Reuters: Regulatory News: UPDATE 1-Indonesia shelves plan to limit use of subsidised fuel by car type

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UPDATE 1-Indonesia shelves plan to limit use of subsidised fuel by car type May 3rd 2012, 15:47 Thu May 3, 2012 11:47am EDT JAKARTA May 3 (Reuters) - Indonesia will shelve a plan to restrict use of subsidised fuel based on vehicle year or engine size, its energy minister said on Thursday, a decision that marks another failed attempt by the government to cut costs by reforming subsidies. Energy and Mineral Resources Minister Jero Wacik said a preivously mooted government plan to curb supply of subsidised fuel for large engined cars was being halted indefinitely. "For the time being the regulation will be halted until we find the right formula," Wacik told a news conference. "After trials on the ground it will be difficult to implement it." Shelving the plan will keep up pressure on the government's finances. Indonesia has the cheapest fuel in Asia and the government spent $18 billion on fuel subsidies last year. Its inability to reform subsidies was a factor in Standard & Poor's decision to keep Indonesia's credit rating below investment grade status last month. Fuel policy uncertainty has also unnerved investors. However, Wacik said official cars, and mining and plantation vehicles, will be prohibited from using subsidised fuel. He also said the state utility firm PLN must convert its existing oil-based power plants to coal, gas, hydro and geothermal. The government started discussing plans to limit fuel use by car type last month after parliament in March rejected its proposal to immediately raise petrol and diesel prices. Parliament instead granted the government the authority to raise subsidised fuel prices only if the country's benchmark crude price (ICP) reach a six-month average of $120.75 a barrel. President Susilo Bambang Yudhoyono's Democrat Party has been trying to tackle the issue for more than a year, even though leaving prices at their current level threatens to increase the budget deficit and reduce the amount of money available for much-needed infrastructure spending. High oil prices are weighing on government finances and Vice President Boediono said in March that the budget deficit could reach 4 percent of gross domestic product if the government does not raise fuel prices. The government had earlier estimated a budget shortfall of 1.5 percent of GDP this year. Raising prices however would be unpopular and could lose the government support ahead of presidential elections in 2014. Retailers have already been raising prices on expectations of higher fuel costs. Link this Share this Digg this Email Reprints

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