Government to maintain fuel subsidy despite free market
Government to maintain fuel subsidy despite free market
JAKARTA (JP): Minister of Mines and Energy Kuntoro
Mangkusubroto said on Tuesday the government will continue to
subsidize fuel sales in the domestic market despite
liberalization in the country's oil downstream industry.
He said liberalization of the country's oil downstream sector,
as stipulated in the oil and gas bill currently being debated by
the House of Representatives, aimed to create competition among
refinery owners.
Competition is expected to force refinery owners to boost
efficiency and offer competitive prices.
However, if prices remain unaffordable to the public, the
government will continue to provide a subsidy mechanism.
"What's wrong with a subsidy if it is for the benefit of the
public? If the House of Representatives want fuel prices in Java
similar to those in Irian Jaya, we shall achieve it (through
subsidies)," Kuntoro said.
Several legislators and analysts have expressed fear the
liberalized market system promoted by the bill could disrupt the
country's fuel distribution and pricing system. Networks have
remained stable for decades under the monopoly of state oil and
gas company Pertamina.
They say private fuel producers will prefer to sell their
products in developed areas such as Java and Sumatra in the
intense drive for a profit margin, with Pertamina left to
distribute fuel in unprofitable remote areas.
If the free market system is consistently implemented, fuel in
remote areas will have a much higher cost than in developed
areas, due to the transportation cost.
If such a scenario plays out, people in remote areas could
feel unjustly treated by the government. This in turn may place
pressures on national stability, the legislators said.
Several analysts also believe fuel prices will increase up to
300 percent if the government introduces a free market system and
allows fuel prices to be determined by market forces.
Kuntoro said the government would maintain its subsidy policy
to prevent fuel prices from exorbitantly increasing once the
downstream sector is liberalized and to ensure unified prices
across the country.
He noted however that the government would only provide
subsidies to help the poor and not "to cover inefficiencies in
Pertamina".
"My logic is if Pertamina (refineries, fuel distribution and
retail system) is efficient, the government subsidy will be on
the decrease."
The bill, which is set to replace to the 1971 law on
Pertamina, aims to lift the decade-long monopoly held by
Pertamina on the country's oil downstream sector.
Under the bill, the government will also take over Pertamina's
right to award oil and gas contracts and regulate and manage oil
and gas contractors. (jsk)