Adhi said the situation would be worsened by possible food and beverage price hikes due to 10 per cent value added tax (VAT) on raw materials, including agricultural


Based on a Supreme Court ruling in February that revised government regulation No. 31/2007 on strategic goods exempt from VAT, the government is expected to impose a 10 per cent VAT on raw materials, excluding several commodities, such as palm oil.

Indonesian Chamber of Commerce and Industry (Kadin) deputy chairman Natsir Mansyur voiced a similar concern, saying that the subsidised fuel ban was a fragmented policy that would have a huge impact on industry players.

“The regulation would likely raise prices as fuel consumption commonly contributes 30 per cent to total production cost in any industry,” he said.

He said the government should allow only registered vehicles to use subsidised fuel types or fully eliminate the fuel subsidy instead of imposing the restriction.

According to the World Bank quarterly report released in March, state spending would swell by 56 trillion rupiah (US$4.77 billion), consequently pushing up the budget deficit to 2.6 per cent of the gross domestic products (GDP).

Natsir also said he regretted that the regulation was implemented only based on the consideration of BPH Migas.

Industry Minister MS Hidayat, meanwhile, said that he personally expected a regulation that would not allow private vehicles to use subsidised fuel.


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