Indonesia in need of urgent fuel subsidy reforms

Indonesia in need of urgent fuel subsidy reforms
Motorcyclists queuing to buy subsidised fuel at a pump in Karawang, West Jawa, last Saturday. Indonesia’s government has capped the subsidised fuel quota at 46 million kilolitres (kl) this year instead of the initial 48 million kl.

JAKARTA - LONG queues of motorcycles and cars can be found at many petrol stations in recent days as state- owned oil company Pertamina rationed subsidised fuel to ensure that supplies last until year-end.

Pertamina had warned that if domestic consumption continued at current levels, Indonesia would run out of subsidised diesel by mid-November and subsidised fuel, called Premium, by mid-December.

The curbs are in response to the government capping the subsidised fuel quota at 46 million kilolitres (kl) this year instead of the initial 48 million kl.

They also highlight the urgency of fuel subsidy reforms, which will be a key discussion item when outgoing President Susilo Bambang Yudhoyono meets President-elect Joko Widodo in Bali today to discuss the leadership transition.

Mr Joko will take office on Oct 20, and expectations are high that both men will reach agreement on what many see as a necessary but unpopular decision - raising subsidised fuel prices from as early as next month.

Subsidised fuel now costs 6,500 rupiah (70 Singapore cents) a litre, or about 60 per cent what higher-grade unsubsidised petrol costs, and Mr Joko has said that prices will have to be raised gradually.

Outgoing Industry Minister M.S. Hidayat said yesterday prices should go up by 1,500 rupiah.

"The bad queues in the past few days are the culmination of poor fuel subsidy policy that the government now has to address quickly,"

Mr Alwi Hamu, a close adviser to Vice-President-elect Jusuf Kalla, told The Straits Times. A rise in prices, he added, is needed to control demand and would allow the government to use the money saved on productive projects like education and road-building.

Yesterday morning, motorists waited for two hours or more in many areas of Java to fill up their tanks. TV reports showed several fuel stations in Sumatra closing shop early after supplies ran out.

"Panic buying was sparked by rumours that supplies of Solar (subsidised diesel) and Premium were depleting... Those who normally buy 10 litres filled up their tank," Mr Hanung Budya, marketing and business director at Pertamina, told reporters.

Indonesia spent about 200 trillion rupiah last year and plans to spend 250 trillion rupiah this year to keep fuel prices affordable to the majority of Indonesians. But such hefty subsidies - coupled with strong economic growth - have led to a big jump in the number of private cars and motorcycles as public transport in cities failed to keep pace with demand.

"There is no other way but to raise prices," Mr Kalla told reporters on Monday.

Food stall operator Yuli Mariam told Jakarta- based Elshinta Radio: "Yes, raise the price. What is important is that anyone can buy fuel anytime."

This article was first published on August 27, 2014.
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