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Sorry, But this May Hurt

Indonesian Cabinet Manager Apologizes for Imminent and Inevitable Increase in Fuel Prices

(2/24/2012) Indonesia’s Minister of Energy and Mineral Resources Jero Wacik warned everyone what’s coming, but, to his credit, he has also apologized in advance. Quoted by Kompas.com, Wacik said, “Apologies to the people of Indonesia because the price of fuel will increase.”

The Minister’s apology was made to a group of reporters while Wacik was accompanying President Susilo Bambang Yudhoyono at a session to brief and instruct Indonesian diplomats of the Ministry of Foreign Affairs on Thursday, February 23, 2012.

Wacik told the press that the government is still in the process of calculating the size of the hike in fuel prices. “We are in the process of calculating what’s best for the people. The Country will be efficient. There are a couple of government projects which will be postponed,” explained the Bali-born Minister.

He continued, saying the Government would soon discuss the size of the hike in fuel costs. Plans to increase fuel costs, however, may be hampered by Section 7 of the 2012 Law on the State Budget, which forbids increases in fuel costs. In theory, before any increase in fuel costs can take place the House of Representatives (DPR) and the Executive Branch must revoke Section 7 to clear the way for price increases.

Protests Ahead?

Separately, the Coordinating Minister for Politics, Law and Security Djoko Suyanto said that protests and demonstrations by those opposed to the government’s plans to increase fuel costs are not forbidden. “Protests are allowed, what’s important is that any protests be non-violent; as long as protests are proportional, do no damage and do not disturb public order,” explained Djoko.

Both Wacik and Djoko offered assurances that the government will provide compensations to the public directly affected by any increase in fuel costs.

President Yudhoyono has repeatedly underlined that the decision to increase the subsidized price for fuel cannot be separated from the current world economic crisis. In the midst of the ongoing economic disruption in the Euro zone, there is also rising political tension in the Middle East involving Iran, the U.S. and Europe. The decision by Iran to halt oil sales to all European nations has resulted in an increase in global fuel prices.

“The price of our crude oil increased quickly over the past few weeks. This has had an extraordinary effect on the economies of many countries, including Indonesia,” explained the Indonesian President as he opened a cabinet meeting on Wednesday, February 22, 2012.

On Wednesday, the price of crude oil in Singapore for delivery in April hit US$106 per barrel. At the same time, the price of crude (ICP) reached US$110 in Indonesia, a figure well above the assumed cost of US$90 per barrel contained in State Budget (APBN) in 2012.

The President admitted that the increase in crude oil prices has delivered a significant blow to the Indonesia economy. Responding to the current situation, Yudhoyono said, “We must respond and develop a number of options and policies aimed at saving our economy, the State Budget (APBN) and the fiscal condition.”

Faced with the certainty of an increase in Indonesian fuel prices, the President said he will continue to urge vehicles be converted to liquefied gas consumption.

The government earlier announced that subsidies on fuel would end on April 1, 2012. The three options before the Government include increasing prices of subsidized fuel at the pumps, converting use from gasoline to natural gas, and compelling private vehicle to only use non-subsidized Pertamax fuel.