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Govt’s plan to restrict subsidized fuel sales is necessary, but risky
Experts believe the move, which currently remains under deliberation, could play into inflation and reduce people’s purchasing power, thereby risking shock to the economy.
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An attendant walks across a gas station belonging to state-owned energy holding company Pertamina in Kuningan, South Jakarta. (JP/Seto Wardhana)
T
he government has sent mixed signals over a plan to restrict sales of subsidized fuel starting on Aug. 17, as it grapples with fighting air pollution in Jakarta while hoping to save trillions of rupiah in subsidy spending.
Experts believe the move, which currently remains under deliberation, could play into inflation and reduce people’s purchasing power, thereby risking shock to the economy.
Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan first revealed the plan on July 9 on his Instagram account, saying the government would make subsidized fuel available only to eligible customers, citing that it could help lighten this year’s budget amid declining revenue.
The government would also ensure that fuel sold in Jakarta meets the Euro 4 emission standard of containing no more than 50 parts per million (ppm) of sulfur, from around 500 ppm currently.
The government has been mulling over restricting purchases of subsidized fuel since 2022 as the fuel subsidy overshot the budget allocation amid a surge in oil prices and a weakening exchange rate.
However, it later delayed the plan out of fear that it could limit purchasing power, especially after it opted to hike subsidized fuel prices in 2022, which had remained unchanged for years, to reign in the ballooning subsidy.
Read also: Energy subsidies may be cut next year, budget talks suggest
