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Indonesia to phase in subsidised-fuel limits

Publication Date : 24-04-2012

 

The Indonesian government will gradually ban subsidised fuel use for cars with engines larger than 1,500 cubic centimetres starting later this year, a top official says.

The ban would cover government vehicles in May, before expanding to cover private vehicles in Greater Jakarta in August and vehicles in all of Java and Bali in September, Energy and Mineral Resources Ministry’s oil and gas chief Evita Herawati Legowo said in Jakarta yesterday.

The policy was implemented to limit government spending on subsidies after its proposed fuel-price increase was rejected by the House of Representatives last month.

“As a legal basis for the policy, we plan to issue a ministerial regulation in the near future,” Eva said.

Eva said that if the government did nothing, the consumption of subsidised fuel might reach 47 million kilolitres this year, exceeding the 40 million kilolitre quota approved by the House.

By implementing the ban, Eva said that she hoped the government could reduce consumption to between 41 and 42 million kilolitres.

Speaking to the media separately on Monday, Finance Minister Agus Martowardojo said the 2012 state budget could still fund an additional 2 million kilolitres of subsidised fuel consumption.

“Most of our ministries and state institutions only manage to absorb between 88 per cent and 90 per cent of their budget allocations. If we can utilise just 5 per cent of their budgets, we are going to have Rp 26 trillion [US$2.83 billion] in extra reserves,” Agus said.

Based on an assumption of 40 kilolitres of annual oil consumption, the House approved 225.35 trillion rupiah (US$24.5 billion) in energy subsidies, below the government’s initial request for 230 trillion rupiah.

The demand was made on the assumption that the House would approve an increase in subsidised fuel prices by 1,500 rupiah ($0.16) to 6,000 rupiah a litre for both Premium and diesel.

Failure to obtain lawmakers’ approval and coupled with nationwide protests against the plan might hurt Indonesia’s image in the eyes of foreign investors, economists have said.

On Monday, international ratings agency Standard & Poor’s said that it had refrained from upgrading Indonesia to investment-grade status, retaining nation’s sovereign debt repayment grade at BB+, with a positive outlook. Last week, S&P said in a summary note that the nation’s push to lure investors was at risk from “policy slippages” such as the failure to cut fuel subsidies.

In response to S&P, Trade Minister Gita Wirjawan said it was only a matter of time before the company followed Fitch Ratings and Moody’s, which both awarded Indonesia with investment-grade status at the start of the year.

“Indonesia’s target is not investment grade, but there’s no reason for us to not be able to obtain a single-A rating,” he said.

Separately, BPH Migas said it would implement the ban by giving special stickers to cars to buy subsidised fuel. However, one House lawmaker was critical of the plans of the downstream oil and gas regulator.

“Using a sticker is too weak. It’s too easy to be manipulated. Someone can just go to a print shop to counterfeit the stickers,” Satya W. Yudha, a member of House Commission VII overseeing energy, said.

Satya added that people could always modify the size of their fuel tanks to buy more fuels for resale on the black market. It was also possible, according to Satya, that vehicle owners would bribe gas station operators for a chance to buy cheaper fuels.

“We can’t assign police officers to every station,” he said.

 

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