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December 15, 2008

Indonesian govt to cut and cap fuel prices

The government will on Monday cut the prices of subsidized Premium gasoline and diesel as world oil prices fall, and will cap them next year in case of a global oil price rise, reported the Jakarta Post.

The government decided on the price cuts Sunday, during a limited Cabinet meeting chaired by President Susilo Bambang Yudhoyono and attended by Vice President Jusuf Kalla and economic ministers.

“Considering inflation and growth, we have to set the right fuel prices,”  Yudhoyono said as quoted by Antara. “I have decided to cut the prices of Premium and diesel.”

The price of subsidised premium petrol will be cut by 500 rupiah to 5,000 rupiah (45 US cents) per liter, and diesel by 700 rupiah to 4,800 rupiah per liter.

“In future, if the trend (of crude prices) tends to decrease, further cuts are possible. We will continuously monitor this. We hope the trend is downward because the assumption is that the demand is also down,” the President added.

This is the second cut the government has made this month. At the start of December, it cut the price of premium by 500 rupiah per liter.

The cuts are in line with falling crude oil prices on the international market, from more than $100 per barrel earlier this year to $44 last Friday.

Finance Minister Sri Mulyani Indrawati said the fuel price cuts should help reduce inflation by between 0.3 percent and 0.5 percent, adding this “should help maintain people’s purchasing power”.

In addition to the price cuts, the government has also set a cap on the prices of the two fuels as it guards against a possible increase in international crude oil prices next year.

The cap for premium is set at 6,000 rupiah per liter, and for diesel at 5,500 rupiah per liter. The caps are made possible because of the large fuel subsidy allocated in the 2009 budget, Mulyani explained.

She added they were expected to boost confidence among businesses to encourage them to keep investing in the real sector next year.

Businesses welcomed the fuel price cuts, saying they would help reduce operating costs amid the global economic downturn.

Murphy Hutagalung, chairman of the Organization of Land Transportation Owners (Organda), welcomed what he described as a “significant cut”.

But he warned transportation fares would not automatically decrease, saying cryptically, “We are ready to sit with all parties to discuss all possibilities.”

Meanwhile, State Minister for State Enterprises Sofyan Djalil said the government had promised to compensate owners of gas stations over the fuel price cuts.

“We will calculate how much they stand to lose. We have discussed this with Pertamina,” Sofyan said.

Earlier this month, the association of gas stations deliberately postponed ordering fuel from Pertamina because of the imminent price cuts, causing widespread fuel shortages.

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