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House may 'unlock' fuel quota
Spending on fuel subsidies in the proposed 2015 state budget has been slashed by Rp 15 trillion (US$1
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pending on fuel subsidies in the proposed 2015 state budget has been slashed by Rp 15 trillion (US$1.25 billion), however, it is very likely to surge again if lawmakers add a clause allowing the government to increase the subsidized-fuel quota when necessary.
The House of Representatives' Budget Committee and the Finance Ministry agreed on Monday to reduce subsidy spending to Rp 276 trillion next year, compared to the Rp 291.1 trillion proposed by President Susilo Bambang Yudhoyono in August.
The reduced spending was a consequence of a cut in the subsidized-fuel quota, with lawmakers demanding the quota be cut to 46 million kiloliters (kl) next year from 48 million kl.
The reality, however, may be different as lawmakers have hinted that they may no longer 'lock' the quota allocation for subsidized fuel.
House Budget Committee deputy chairman Tamsil Linrung said on Thursday the 2015 state budget bill would allow the government to increase the allocation of subsidized fuel with the consent of lawmakers.
'Any unrealistic assumption could still be revised with prior consultation with lawmakers,' said House Budget Committee member Satya W. Yudha of the Golkar Party. 'It's more realistic rather than imposing a rigid threshold with no given penalty.'
This year, lawmakers made the unprecedented move of forbidding the government from increasing the subsidized-fuel quota that had been set at 46 million kl.
According to the revised 2014 state budget, the government could increase fuel-subsidy spending only when there is any deviation in the exchange rate or global oil prices ' without any mention of a fuel quota.
As a consequence, the government was forbidden by law from increasing fuel spending if the cause was an overshoot in the consumption of subsidized fuel. The move was aimed at encouraging the government to make efforts to limit the consumption of subsidized fuel, but it appeared to backfire.
- Lawmakers agree to cut fuel subsidy from Rp 291.1 trillion to Rp 276 trillion
- Proposed quota for subsidized fuel is reduced to 46 million kiloliters
Last month, the government's limitation of subsidized-fuel purchases caused shortages of fuel across the archipelago, triggering panic-buying and driving up fuel consumption even further.
This year's fuel consumption is estimated to be 1.6 million kl higher than the quota of 46 million kl. The government has, therefore, proposed flexibility in the fuel quota.
'Our suggestion [to lawmakers] in the proposed 2015 state budget is that the fuel quota should no longer be locked in,' Finance Ministry fiscal agency head Andin Hadiyanto said after meeting with lawmakers.
As this year's consumption of subsidized fuel is estimated to exceed 47 million kl, the assumption that next year fuel consumption will be below 46 million kiloliters is unrealistic, given the economic growth, economists have warned.
'The cost of fuel subsidies could be even higher as the main factor determining the spending on subsidies is the actual consumption, not the quota,' Asian Development Bank (ADB) economist Edimon Ginting said.
Capping the quota of subsidized-fuel consumption at a certain level, as happened this year, would not be an effective policy for curbing fuel consumption, he added.
Finance Minister Chatib Basri has said the most effective strategy for curbing fuel consumption is to hike fuel prices, as the low price of subsidized Premium gasoline in Indonesia ' at Rp 6,500 per liter, one of the lowest in Southeast Asia ' has encouraged fuel smuggling.
The economic team of president-elect Joko 'Jokowi' Widodo has said an adjustment in fuel prices could be made as early as November, with the price of subsidized Premium gasoline being increased by betweenRp 1,000 and Rp 3,000 per liter.
