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NEWS UPDATES Asean Affairs        8  March 2011

Fuel Subsidy Ban’s Fate to Be Decided Today

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The government is set to decide today on whether to go ahead with its planned ban on private drivers using Premium fuel or find another way to cut its mounting fuel subsidy burden.

Coordinating Minister for the Economy Hatta Rajasa said on Monday that together with House Commission VIII, which oversees energy affairs, the government would discuss a range of options. “[On Tuesday] you will know the result,” he told reporters in his office in Jakarta.

The government’s current plan is to restrict the sale of subsidized Premium fuel only to motorcycles and public transportation vehicles starting in Jakarta on April 1 and extending nationwide later this year and in 2012.

The plan is aimed at cutting and eventually removing subsidies, which this year were earmarked to reach Rp 96 trillion ($10.9 billion) based on an average oil price of $80 per barrel. Last year’s budget allocation was Rp 89 trillion.

But soaring oil and food prices and high inflation have led the government to suggest it may delay or cancel the plan, which has already been postponed twice.

Anggito Abimanyu, a former senior financial official leading a government-appointed academic team to review options available to curb fuel subsidies, said that the net impact of rising oil prices on subsidies was about Rp 700 billion for every $1 per barrel price increase. Mideast unrest has pushed the international price of oil up about $20 to $105 a barrel in the past three weeks.

On Monday, Hatta said Anggito’s team had handed its research to his office and would present it to lawmakers on Tuesday.

He said the team suggested three alternatives to the private-car ban: raising the price of the subsidized fuel but refunding the difference for public transport operators; going ahead with the ban but capping the price of non-subsidized fuel; and rationing subsidized fuel.

“The first option is to raise the price of subsidized fuel by Rp 500 a liter and then give [Rp 500] cash back to public transport, so in reality they don’t have to raise their tariff,” said Anggito, adding that the team suggested using debit cards issued by banks for the refund mechanism.

“The second option is to cap non-subsidized fuel at Rp 8,000 a liter. That was based on our survey on the purchasing power of Pertamax consumers,” Anggito said.

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