August 27, 2014 / 7:19 AM / 5 years ago

Indonesia's Pertamina halts fuel subsidy programme after panic buying, queues

JAKARTA, Aug 27 (Reuters) - Indonesia’s state-owned Pertamina on Wednesday halted a week-old programme aimed at curtailing the use of subsidized fuel, after its implementation led to panic buying and long queues at petrol stations in Southeast Asia’s largest economy.

The former OPEC member is struggling to contain ballooning fuel subsidy costs, which have widened the current account deficit and left little room in the budget for president-elect Joko Widodo’s much needed reforms.

Widodo, who has made the energy subsidy problem his top priority, is meeting with outgoing president Susilo Bambang Yudhoyono later on Wednesday in the hope of reaching a deal to reduce fuel subsidies before the handover in October.

Pertamina, the country’s main retailer of subsidized fuel, cut the amount of subsidized diesel and gasoline available at fuel stations starting on Aug. 18 to ensure that it didn’t surpass its fuel quota for the year.

But the measure backfired as drivers did not use more alternative fuels, and instead queued for hours at petrol stations waiting for the limited subsidized gasoline and diesel. Chief Economics Minister Chairul Tanjung instructed Pertamina on Tuesday to halt its programme.

“There will be no more limits. If Pertamina is over the quota later, we will not be blamed,” Hanung Budya, director of marketing and trading for the state oil company, told reporters.

Pertamina said it expects to hit its fuel subsidy quota for diesel around Dec. 5 and gasoline two weeks later.

Suhartoko said the government will likely face an additional 8 trillion rupiah ($684 million) in fuel subsidy costs to cover the extra supply this year.

Indonesian fuel prices are some of the cheapest in the region, currently priced at 6,500 rupiah ($0.56) a litre for gasoline and 5,500 rupiah for diesel.

Fuel subsidies cost the government around $20 billion a year, or nearly 20 percent of its total budget.

Any decision on a fuel subsidy cut before Widodo’s inauguration on Oct. 20 is not expected to come into effect until November. (1 US dollar = 11,695 rupiah) (Additional reporting by Fergus Jensen; Writing by Randy Fabi; Editing by Tom Hogue)

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