When oil and politics mix

EVEN before Indonesians found out that a fuel price hike approved earlier this week would be implemented on Saturday, petrol stations in some parts of Indonesia were seeing the panic buying of fuel. The state-owned oil company Pertamina stationed soldiers and policemen at their petrol stations around the country and topped up the cheaper subsidised petrol, assuring Indonesians that there is enough supply to anticipate an increased demand before the hikes go into effect.

“I urge everyone to remain calm... There is no need for hoarding; just buy enough for what you need,” Vice-President Boediono told reporters.

Indonesia's Parliament approved a much-anticipated increase in petrol prices on Monday after a marathon session, without saying when. Analysts had expressed concern that any delay in the fuel hike would induce panic buying and further fuel inflation.

“The more the delay, the higher the vulnerability to the Indonesian economy,” said economist Rimawan Pradiptyo of the University of Gajah Mada, who was part of team of an economic team that has been urging a price hike since 2011.

On Thursday, the government announced that price hikes - expected to be 44 per cent for petrol and 22 per cent for diesel - would go into effect at midnight on Saturday. The opposition and workers said they would hold demonstrations against the increase on Friday in Jakarta and other major cities with industries such as Medan, Surabaya and Batam.

Already, food vendors and public bus operators have announced plans to raise their prices by 30 per cent.

Over the last few days, subsidised fuels in places such as the island of Flores in east Indonesia spiked by more than double to cope with increased demand, said local reports, though no official price has been set yet. Indonesia, which has some of the world’s lowest petrol prices, has seen its subsidy bill nearly quadruple since 2009 - from 45 trillion rupiah (S$5.85 billion) to 212 trillion rupiah last year as a growing middle-class buys more cars. The government has argued that raising the price, from 4,500 rupiah to 6,500 rupiah per litre for the subsidised Premium fuel, will enable more funds to go to improving the country’s poor infrastructure and education or social programmes.  Parliament also approved 9 trillion rupiah worth of relief funds to aid mostly the poor.

Not surprisingly, the opposition has seized on the fuel price hike, coming months before national elections, as an issue, including even those from the ruling coalition such as the Prosperous Justice Party. On Wednesday, supporters from the Opposition Indonesian Democratic Party - Struggle took to the streets in a noisy protest causing snarling traffic as students threw stones and burnt tyres as they clashed with police in cities like Makassar in South Sulawesi and Medan in Sumatra.

Last April, the government scuttled a planned petrol price hike when protests turned violent and Molotov cocktails were hurled on Jakarta streets. This time, it has rolled out an awareness campaign through banners, SMS-es, pamphlets and television ads to explain the need for a price rise.

While a check of busy petrol stations in Jakarta did not turned up any instances of panic buying, most drivers say they will not switch from topping up with cheaper petrol even though the subsidies are not targeted at them. During a one-hour period at three pump stations, 38 out of 51 drivers of large or luxury cars were seen filling up with the subsidised premium petrol. 

Mr Ekopriyanto, a driver of a seven-seater Toyota Kijang says his employer who works at a stock company has not told him to switch to using the Pertamax grade non-subsidised fuel.  “If it were me, I'd also be using Premium too for as long as I can,” he said. 

Others, like Mr Nur Hardi, who was topping up his SUV, a Honda CRV, with subsidised fuel says he feels protests are a waste of time as the government seems serious about the price hike and has prepared aid. “I accept (the hike)... There’s no choice,” he said. “But I'll still use Premium as it will still be cheaper than Pertamax."

A World Bank study showed that 80 per cent of subsidised fuel benefitted the top 50 per cent of middle and upper income households.

“The price of fuel should go up. " State-Owned Enterprises Minister Dahlan Iskan told reporters. “Even though there are parties that don't want it to increase, it still should be done.”