Fuel conservation won't work without subsidy cut: Kadin

Rendi A. Witular, The Jakarta Post, Bandung

The chairman of the Indonesian Chamber of Commerce, Trade and Industry (Kadin), Mochamad S. Hidayat, sounded more like an economist than a businessman when he called on the government on Tuesday to increase fuel prices.

Hidayat said that with global oil prices now standing at some US$60 per barrel, the government would have to fork out more than Rp 100 trillion ($10.3 billion) on fuel subsidy spending, something that would make it increasingly difficult in the long run for the government to maintain the fuel subsidies.

"The government should be realistic and address the fuel problem. We understand that cutting fuel subsidies would have a huge social and political impact, but sooner or later the government will have no other option but to do so," said Hidayat here on Tuesday.

He said the government's current energy conservation campaign would not achieve much as it imposed no penalties on violators. Even if the campaign was successful, it would only produce energy savings of 10 percent at most -- equal to a cost saving of some Rp 20 trillion.

"The best thing would be to cut the fuel subsidies. These are the main source of the problem. It would be much better if the funds saved by reducing the subsidies were allocated to helping poor people and driving growth in the economy," he said.

The government raised domestic fuel prices by 29 percent in March to keep a lid on the country's fuel subsidy spending at the Rp 20 trillion level. However, fuel prices kept increasing, forcing the government to once again increase the fuel subsidy allocation to Rp 76.5 trillion in an amendment to this year's state budget, which was originally based on a crude oil price assumption of $45 per barrel.

The government had said that if global oil prices reached $60 per barrel, the rupiah exchange rate declined to Rp 9,300 against the U.S. dollar, and fuel consumption stayed unchanged at 59.6 million kiloliters, it would have to dig deeper into its coffers to provide increased fuel subsidy spending of Rp 131 trillion this year.

With such a huge level of subsidy spending, it is estimated that the country's already over-stretched budgetary position will deteriorate further, forcing the government to reduce its spending on more beneficial purposes, such as infrastructure, health and education.

Hidayat said, "Businessmen are concerned with possible further increases in subsidy spending this year. We are afraid that the money allocated in the budget for developing infrastructure and stimulating the economy will only end up going up in smoke."

The call from Kadin seems to be part of a concerted effort on the part of the government's economic team, led by Aburizal Bakrie, as well as Vice President Jusuf Kalla, to prepare the public for the worst.

Both Aburizal and Kalla, themselves businessmen and former Kadin executives, have lately raised the possibility of increasing fuel prices once again so as to reduce the cost of the subsidies.

Meanwhile, President Susilo Bambang Yudhoyono remains steadfast, saying that the government will not increase fuel prices. Instead, he has launched a nationwide campaign to conserve energy.