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NEWS UPDATES Asean Affairs        22  March 2011

Indonesia postpones subsidy fuel cut

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In a widely expected move, the House of Representatives approved a government proposal to indefinitely postpone a scheme to cut subsidized fuel usage.

Shelving the plan, which was to go into effect April 1 after being pushed back three times this year, raised concerns about ballooning fuel subsidy bills amid rising global oil prices.

Teuku Rifky Harsya, chairman of House Commission VII, which oversees energy affairs, announced the decision on Monday after a seven-hour hearing between lawmakers and government officials, including Energy Minister Darwin Zahedy Saleh.

Under the plan, which was also delayed twice last year, the government intended to ban private cars from using subsidized low-octane Premium fuel as it tried to ease mounting fuel subsidy costs. Subsidized fuels were to be limited to public transportation vehicles and motorcycles.

However, the government reversed its position, citing mounting price pressures that may threaten economic stability.

“It’s just not the right time to curb fuel subsidy use. If the subsidized fuel cut were implemented in April, it would cause inflation to accelerate,’’ Darwin said. “Commodity and energy prices are the main factors keeping us from implementing the policy.”

A study led by Gadjah Mada University (UGM) economist Anggito Abimanyu gave three alternatives to the policy: raise the price of Premium fuel but refund the difference to public transportation operators; go ahead with the ban but cap the price of unsubsidized Pertamax fuel; and ration subsidized fuel.

Darwin also reiterated his stance from last week that the government would not consider raising Premium prices.

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