XING Indonesia

XING Indonesia

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  • Felix Widmer
    Felix Widmer    Premium Member   Group moderator
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    Indonesian Government Considers Hiking Fuel Prices by Up to 44%
    Indonesia’s government is considering hiking subsidized fuel prices by as much as 44 percent this year to reduce the burden of subsidies on the state budget and spend funds on roads instead, the deputy energy minister told Reuters on Tuesday.

    Southeast Asia’s largest economy appears to be leaning towards raising fuel prices instead of reducing the use of subsidized fuel. The idea has gained support from the public, academics, businesses and some lawmakers, said Vice Energy Minister Widjajono Partowidagdo, though lifting fuel prices requires a change in the law, and still needs parliamentary and presidential approval.

    But hiking fuel prices still faces opposition from some lawmakers in parliament because of worries it would spur inflation, which they fear could lead to social unrest. Sudden fuel price hikes in 1998 contributed to the downfall of autocratic leader Suharto.

    Currently, Indonesia’s subsidized gasoline is the cheapest in Asia at Rp 4,500 ($0.50) a liter, which is half the market rate. Cheap fuel supports economic growth, but cost the government $18 billion in subsidies last year. Economists say the money would be better spent on improving poor infrastructure.

    “We will hike fuel prices this year,” Partowidagdo said in an interview. “The hike should be discussed first with the parliament, but it would be in the range of Rp 1,000-2,000.”

    A price rise of that size could hurt fuel demand in the short-term, though energy analysts say buoyant car sales from an emerging middle class means the country is likely to remain Asia’s largest gasoline importer.

    The central bank expects inflation to near the upper end of its 3.5-5.5 percent target range this year if the government goes ahead with a fuel price rise, which could mean it is less likely to further cut rates.

    Raising fuel prices would still have less of an impact on inflation and fuel demand than the government’s previous plan to restrict the use of subsidized fuel from April, which would have effectively doubled fuel prices for private motorists.

    Lawmakers said restricting subsidized fuel could not work as there are not enough pump stations across the sprawling archipelago that sell the higher quality non-subsidized fuel.

    State energy firm Pertamina says it only has one refinery on Java island that produces the fuel. Higher fuel prices could spur investment in refining, and increased competition for Pertamina in retail fuel, which would also boost state coffers.

    “Indonesia will not be developed if the money is spent on subsidies. The money should instead be used to build roads and fix transportation,” said Partowidagdo, a former energy academic.

    Source: Jakarta Globe. http://bit.ly/zdv1Oa
    • 31 Jan 2012, 2:02 pm