Indonesia scales back sharp gas price rise as elections loom

by Reuters
Monday, 6 January 2014 08:33 GMT

Workers upload LPG (liquid petroleum gas) canisters before sending to customers at PT Pertamina LPG filling station in Jakarta, Jan. 27, 2011. REUTERS/Crack Palinggi

Image Caption and Rights Information

(Corrects new LPG price in fifth paragraph)

By Wilda Asmarini and Kanupriya Kapoor

JAKARTA, Jan 6 (Reuters) - Indonesia's state-owned oil and gas firm Pertamina on Monday bowed to government pressure and cut the price of liquefied petroleum gas (LPG) after the president raised concern about the impact of a sharp increase days earlier on the poor.

Indonesia is due to hold general and presidential elections this year and the 65 percent increase in the LPG price on Jan. 1 prompted a call from President Susilo Bambang Yudhoyono for a review of the decision.

"Although this decision is fully under Pertamina's authority and is not something that had to be reported to the president, I think the government must handle the issue because it concerns the general public," Yudhoyono said on Twitter on Sunday, calling for a review of the increase in 24 hours.

"Such a policy ... which will ultimately burden the poor, has not been well-coordinated. This should not be allowed to happen."

Pertamina on Monday lowered the price increase, to about 18 percent, to 6,850 rupiah (56 cents) per kg of LPG, State-owned Enterprises Minister Dahlan Iskan told reporters after a meeting with Pertamina officials. The new price will take effect on Tuesday.

The decision on the LPG price reinforces concern that Indonesia is unlikely to see significant economic reform ahead of the elections despite sizeable budget and current account deficits that have cast gloom over Southeast Asia's biggest economy.

Yudhoyono's government pushed through a 33 percent increase in fuel prices last year but only after parliament approved allocating $1.4 billion in compensation for the poor.

Analysts said keeping LPG prices low would have limited benefit for Yudhoyono's ruling party, which has struggled to boost its popularity after a series of corruption scandals led to the resignation of several senior officials last year, including a cabinet minister.

"The calculation is that voters are very price-sensitive more than anything else," said Douglas Ramage, political analyst at the Bower Group Asia consultancy.

"But ... voters have long since passed judgement that the ruling party is mired in corruption scandals and lacks a compelling candidate. Keeping LPG prices low is not something that would boost their popularity because it doesn't matter as much as good governance and corruption." ($1 = 12,235 rupiah)

(Editing by Robert Birsel)

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