The government decision to boost the subsidized fuel quota for the year by 10 percent appears set to strain the national budget and reflects the failure of previous policies to curb use of the product, experts say.
On Tuesday, House of Representatives Commission VII, which oversees energy affairs, agreed to increase the amount of fuel to be subsidized to 44 million kiloliters, up from an initial allowance of 40 million kiloliters.
Officials estimate the country’s motorists are on track to consume 44.04 million kiloliters of the fuel.
Maizar Rahman, a former governor of the Organization of Petroleum Exporting Countries, said the government was proving itself incapable of controlling fuel consumption.
He said a program to persuade motorists to convert to gas was lagging, and the large gap between the costs of subsidized and unsubsidized fuel encouraged fuel smuggling to neighboring countries, leading to a shortage in regions near borders.
“If the government keeps doing [what it is doing now], we will always have fuel-related havoc in the future,” Maizar told Investor Daily on Wednesday. “From fuel shortages to chaotic debates on raising the subsidized fuel price.”
The government failed in late March to win approval from the House on its plan to raise the price of subsidized Premium gasoline by 33 percent a liter and limit its use by some motorists.
Instead, it settled with a smaller scale effort to curb consumption — the government in May banned official government agency cars in Jakarta from using subsidized fuel and expanded the program to the rest of Java and Bali in August.
Also, on Sept. 5, the government banned the use of subsidized diesel fuel by operational vehicles of plantation and mining companies. The regulation angered some businesses, which called it “discriminatory,” and is difficult to implement.
Komaidi Notonegoro, deputy director of the Reforminer Institute, an energy and mining think thank, said the government program to cap subsidized fuel usage was destined to fail from the start, as it did not include cars and motorcycles.
“Whereas the government must have known that cars and motorcycles consume 85 percent of the subsidized fuel,” he added.
Komaidi said that the government ban on official vehicles would burden the state budget by Rp 4.5 trillion ($472 million), based on his calculations, because the cars’ cost of fuel more than doubled.
Golkar Party legislator Satya W. Yudha, member of House Commission VII, said that the government has failed to address the smuggling of subsidized fuel out of the country, which could reach 1 million kiloliters a year.