Ririn Radiawati Kusuma & Francezka Nangoy, Jakarta – Businesses gave a thumbs down to the plan to cut fuel subsidies revealed on Thursday, with most warning that a ban on cheap gas for all private cars – including for companies – would push production costs up, forcing them to pass the increases along in higher prices for consumers.
"The business sector will bear the brunt of the move," said Sofjan Wanandi, chairman of the Employers Association of Indonesia (Apindo). "Our preliminary assessment suggests that total production costs at Indonesian companies will increase by 1 percent."
He said the distribution costs at Indonesian companies would rise significantly, and that distribution accounted for about 15 percent of total production costs. "That rise will later on be passed on to consumers," he said.
Starting on Jan. 1, 2011, fuel subsidies for private cars would be phased out. Motorists would be prohibited from filling up with Pertamax Premium fuel, which sells for Rp 4,500 (50 cents) a liter, a discount of 45 percent from the Rp 6,500 a liter Pertamax fuel that motorists would have to buy.
Suryo Bambang Sulito, chairman of the Indonesian Chamber of Commerce, Trade and Industry (Kadin) said the subsidy cut would have a visible effect. "Definitely there will be an impact as many cars in the Indonesian companies use subsidized fuel," he said.
He declined to put a number on the economic cost, saying, "on the size of the impact, we have to wait for a response from the association."
Auto retailers will almost certainly feel a direct impact from the move, which is likely to hurt car sales in Indonesia. "We will have to wait and see the effect on sales," warned Dimas Aska, spokesman for Astra International, the nation's largest car distributor.
Dimas said, "the issue will be discussed and analyzed first before company policies are announced." Astra expects to release the first data on the effect on sales in December.
Jefri R. Sirait, general manager of Toyota Rent-a-Car, said that the short-term impact "clearly will affect the customer, but they will slowly adjust to it."
Some 95 percent of TRAC's customers are from businesses such as oil and gas companies. "Our customers have long been switching their fuel consumption [away from Premium] because they are aware that it improves efficiency because they know the quality of each fuel sold in the market," Jefri said.
He voiced optimism that the policy could teach Indonesians to conserve fuel and drive more carefully. "It will make customers more efficient in using cars both in their company and for individual use," he said.
Nissan Indonesia has long anticipated such a move. "In upcoming years, we will largely sell fuel-efficient cars," said Teddy Irawan, the company's marketing director. Nissan hopes to sell 45,000 cars in Indonesia in 2011, up from an estimated 35,000 this year.
But many worry the government's move may cause a short-term inflation spike. "The first impact is to the state budget, but the second is inflation," said Winang Budoyo, an economist at Bank CIMB Niaga in Jakarta.
Bank International Indonesia economist Juniman also warned of a possible increase in consumer prices. "Inflation will rise by between 0.3 and 0.4 points," he said, but noted that level would still be manageable.
Bank Indonesia has forecast inflation of between 4 and 6 percent next year, the same as this year's target. Finance Minister Agus Martowardojo, however, stressed that the subsidy cut had already been factored into the 2011 budget calculations.
Despite the rollback of private subsidies, the government has set aside Rp 95.9 trillion in fuel subsidies for public companies next year, compared with a total of Rp 88.9 trillion this year, Agus said.
[Additional reporting by Shirley Christie.]