T

he Industry Ministry is preparing a new rule that will help prevent low-cost green cars (LCGCs) from using subsidized fuel.

Under the rule, the government will require producers of the inexpensive and fuel-efficient cars to use fuel inlets that can only be filled with non-subsidized fuel, according to Industry Minister MS Hidayat.

Indonesia, the largest economy in Southeast Asia, is currently struggling to reduce consumption of subsidized fuel because it has been straining the state budget as well as trade deficit from ballooning
oil imports.

In addition, the inexpensive vehicles have already been incentivized by the government through the exemption of luxury goods tax.

'€œWithin three months, [state-owned oil and gas firm] Pertamina will prepare the necessary infrastructure to support the implementation of the rule,'€ he told reporters Thursday after a meeting with Pertamina chairwoman Karen Agustiawan and the Association of Indonesian Automotive Manufacturers (Gaikindo).

The planned rule was expected to take effect in the fourth quarter of this year, Hidayat added.

Once the rule is implemented, owners of LCGCs will only be able to buy non-subsidized fuel.

The Industry Ministry has instructed Pertamina to engage in addressing this issue by expanding the network of gasoline stations that utilize different fuel nozzles for subsidized fuel (Premium) and for non-subsidized fuel (Pertamax). Fuel nozzles for subsidized fuel are bigger than those for non-subsidized fuel.

Pertamina will now discuss the plan with the owners of gasoline stations it supplies fuel to.

Around 5,400 gasoline stations across the country belong to private investors, while only 78 stations are owned by Pertamina.

Gaikindo chairman Sudirman Maman Rusdi said that all LCGC producers would comply with the proposed rule by adjusting the fuel inlets with nozzles for non-subsidized fuel.

At present, some manufacturers already use the inlets suitable for non-subsidized fuel, but some others have not.

'€œIt will have an impact on production costs, however, it won'€™t be significant. We are willing to match the fuel inlets with the nozzles [for non-subsidized fuel] in Indonesia,'€ he said.

Sudirman said that the requirement would be applied on cars to be produced in the future.

The latest move to regulate the fuel consumption by the inexpensive cars came after the Finance Ministry recently demanded a thorough review of the vehicles.

Car sales, an indicator of consumption in Indonesia, expanded by 10.93 percent on a annual basis to 328,254 units in the first quarter of this year, according to statistics from Gaikindo.

Monthly sales peaked in March, rising 17.8 percent to 113,079 units from the past year, which the industry group attributed to a major boost from the LCGC.

Indonesia'€™s major automaker Astra Daihatsu Motor, for example, saw its efficient cars under the brand Ayla become the second biggest contributor to its quarterly sales after multi-purpose vehicles (MPVs).

The vehicles categorized as LCGCs are those with engines below 1,200 cc as well as those with diesel and semi-diesel cars below 1,500 cc that can run at least 20 kilometers per liter of fuel.

The cars are estimated to drive domestic sales volume in the future as its price tag of around Rp 100 million (US$8,753) is considered affordable for those from Indonesia'€™s emerging middle class, which makes up more than half of its population of 240 million.