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NEWS UPDATES Asean Affairs        10  March 2011

Indonesian solution to subsidy quotas

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The Indonesian government announced on Wednesday a nationwide plan to cut gas stations' quota of subsidized fuel and allow their Premium tanks to run dry.

According to the 2011 state budget, the government is required to provide stations 23.19 million kiloliters of low-octane Premium this year. Once that runs out, though, drivers will have to look elsewhere for fuel.

"Many drivers will be forced to shift from subsidized fuel to Pertamax as government will curb the Premium quota starting next week,'' Karen Agustiawan, president director of state oil and gas firm Pertamina, said at the Energy Ministry.

"We won't provide additional quotas for gas stations. When the Premium is dry, they should refer their customers to Pertamax."

Unlike the proposed fuel subsidy cut that would have only burdened drivers of private cars, the new proposal would cut off all drivers, including motorcyclists, once Premium runs out.

Indonesia has 4,667 gas stations nationwide, but only 35 percent are equipped to sell higher-octane Pertamax.

Energy Ministry data suggest domestic economic expansion would see subsidized fuel consumption soar to 26.33 million kiloliters this year if it did not hold firm to its quota. In the past, Pertamina has provided more subsidized fuel beyond the quota, causing the government's subsidy spending to rise.

Premium consumption in January was 8 percent over the 1.8 million kiloliter monthly quota, according to data from downstream oil and gas regulator BPHMigas. In February, consumption was 6.8 percent greater than the quota. Pertamina and distributors such as Petronas and AKR sold 23.12 million kiloliters last year, 8 percent more than the annual quota of 21.45 kiloliters.

The move came after legislators halted a hearing on Tuesday intended to announce the findings of a state study into alternative plans to cut subsidy spending. Energy Minister Darwin Zahedy Saleh said the government took action to curb the quota since lawmakers chose to do nothing.

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