Indonesian Plan to Cap Fuel Sales Put on Hold

A planned government cap on the sale of subsidized fuel for vehicles will not come into force in May as initially planned and the president is seeking input from several economic committees on the matter, a senior minister said on Tuesday.

“We cannot do this by May 1,” Hatta Rajasa, the coordinating minister for the economy, said at the presidential office.

Evita Legowo, director general of oil and gas at the Energy and Mineral Resources Ministry, said on Monday that the government planned to restrict consumption of subsidized low-octane Premium gasoline to vehicles with an engine size of less than 1,500 cubic centimeters in May to help curb Premium consumption at 40 million kiloliters this year.

Indonesia consumed 41.7 million kiloliters of subsidized fuel in 2011, according to data from the state oil and gas company Pertamina in January.

“A good idea should be implemented and accepted by the majority of the people. The gist is that we do not want to rush,” Hatta said after a limited cabinet meeting on the economy.

President Susilo Bambang Yudhoyono, speaking at the opening of the limited cabinet meeting, said he was seeking input on the matter from the National Economic Committee (KEN) and the National Innovation Committee (KIN).

He said that although both committees were not policy makers, they could provide valuable recommendations.

“I am asking KEN to submit its recommendation in terms of policies developed by the government to safeguard economic growth this year, especially in safeguarding the revised 2012 state budget and the fiscal conditions,” Yudhoyono said.

He said the economy was facing several challenges, external and internal, leaving the government in need of appropriate policies and solutions.

KEN chairman Chaerul Tanjung and KIN head Zuhal also attended the meeting.

Lawmakers last month rejected the government’s proposal for a 33 percent rise in subsidized fuel prices, which would have gone into effect on April 1. They only allowed the price increase if the Indonesia Crude Price exceeded the state budgetary assumption of $105 a barrel by 15-percent average in a six-month period.

Evita said that the latest plan would first apply to state vehicles, starting in May, followed by privately owned vehicles 60 to 90 days later in the Greater Jakarta area, and a month later on Java and Bali.

Perry Warjiyo, the director for economic research and monetary policy at Bank Indonesia, said the cap would only result in a small savings of subsidized fuel if it was effectively implemented in Java and Bali.

“The savings would only be around 2.4 million kiloliters if it started in May,” Perry said. “It will be quite a savings, but not sizeable enough to be able to alleviate the burdens of subsidies.”

Hatta said that in the current economic situation, the government was still targeting 6.5 percent growth. Yudhoyono spelled out the necessary steps needed to achieve that goal.

The minister quoted the president as citing spending acceleration to stimulate economic growth, keeping inflation under control, maximizing social protections and making sure that essential goods remain affordable. He also encouraged investments and improved competitiveness, particularly in non-oil and gas exports.

“In the context of competitiveness, the burden of logistics should be reduced,” Hatta said. “Infrastructure, especially ports, will become our focus, and the modernization of harbors is our main agenda.”

Yudhoyono said efforts should be taken to strengthen a domestic trade and business climate.