Pertamina augments supply for Greater Jakarta, West Java

Leony Aurora and Rendi A. Witular The Jakarta Post/Jakarta

In a move to ease public concern, state oil and gas company Pertamina unloaded more premium gasoline, diesel and kerosene on Tuesday and urged gasoline stations in Greater Jakarta and West Java to open around the clock.

"As instructed by President Susilo Bambang Yudhoyono, Pertamina will supply fuel to meet public demand without imposing any limitations," the company's president director Widya Purnama said at the State Palace on Wednesday.

The President gave his assurance that the Ministry of Finance would provide sufficient cash to pay for the demand, which was already 10 percent higher than the 59.6 million kiloliter quota, he said.

Pertamina had initially cut the fuel supplied to gasoline stations on fears that the government could not provide an additional subsidy.

Oil prices have climbed steadily in the past year, forcing the cash-strapped government to quadruple the fuel subsidy from Rp 19 trillion (US$1.94 billion) in the initial budget to Rp 76.5 trillion in the revised version, with oil prices pegged at $45 a barrel.

However, as oil hovers at around $60 a barrel at present, the subsidy may skyrocket to over Rp 110 trillion, even reaching Rp 150 trillion, said Minister of Energy and Mineral Resources Purnomo Yusgiantoro.

The President's populist decision to pour fuel into the country will not solve the problem, commented Dradjad Wibowo, a member of House of Representatives Commission XI overseeing financial affairs.

The government has to drastically lower fuel consumption by 15 percent, the only measure deemed feasible in the immediate future, he said.

"Raising fuel prices is not politically viable, while increasing fuel production cannot be done in the short term," he said. "The need for fuel will not stop, while we don't know how far oil prices will rise."

Dradjad further said that the climbing global oil prices and weakening rupiah against the U.S. dollar might lead Indonesia into another crisis, albeit a smaller one than in 1997.

He added that the "double shocks" of soaring oil prices -- subsequent higher domestic fuel subsidies -- and weakening rupiah might escalate further.

"We are seeing a vicious cycle, which may have a snowball effect," said Dradjad, who is also a economist.

Fuel shortages caused panic recently, prompting the government to buy a large amount of U.S. dollars to fund the fuel import, which weakens the rupiah. As the rupiah slides, it will be more difficult to fund fuel imports, which will result in further shortages.

"Pretty soon we will see layoffs," said Dradjad, which would mark another cycle, where companies are unable to pay loans to banks and the rupiah will go down.

The legislator also lamented that the government did not respond to the soaring oil prices and their consequences immediately, even as it witnessed prices climbing.

"The government could have prepared the liquidity and administration in the finance ministry earlier," he said. The measures might have helped ease the burden on the rupiah and prevent the fuel shortage.

Analysts and energy observers have long warned the government to conduct measures to suppress energy use.

"Unfortunately the former and current Cabinets have not prioritized energy conservation," he said.

The Jakarta Composite Index dropped 13.36 points, or 1.2 percent, to 1,117.81 on Wednesday on concerns that the increased budget expenditure will further weaken the rupiah.