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Subsidized fuel limits lifted due to panic buying
State-owned oil firm Pertamina has decided to cancel its program restricting subsidized fuel sales, as the policy has led to panic buying and long queues at gas stations nationwide
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tate-owned oil firm Pertamina has decided to cancel its program restricting subsidized fuel sales, as the policy has led to panic buying and long queues at gas stations nationwide.
As of Aug. 18, Pertamina cut the amount of subsidized diesel and Premium gasoline at gas stations in an effort to keep within this year's subsidized fuel quota.
'As instructed by the government, Pertamina has [returned the availability of subsidized fuel to its pre Aug. 18 levels] to eradicate these long queues,' Pertamina spokesman Ali Mundakir said in a press statement, adding that the policy would come into effect on Tuesday evening.
In spite of the volatility of the global oil price, Indonesians still enjoy a fixed price of Rp 6,500 (55 US cents) per liter for Premium and Rp 5,500 per liter for diesel, as both are subsidized by the state budget. That has hurt Indonesia's trade balance and current account, given the country's high oil imports, while the state budget has been pressured by the burdensome deficit to fund the ballooning fuel costs.
- Pertamina lifted the restrictions on Tuesday evening
- Govt quotas for diesel, Premium expected to be exhausted by mid Dec.
- It could cost additional Rp 8t to cover extra supply through end of year
Estimates show that the government will exhaust its allocations of diesel and Premium, both of which are sold at around half their market value, in early or mid-December at current consumption levels.
'The policy was successful to reduce consumption. However, people were panic buying. They chose to be queueing and staying overnight at gas stations rather than buying non-subsidized fuel,' Pertamina marketing and business director, Hanung Budya said.
Hence, as of Tuesday evening, 'there will be no more restrictions', Hanung said. Over-consumption could not only hurt trade balance and state budget, but also Pertamina's finances.
Pertamina has been allocated 46 million kiloliters (kl) of subsidized fuel this year, 29 million kl of which is Premium, 16 million kl is diesel and 900,000 kl is kerosene. However, as of the end of July, about 60 percent of the respective Premium and diesel quotas had been used, according to Pertamina.
The government would probably have to add Rp 8 trillion ($684 million) in budget funds to cover the extra supply of subsidized fuel through the end of this year, Pertamina's senior vice president of marketing and distribution, Suhartoko, said on Wednesday.
Pertamina and the government have yet to decide a strategy to keep the quota in check, but both keep on campaigning for the public to use non-subsidized fuel.
Experts have said that limiting subsidized fuel has sent the right message to consumers, encouraging them to buy non-subsidized fuels, but they added that it would do little toward addressing the current-account deficit.
Meanwhile, observers have called on the government to reduce the fuel subsidy by raising the price, arguing that the funds saved could be used for more productive purposes, such as education, health and infrastructure.
'The chance is very small because Pak SBY likely wants a soft-landing in completing his term in office by not increasing the price,' Komaidi Notonegoro of the Reforminer Insitute said.
Others are hopeful that president-elect Joko 'Jokowi' Widodo would do the job.
'Such a reallocation [of funds] would have an immediate impact on the public; far greater than paying out cash compensation like direct cash assistance (BLT).
The public will not oppose a fuel subsidy cut if Jokowi can provide alternative energy sources and improve certain sectors,' Institute for Development of Economics and Finance (Indef) economist Enny Sri Hartati said.
Arif Budimanta, a member of Jokowi's economic team, said the transition team and President Susilo Bambang Yudhoyono's administration would discuss any cuts to the fuel subsidy and calculate the precise consumption of subsidized fuel nationwide.
'One of the options we are considering is to reallocate the subsidy funds to sectors and activities that are more productive. However, we also need to consider other factors such as social conditions and people's purchasing power before scrapping the subsidy altogether,' Arif said. (gda)
