Govt Tightening Use of Subsidized Fuels

In an effort to maintain its quota, the government is tightening subsidized fuel consumption by taking several measures, including limiting certain vehicles’ fuel consumption, launching a subsidized fuel-free day and introducing a new payment system.

The government has previously set the quota of subsidized fuel consumption at 40 million kiloliters in the 2012 state budget but due to increasing consumption it has to raise the quota to 44.04 million kiloliters in the 2012 revised state budget.

Yet the upward trend in subsidized fuel oil consumption has led oil officials to predict that consumption would reach 45.373 million kiloliters at the end of 2012, exceeding the quota.

“We predict consumption will exceed the quota (as set in the revised budget) by three percent at the end of the year,” Head of Downstream Oil and Gas Regulator (BPH Migas) Andy N Sommeng said recently.

He said that in the January-September 2012 period, subsidized fuel consumption had reached 32.906 million kiloliters or 75 percent of the 44.04 million kiloliter quota. Consumption in October is predicted at 3.882 million kiloliters, November at 3.831 million kiloliters and December at 4.221 million kiloliters so that by the end of the year the total subsidized fuel consumption would reach 45.373 million kiloliters.

Seeing the upward trend of subsidized fuel consumption, Vice President Boediono said last week state-owned oil and gas firm Pertamina needs to curb consumption of subsidized fuel oils.

“(Pertamina needs) to take measures to control distribution of fuel oil (particularly subsidized premium gasoline) at public refilling stations so consumption will not exceed the quota of 44 million kiloliters set for this year,” the vice president said after a coordination meeting on fuel oil with the relevant ministers.

Therefore, the vice president ordered Pertamina to tightly control the distribution of fuel oils to refilling stations based on their respective quota. This way, the quota which had been agreed upon with the House of Representatives (DPR) would not be exceeded at the end of the year.

To ensure the success of the energy retrenchment program, the government gradually bans cars owned by the government, state-owned companies and regional government-owned companies, from using subsidized gasoline in Java and Bali.


Additionally, it also has launched an oil-to-gas conversion program and banned trucks owned by state plantation and mining companies from consuming subsidized diesel oil.

The government also bans state power utilities Perusahaan Listrik Negara (PLN) from using fuel oil to operate its new power plants. Instead, it encourages PLN to use solar energy, coal, natural gas, geothermal energy, and biogas.

Premium gasoline subsidy, which is the biggest subsidy compared with those for diesel oil and kerosene, is considered to have heavily burdened the state budget so that the amount of budget funds for other economic stimulants such as infrastructure became small.

As a result of the cancellation of its planned fuel oil price increases early this year, the government has to give an additional budget of Rp79.4 trillion, raising the total subsidy for premium to Rp216 trillion

Earlier, the Finance Ministry had proposed three options to curb fuel subsidies and strengthen the state budget next year. The first option is raising the price of subsidized premium gasoline and diesel oil by Rp500 a liter. This is expected to reduce fuel subsidies by Rp21.2 trillion.

“The increase of Rp500 is pretty small and less painful because it will have a lower impact on the inflation rate,” the acting chief of the ministry’s fiscal policy board, Bambang Brodjonegoro, said.

The second option is encouraging all public transport and cargo vehicles to switch to gas, which is expected to reduce fuel subsidies by Rp3.9 trillion in Java and Bali or Rp6.6 trillion nationwide, he said.

The third option is banning private cars from using subsidized fuels, he said, adding this option will enable the country to cut fuel subsidies by Rp29.6 trillion in Java and Bali or Rp50.2 trillion across the country.

“Ideally, the three options can work altogether,” he said.

Besides limiting the use of subsidized fuel oils to certain cars and trucks, the government through the energy and mineral resources ministry will also launch a subsidized fuel-free day.

The move is expected to save Rp500 billion to Rp600 billion in state budget funds, said Marshal Agus Barnas, chief of social analysis sub-team tasked with familiarizing the public with a plan to phase out the use of subsidized fuels.

Pertamina spokesman Ali Mundakir said on Saturday that his company was ready to support the subsidized fuel-free day movement, which would be launched on Sundays beginning on December 2, 2012.

“We predict we will be able to save some 120 kiloliters of subsidized-premium gasoline worth Rp600 billion per day,” he said.

Pertamina officials said that during the premium-free day, refueling stations will continue to operate, but they would only serve vehicles purchasing non-subsidized pertamax and pertamax plus fuel types. The program was initiated by the downstream oil and gas regulator (BPH Migas).

Pertamina hopes that the public would take part in making the program a success, he said.

The BPH Migas has planned that the program would be implemented in Java-Bali areas and in five major cities: Medan of North Sumatra, Batam of Riau Islands, Palembang of South Sumatra, Balikpapan of East Kalimantan and Makassar of South Sulawesi.

Pertamina has also announced its plan to change the system of payment for subsidized fuel oils from the point of sales (POS) system to a monitoring and control system (MCS) in 2013.

“The monitoring and control system is now under trial at 132 refilling stations in Kalimantan. We hope that next year we would have completed the research and the system would have been installed in all refilling stations across the country,” Ali Mundakir said.

Ali said that with the new system, the payment for subsidized fuels to the government would be more accurate. “In the previous system, Pertamina is paid based on the volume of oil taken from its depots while in the new system the state-owned oil will be paid based on the volume of fuels stored in the refilling stations’ tanks,” asserted Ali.

He said that with the new system it was expected that leakage rate in the distribution of fuel oils would be cut because it would be known if the volume of oils at destinations did not equal the amount when it was taken from Pertamina depots.

Ali said with the subsidized fuel quota set at 46 million kiloliters for 2013, Pertamina would get an additional sales cost of Rp828 billion. “The new system raises the distribution cost by Rp18 per liter,” he added.



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