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Indonesia to scrap gasoline subsidy from Jan 1 and float prices

[JAKARTA] Indonesia will ditch gasoline subsidies and link the retail prices to international oil markets from Jan 1, the chief economics minister said on Wednesday, in one of the biggest reforms to the country's energy subsidies in decades.

From midnight tonight, the government will stop subsidising gasoline prices altogether and set the price of gasoline according to global oil markets.

"Prices will be evaluated every month," said coordinating Economic Minister Sofyan Djalil, adding that since world oil prices fell, the government felt there was no need for gasoline subsidies.

Oil prices have fallen by over 50 per cent this year to their lowest levels in over five years as supplies rise while demand is cooling.

For diesel, the government will still provide a fixed subsidy of 1,000 rupiah per litre, but the price will also rise and fall in line with market prices on a monthly basis, the government said.

"While diesel will remain subsidized, the government's liability will be capped at just 17 trillion rupiah (US$1.4 billion) a year under a new fixed subsidy scheme," analysts at OCBC bank said in a statement.

"This is a big deal. Subsidies were supposed to eat up more than 13 per cent of total expenditure in 2015 originally, but are now whittled down to a mere one per cent. The country can now look ahead to how best to improve living standards, rather than look over its shoulders all the time for oil price risk," the OCBC analysts said.