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Government eyes voter-friendly lowering of subsidized fuel prices
Alfian , The Jakarta Post , Jakarta | Wed, 11/05/2008 7:22 AM | Headlines
The government may soon lower the prices of subsidized Premium gasoline and diesel by up to 13.9 percent on average to better reflect the recent decline in world crude oil prices, an energy ministry official said Tuesday.
“We proposed to the President a cut in subsidized fuel prices of between Rp 500 (5 U.S. cents) and Rp 800,” said Evita H. Legowo, director general for oil and gas at the Energy and Mineral Resources Ministry.
She added the proposal was still being discussed by the President and Cabinet members.
She said the proposed reduction would only be valid for the last two months of 2008, with next year’s prices requiring further calculations by the government.
On May 24, the government raised prices of Premium gasoline, diesel and kerosene by an average of 28.7 percent due to skyrocketing global oil prices at the time.
However, crude oil prices have dropped by more than half since hitting record highs of above $147 per barrel in July.
In Tuesday morning trading, Brent North Sea crude for December delivery plunged to $58.38, its lowest level since Feb. 21, 2007, according to AFP, although it recovered to $61.18 a barrel, up 70 cents from Monday.
The government subsidizes four types of fuels: Premium gasoline, diesel, kerosene, and three-kilogram-canister LPG.
With global crude prices declining, the disparity between subsidized and non-subsidized prices here is narrowing. While economically the price reduction seems to make sense, politically it would be a major boost for the current government ahead of next year’s general elections.
As of Nov. 1, the prices of non-subsidized fuels sold to industry in Jakarta were Rp 5,925 per liter for Premium gasoline, Rp 6,065 per liter for diesel and Rp 6,687 per liter for kerosene.
These prices do not include taxes.
The current subsidized prices are Rp 6,000 per liter for Premium gasoline, Rp 5,500 per liter for diesel and Rp 2,500 per liter for kerosene.
Evita said although the proposed reduction was still a rough calculation, she was convinced a reduction in subsidized fuel prices was the way forward.
“Subsidized fuel prices should not be higher than non-subsidized ones,” Evita argued.
She added the government would most likely lower the price of either Premium gasoline alone, or Premium gasoline and diesel.
“If the government lowers the price of both, the percentage reduction for each fuel will be smaller.”
The price disparity for kerosene, however, remains big, with the government reluctant to lower the fuel’s price, Evita added.
With the average 13.9 percent reduction, the government will need an additional Rp 3 trillion from the budget for this year’s fuel subsidy.
Callum (not verified) — Thu, 11/06/2008 - 2:43pm
With unsubsidized Motor Fuels now trading below the subsidized cost this offers the opportunity to painlessly put an end to a policy that is well past its sell by date.
Subsidizing the cost of Motor Fuels may have made some limited economic sense when Indonesia was a net oil exporter, but as a net importer this is a ridiculous policy.
How much money over the years has been wasted to allow Mercedes drivers to fill up on the cheap while poor people struggle with the costs of educating their children?
This is an extremely stupid use of valuable government revenue that would be better directed at meeting the governments constitutional obligation in funding education.
But since this is an election year, the chances that sound economic policy will win out over stupidity is absolutely zero.