Business

Indonesia delays power price hike

Students burn a tyre during a protest against the government’s plan to raise subsidised fuel prices, near a fuel station in Jakarta March 15, 2012. Indonesia’s government is considering hiking up fuel prices, which are currently subsidised, by as much as 44 per cent this year to reduce the burden of subsidies on the state’s budget so that they can use these funds on roads instead. – Reuters picStudents burn a tyre during a protest against the government’s plan to raise subsidised fuel prices, near a fuel station in Jakarta March 15, 2012. Indonesia’s government is considering hiking up fuel prices, which are currently subsidised, by as much as 44 per cent this year to reduce the burden of subsidies on the state’s budget so that they can use these funds on roads instead. – Reuters picJAKARTA, March 15 – Indonesia’s government will delay a 10 per cent hike in power prices planned for this year, in a move to allay fears of rising costs as it aims to hike fuel prices next month, the energy minister said today.

Protests over the plan to lift subsidised fuel prices by a third have broken out across Southeast Asia’s largest economy in recent weeks, though there is no sign the government will also postpone lifting fuel prices.

Economists say the government needs to lift the prices of both motor fuel and electricity to wean consumers off subsidies and save the US$18 billion (RM55.06 billion) it spent on fuel subsidies last year, but the price hikes have led to forecasts for inflation at above 7 per cent this year.

Inflation slowed to a 22-month low of 3.56 per cent in February, but the expectations for a pick-up in energy costs have led some economists to think the country’s central bank could be forced into lifting interest rates later this year.

“After getting recommendations I think the electricity tariff hike can be delayed... Later on, after people are calmer after the fuel price hike, we’ll think about it again,” Jero Wacik, the energy minister, told parliament.

The parliament approved his proposal to indefinitely delay the power price hike, though has yet to approve the government’s plan to lift fuel prices.

Fuel price rises are a sensitive issue in the world’s fourth most populous nation, where incomes have been rising along with strong economic growth in recent years, but where the government classes 30 million people as living in poverty.

Sharp fuel price hikes in 1998 caused protests that partly led to the fall of autocratic leader Suharto.

The government had proposed last year stopping private motorists from using subsidised fuel, which is the cheapest in Asia at just half the market price, but backtracked after opposition from lawmakers and state energy firm Pertamina.

The proposal to lift prices instead may dampen buoyant car sales and fuel demand in Asia’s largest petrol and diesel importer, with local media reporting increased consumer demand for motorcycles to save on fuel costs. Honda Motor Co said this week it would boost investment in Indonesia to increase its motorbike production. – Reuters

Comments