Jakarta Globe, 25 February 2011
The country’s top economic minister on Thursday said planned fuel subsidy cuts might be postponed “indefinitely,” citing soaring world oil prices and accelerating inflation. “The government sees that this is not the right time to implement the restriction plan because global oil prices keep rising,” said Hatta Rajasa, the coordinating minister for the economy.
The government had planned to gradually restrict the sale of subsidized Premium fuel only to motorcycles and public transportation vehicles starting in April.
The country’s top economic minister on Thursday said planned fuel subsidy cuts might be postponed “indefinitely,” citing soaring world oil prices and accelerating inflation. “The government sees that this is not the right time to implement the restriction plan because global oil prices keep rising,” said Hatta Rajasa, the coordinating minister for the economy.
The government had planned to gradually restrict the sale of subsidized Premium fuel only to motorcycles and public transportation vehicles starting in April.
The news came a day after the government launched a trial run of the restriction in Jakarta. Public minivans plying the busy Kampung Melayu to Pasar Senin route will be monitored to gauge their daily gas needs and to check the effectiveness of measures to ensure they do not stockpile and resell the subsidized fuel.
Premium sells for Rp 4,500 (50 cents) a liter compared with unsubsidized Pertamax fuel, which is now priced at Rp 7,950.
World oil prices surged more than 7.5 percent on Thursday to reach their highest level since August 2008 on concerns unrest in Libya could spread to other major oil producers in the Middle East, including Saudi Arabia.
Brent crude futures for April rose $8.54 per barrel to peak at $119.79 before easing back to around $114, Reuters reported. Disruptions stemming from bloody, unrest in Libya, the world’s 12th-biggest oil exporter had cut at least 400,000 barrels per day from its 1.6 million bpd output, the report added.
Hatta said there were concerns that rising oil prices would compound already high inflation if motorists were forced to use the more expensive Pertamax. He said the government was still waiting on the results of a study conducted by researchers from University of Indonesia and Gadjah Mada University to assess the impact of the curbs on subsidized fuel.
Effendi Simbolon, a member of House Commission VII, which oversees energy issues, criticized the government’s flip-flopping over the issue, saying the rise in oil prices should have been anticipated.
The lawmaker from the opposition Indonesian Democratic Party of Struggle (PDI-P) said the government should scrap the subsidy cuts and instead increase the price of Premium.
Effendi argued a price hike would have “less risks” than curbing the use of subsidized fuels. Restrictions mean forcing people to use [unsubsidized] high-octane gas, which is more expensive than Premium,” he said. “This is not right.”
Evita Legowo, director general of oil and gas at the Ministry of Energy and Mineral Resources, said the decision to shelve the subsidy cuts was not yet final as the government had to discuss the issue with lawmakers, who would have the last say.
Separately, Finance Minister Agus Martowardojo said any delay in the cuts would significantly swell the state budget. “If postponed, it could increase the cost of subsidies by Rp 3 trillion to Rp 6 trillion this year,” he said.
The 2010 budget allocation for fuel subsidies was Rp 88.9 trillion. This year, Rp 95.9 trillion has been earmarked for subsidies based on an average oil price of $85 per barrel. “We are carefully watching global oil prices, particularly regarding the situation in the Middle East,” Agus said.
The other risk identified by the minister was the potential impact of production shortfalls. “We may not be able to reach our target of producing 970,000 barrel a day,” he said.
Source: Jakarta Globe
