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Jakarta Post

Government mulls scrapping diesel subsidy

  • Raras Cahyafitri and Tassia Sipahutar

    The Jakarta Post

Jakarta   /   Sat, March 26, 2016   /  10:59 am

The government is considering whether to remove subsidies for diesel fuel in the upcoming state budget in order to reallocate trillions of rupiah for productive and welfare programs.

Energy and Mineral Resources Minister Sudirman Said told reporters on Thursday that the government would seek approval from the House of Representatives for the plan.

'€œWe'€™re planning to cut the subsidy while prices are still low,'€ he said after attending a working meeting on fuel at the Office of the Coordinating Economic Ministry.

As of 2015, the government has set a fixed subsidy for diesel fuel, capping the amount at Rp 1,000 (7 US cents) per liter. The subsidy for Premium-brand gasoline has already been reduced, resulting in a significant decline in the volume of subsidized fuel use.

The volume '€” comprising largely of diesel and kerosene '€” now stands at 16.7 million kiloliters, much lower than the previous 46 million kiloliters, which includes Premium.

The move enabled the government to reduce fuel subsidies to Rp 63.7 trillion this year from Rp 240 trillion in 2014 before the reduced-subsidy policy was implemented.

Another cut in the diesel fuel subsidy, Sudirman said, would help the government save between Rp 15 trillion and Rp 16 trillion.

'€œWe will have to gain approval first from House Commission VII [that oversees the energy sector] and the Budget Committee to proceed with the plan,'€ Sudirman said.

No detailed schedule has been set for the state budget revision, but deliberation will most likely begin
in June.

Combined with subsidy cuts in other sectors, the government has managed to create larger fiscal space to be used to finance infrastructure projects.

In addition to cutting subsidies, the government is also planning make use of low global crude oil prices to reduce domestic fuel prices.

Data from Bloomberg show that the bellwether West Texas Intermediate oil price has dropped 19.8 percent year-on-year (yoy) to US$39.46 per barrel, while that of Brent crude has come down 28.4 percent yoy to $40.4 per barrel.

Sudirman said the new price would be announced between March 29 and 30.

'€œWe are still calculating, but it is simply logical that the price will come down as global prices remain low and our own supply chain is improving.'€

He reiterated that the decision was part of the government'€™s earlier commitment to review fuel prices on a quarterly basis. The price of liquefied petroleum gas (LPG) will most likely stay unchanged.

In a recent hearing, Gerindra Party lawmaker Harry Poernomo, a member of House Commission VII, suggested that the government gradually cut diesel fuel subsidies every year to make sure the funding was channelled to appropriate needs.

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