President delays fuel restrictions

Rendi Akhmad Witular and Abdul Khalik ,  The Jakarta Post ,  Jakarta   |  Tue, 02/19/2008 11:40 AM

In the face of protests from legislators and analysts, President Susilo Bambang Yudhoyono postponed Monday a plan to limit public fuel consumption until further studies could be conducted to measure its effectiveness.

Despite expectations that fuel subsidies will be increased significantly this year due to higher global oil prices and rising fuel consumption, Yudhoyono sees no immediate need to impose the fuel-saving program in May as proposed by officials from energy agencies.

"The President told us not to hurry with imposing the program until we are sure the program will run accordingly to the plan," Energy and Mineral Resources Minister Purnomo Yusgiantoro told reporters after a Cabinet meeting.

The Cabinet meeting was aimed at setting a date for the program and its customer base.

Purnomo said the President had required related agencies to institute several procedures before imposing the program, which would include a preliminary trial, a pilot project, evaluation, and a public awareness campaign.

"We are still preparing those procedures. That is why we cannot come up with an exact time for the program," he said.

With global oil prices hovering above US$90 per barrel, the state coffers are already being drained for fuel subsidies and electricity.

The government was forced to double the subsidy for this year's state budget revision to Rp 106.2 trillion (US$11.4 billion), up from Rp 45.87 trillion in the original 2008 state budget.

Assumptions for calculating the proposed subsidy are based on fuel consumption of 35,475 million kiloliters, global oil price of $83 per barrel, and an exchange rate of Rp 9,150 per U.S. dollar.

The higher subsidy is expected to drain funds that were to be used for building infrastructure, schools and other public needs, as well as limiting the ability of state firms to expand as they are forced to pay bigger dividend payments to the government.

While the state budget is likely to overstretched, analysts believe the fuel-saving program would be Yudhoyono's only savior to prevent him from raising fuel prices to ease the subsidy burden.

Hiking the fuel prices could present serious problems for Yudhoyono ahead of the 2009 general election.

Chairman of the downstream oil and gas regulator BPHMigas Tubagus Haryono said the program would only save Rp 10 trillion in subsidies, while its social impact could be much bigger.

Under the program, the government will distribute a "kerosene control card" to low-income households across the country, with each household limited to 12.5 liters per month.

The government is also planning to distribute a smart card to limit consumption of subsidized fuel by motorists in Java and Bali. With the card, a car and a motorcycle can only consume 5 liters and 1 liters of fuel per day respectively.

The plan has recently drawn a wave of protests from lawmakers and analysts who believe the system may trigger social unrest because the allocation is so small that consumers will have to find ways to work around it.

The program will also create loopholes for graft, they say, since the supervision system remains unclear, especially during the purchase and distribution of the fuel by agents under the program.

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