Indonesia studies options to cut consumption of subsidized fuel
Jakarta (ANTARA News) - The government is studying options to cut the consumption of subsidized fuel in order to save some 10 trillion rupiah in government spending for fuel subsidy this year, an official said.
Among the options being studied are disallowing private motorists from buying subsidized fuel for cars with an engine displacement of 2,000 cc or bigger, said Adi Subagyo, a committee member at BPH Migas, Indonesia's downstream oil and gas regulator.
Instead, private motorists will have to buy non-subsidized, higher-grade fuels such as Pertamax, he said.
The government currently still subsidizes about 60 percent of nationwide fuel consumption.
State-owned PT Pertamina is the only company that procures and distributes subsidized fuel. It receives subsidy for selling premium gasoline, diesel fuel and kerosene below their commercial prices.
Non-subsidized fuel may be distributed by other companies such as the local units of Malaysia's Petronas and Royal Dutch Shell Group.
The government has initially set the quota, or the maximum amount of fuel to be subsidized, at 35 million kiloliters for this year, against 37 million kiloliters for 2007. The 2 million-kiloliter reduction in the quota is a result of a program to replace kerosene with liquefied petroleum gas (LPG) for poor families.
Subagyo said subsidized fuel will be sold only to private motorists with car engines of less than 2,000 cc but at limited amounts.
Public transportation vehicles will be allowed to use subsidized fuel at limited amounts, although higher than the limit for private motorists, he said.
He said the government is still in discussion with relevant parties, including the police, the Organization of Land Transportation Owners (Organda) and the Indonesian Automotive Industries Association (Gaikindo), on how to implement the plan.
Once the government implements the program, BPH Migas will monitor its compliance to ensure that there will be no violations, he said.
Complicated but better option
Subagyo said the other objective of the plan is to make sure that the government is not subsidizing the rich but the poor families.
The government, he said, is planning to use the money saved from the program to provide food subsidy for poor families.
"We are still unable to bring down the fuel consumption (level) although we have urged people to do so. Now we have to regulate (the distribution of subsidized fuel) so that someone can only buy a certain amount, like 5 or 10 liters a day," he said.
The government actually has a much simpler option to save fuel subsidy and that is by hiking the fuel price, said Anton Gunawan, an economist at Citigroup.
"I share the view that with current system, the subsidy is paid to people who do not deserve it. But I think what is more important for us is to increase oil production, as well as fuel (supply), so that we can reduce imports in the medium to longer-term," he said.
The plan to reduce the subsidized fuel consumption is complicated but it could prove to be a better option politically, he said.
Given that the president has promised not to hike fuel prices until next year, when the country will elect a new president, it would be a political risk if the president breaks his promise by hiking the fuel price now, he said.
Lawmaker Awal Kusumah, who chairs the parliamentary commission on budget, told Thomson Financial that the key issue is how to control implementation of the program so that the money saved can really reach the poor.
He hopes the government will present the details of the plan to parliament this month when they propose a revision of the 2008 budget. (*)
Among the options being studied are disallowing private motorists from buying subsidized fuel for cars with an engine displacement of 2,000 cc or bigger, said Adi Subagyo, a committee member at BPH Migas, Indonesia's downstream oil and gas regulator.
Instead, private motorists will have to buy non-subsidized, higher-grade fuels such as Pertamax, he said.
The government currently still subsidizes about 60 percent of nationwide fuel consumption.
State-owned PT Pertamina is the only company that procures and distributes subsidized fuel. It receives subsidy for selling premium gasoline, diesel fuel and kerosene below their commercial prices.
Non-subsidized fuel may be distributed by other companies such as the local units of Malaysia's Petronas and Royal Dutch Shell Group.
The government has initially set the quota, or the maximum amount of fuel to be subsidized, at 35 million kiloliters for this year, against 37 million kiloliters for 2007. The 2 million-kiloliter reduction in the quota is a result of a program to replace kerosene with liquefied petroleum gas (LPG) for poor families.
Subagyo said subsidized fuel will be sold only to private motorists with car engines of less than 2,000 cc but at limited amounts.
Public transportation vehicles will be allowed to use subsidized fuel at limited amounts, although higher than the limit for private motorists, he said.
He said the government is still in discussion with relevant parties, including the police, the Organization of Land Transportation Owners (Organda) and the Indonesian Automotive Industries Association (Gaikindo), on how to implement the plan.
Once the government implements the program, BPH Migas will monitor its compliance to ensure that there will be no violations, he said.
Complicated but better option
Subagyo said the other objective of the plan is to make sure that the government is not subsidizing the rich but the poor families.
The government, he said, is planning to use the money saved from the program to provide food subsidy for poor families.
"We are still unable to bring down the fuel consumption (level) although we have urged people to do so. Now we have to regulate (the distribution of subsidized fuel) so that someone can only buy a certain amount, like 5 or 10 liters a day," he said.
The government actually has a much simpler option to save fuel subsidy and that is by hiking the fuel price, said Anton Gunawan, an economist at Citigroup.
"I share the view that with current system, the subsidy is paid to people who do not deserve it. But I think what is more important for us is to increase oil production, as well as fuel (supply), so that we can reduce imports in the medium to longer-term," he said.
The plan to reduce the subsidized fuel consumption is complicated but it could prove to be a better option politically, he said.
Given that the president has promised not to hike fuel prices until next year, when the country will elect a new president, it would be a political risk if the president breaks his promise by hiking the fuel price now, he said.
Lawmaker Awal Kusumah, who chairs the parliamentary commission on budget, told Thomson Financial that the key issue is how to control implementation of the program so that the money saved can really reach the poor.
He hopes the government will present the details of the plan to parliament this month when they propose a revision of the 2008 budget. (*)