T

he protracted debate over a new policy to curb ballooning fuel subsidies may conclude this weekend, as President Susilo Bambang Yudhoyono and his Cabinet will hold a meeting at the Cipanas mountainous resort in Puncak, West Java, on Saturday to end the ongoing uncertainty over the politically sensitive issue.

The government has many options to limit the fuel subsidy, but in Cipanas, the discussion will be focused on two of the most feasible alternatives: increasing the price of subsidized fuel, or limiting the consumption of subsidized fuel, Coordinating Economic Minister Hatta Rajasa said on Friday.

“Our main focus [at the next meeting] is implementing a policy that can have positive repercussions on our economy, but will not incite inflation or have a negative social impact on the poor,” Hatta told reporters from his Jakarta office on Friday.

He added that all ministers involved had agreed that the plan to introduce a new, higher-octane type of subsidized fuel (90-octane gasoline) as an option to reduce the fuel subsidy was to be dropped from the discussion.

Selling a new type of subsidized fuel at a higher price would only make the rich switch from using the 92-octane, non-subsidized Pertamax gasoline, to the new 90-octane subsidized fuel, burdening the state with new subsidies, explained Hatta.

If the government decided against hiking the price of subsidized fuel, then it is likely that there would be two prices of the existing subsidized fuel (88-octane Premium) sold at gas stations, according to Energy and Mineral Resources Minister Jero Wacik.

“The first price, which would remain at Rp 4,500 [46 US cents] per liter, would be for public transportation drivers and bikers, while the second price — higher than the first one — would be for the rich people who use cars,” he said on Friday. “Regarding how much the second price will be; we are still reviewing it.”

The government, he went on, is also considering assigning gasoline stations specifically for rich people driving private cars to differentiate them from the poor.

But Jero showed little optimism about whether the President and his ministers could reach a consensus over the new policy by the end of this week.

“We may implement the policy on Sunday or Monday — the most important thing is for people to not panic like it’s the end of the world,” he said. “One thing is for sure — the policy must be made this year, but the President will decide the exact time.”

The government has courted a number of options in the past to reduce the growing fuel subsidy but none have been implemented because the government fears the change will incite massive protests.

Citi Research economist Helmi Arman said as the parliamentary and general elections are only one year away, the most feasible option in both politics and economics is through a multi-pronged policy; such as a combination of a moderate 33 percent hike plus longer-term limitation policies.

In 2012, fuel subsidies topped Rp 212 trillion, almost double the initial budget of Rp 137 trillion due to rising consumption. The amount of spending on fuel subsidies was even higher than the government’s capital expenditure spent on infrastructure projects, which reached only Rp 140 trillion last year.