A number of business associations have called on the government to entirely scrap the fuel subsidy, instead of limiting consumption of subsidized fuel types in certain areas, in a bid to avoid a swell in state spending.

Indonesian Food and Beverage Association (Gapmmi) chairman Adhi S. Lukman said on Wednesday that the recent regulation restricting subsidized diesel fuel consumption and the removal of subsidized fuel at gas stations along toll roads would discriminate against those could not access the subsidized fuel types.

'€œPeople in certain areas will no longer be able to use certain subsidized fuel types while those in other areas still can,'€ he said.

The regulation is a follow-up to a decision by the Downstream Oil and Gas Regulatory Agency (BPH Migas) to stop selling subsidized diesel fuel and subsidized gasoline in Central Jakarta, as well as prohibiting gas stations in Java, Bali, Kalimantan and Sumatra from selling subsidized diesel between 6 p.m. and 6 a.m., to stay within the national subsidized fuel quota of 46 million kiloliters (kL).

The agency started halting the distribution of subsidized diesel fuel in Central Jakarta on Aug. 1, while a similar policy was imposed in other areas in Java, Bali, Kalimantan and Sumatra on Aug. 4.

The agency will also stop distributing subsidized gasoline (known as Premium gasoline) to every gas station located along toll roads throughout the country.

Adhi said that the policy would confuse most food and beverage traders as well as consumers.

Those who were affected by the regulation would likely raise their product prices because half of their distribution cost was usually for fuel consumption, while those not affected would probably keep their product prices or follow their affected counterparts, he said.

Adhi said the situation would be worsened by possible food and beverage price hikes due to 10 percent value added tax (VAT) on raw materials, including agricultural products.

Based on a Supreme Court ruling in February that revised government regulation No. 31/2007 on strategic goods exempt from VAT, the government is expected to impose a 10 percent VAT on raw materials, excluding several commodities, such as palm oil.

Indonesian Chamber of Commerce and Industry (Kadin) deputy chairman Natsir Mansyur voiced a similar concern, saying that the subsidized fuel ban was a fragmented policy that would have a huge impact on industry players.

'€œThe regulation would likely raise prices as fuel consumption commonly contributes 30 percent to total production cost in any industry,'€ he said.

He said the government should allow only registered vehicles to use subsidized fuel types or fully eliminate the fuel subsidy instead of imposing the restriction.

According to the World Bank quarterly report released in March, state spending would swell by Rp 56 trillion, consequently pushing up the budget deficit to 2.6 percent of the gross domestic products (GDP).

Natsir also said he regretted that the regulation was implemented only based on the consideration of BPH Migas.

Industry Minister MS Hidayat, meanwhile, said that he personally expected a regulation that would not allow private vehicles to use subsidized fuel.

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