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Januari 03, 2012

Govt to end private car fuel subsidies in April

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The government says it will end the sale of subsidized fuel to private cars in Greater Jakarta in April, pending approval from the House of Representatives.

“In these [next] three months, we’re first going to test the mechanism. Only public transportation vehicles, motorcycles and fishermen would be able to buy subsidized fuels,” downstream oil and gas regulator BPH Migas Agus Budihartono committee member said at the Office of the Coordinating Economic Minister in Jakarta on Monday.

The government would also install radio frequency identification devices (RFID) on public transportation vehicles to monitor fuel consumption, Agus added.

Subsidized fuel limits would eventually be expanded to other provinces, although the government has offered no clear time table.

Agus said the government was waiting for the revision of a 2006 presidential regulation on fuel prices to give it a legal basis to regulate subsidized fuel users.

After the revision is completed, the government will officially propose its plan to the House, which rejected a similar proposal last year for what it said was inadequate analysis of the effects of the fuel subsidy restrictions.

Energy and Mineral Resources Minister Jero Wacik said he was confident that the House would pass the proposal this year since the 2012 State Budget mandated that fuel limits be implemented in April.

“We’ll discuss with the House. Now we’re arranging the fixed proposal. We will announce the details next week,” Jero said.

The government has long been criticized for “poorly targeted” subsidies, as hundreds of trillions of rupiah in fuel subsidies have gone to the relatively well off, reducing resources for infrastructure development and social spending.

President Susilo Bambang Yu-dhoyono has conceded the point to critics, agreeing to reduce spending on subsidies, although maintaining that raising subsidized fuel prices was not the only way to do so.

Observers said fuel prices hike would be an immensely unpopular policy that might trigger price hikes across the board, which might in turn trigger grassroots protests.

Bank Indonesia (BI) Governor Darmin Nasution told The Jakarta Post that limiting fuel subsidies might lead to a 0.6 to 0.9 percent increase over the 4.5 percent headline inflation rate predicted for 2012, while raising fuel subsidies might boost
inflation estimates by one percent.

The quota for subsidized fuels has been set at 40 million kiloliters (kl) for 2102 — slightly lower than 40.49 kl last year — which includes a 2.5 million kl fiscal reserve to allow the government to use funds allocated for fuels for development if the quota is unmet.

Coordinating Economic Minister Hatta Rajasa said the government would create a team to help BPH Migas supervise subsidized fuel distribution to prevent “excessive distortions” in the field.

A lawmaker from House Commission VII overseeing energy, Satya W. Yudha from the Golkar Party, said the Commission was waiting for the government’s official proposal.

If the proposed scheme was the same as last year’s, Satya said the Commission would verify if gas stations could provide more non-subsidized fuels in April.

“If the infrastructure is not ready, it doesn’t matter. I suggest that we provide non-subsidized Premium [one of most-used subsidized fuels] for private cars so that they will have choices,” he said over the telephone.

Pri Agung Rakhmanto, an energy expert from the ReforMiner Institute, urged the government to develop a definitive mechanism as soon as possible to implement its policy.

Rakhmanto attributed government failure to convince the House last year to a lack of clarity in implementing the restrictions.

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