Ririn Radiawati Kusuma – In a widely expected move, the House of Representatives approved a government proposal to indefinitely postpone a scheme to cut subsidized fuel usage.
Shelving the plan, which was to go into effect on April 1 after being pushed back three times this year, raised concerns about ballooning fuel subsidy bills amid rising global oil prices.
Teuku Rifky Harsya, chairman of House Commission VII, which oversees energy affairs, announced the decision on Monday after a seven-hour hearing between lawmakers and government officials, including Energy Minister Darwin Zahedy Saleh.
Under the plan, which was also delayed twice last year, the government intended to ban private cars from using subsidized low-octane Premium fuel as it tried to ease mounting fuel subsidy costs. Subsidized fuels were to be limited to public transportation vehicles and motorcycles.
However, the government reversed its position, citing mounting price pressures that may threaten economic stability.
"It's just not the right time to curb fuel subsidy use. If the subsidized fuel cut were implemented in April, it would cause inflation to accelerate," Darwin said. "Commodity and energy prices are the main factors keeping us from implementing the policy."
A study led by Gadjah Mada University (UGM) economist Anggito Abimanyu gave three alternatives to the policy: raise the price of Premium fuel but refund the difference to public transportation operators; go ahead with the ban but cap the price of unsubsidized Pertamax fuel; and ration subsidized fuel.
Darwin also reiterated his stance from last week that the government would not consider raising Premium prices. Pertamax sells for Rp 8,700 ($1) per liter, while Premium costs Rp 4,500 a liter.
Commission member Effendi Simbolon, from the opposition Indonesian Democratic Party of Struggle (PDI-P), said the decision to postpone the plan was driven more by political pressure than economic reasons.
"The government decided not to raise the Premium price because it is an unpopular decision," Effendi said.
Protests by PDI-P and Golkar Party lawmakers halted a March 9 hearing to announce the results of Anggito's study, leading to almost two weeks of delays.
The 2010 state budget allocation for fuel subsidies was Rp 88.9 trillion. This year, Rp 95.9 trillion was earmarked for subsidies based on an average oil price of $85 per barrel. Finance Minister Agus Martowardojo said last month that delaying the plan could increase subsidy costs as much as Rp 6 trillion.
UGM analyst Sri Adiningsih said the government could not keep sitting on its hands. "As crude oil prices keep increasing and the state budget keeps growing, the government should take the risk and increase the Premium price whether it likes it or not," she said.
Energy Ministry data showed Pertamax use fell to 1,810 kiloliters per day as of March 16 from 1,900 kiloliters per day in February. At the same time, Premium consumption rose 5.5 percent to 67,620 kiloliters per day. "The decline indicates there is a disproportionate move away from Pertamax," Darwin said.