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Indonesia orders steps to conserve energy and oil

Government ministers have been told to shorten their motorcades. Civil servants are sweating it out at work after turning down air conditioners. TV is off the air from 1am to dawn.

Indonesia, OPEC's only oil-importing country, ordered those moves and other energy-conserving measures this week to blunt the effects of soaring crude oil prices that risk blowing the country's budget.

But economists say the steps are mostly symbolic, and serve only to delay a painful reality facing the government -- that it must soon cut the ballooning government subsidies that ensure its 210 million people get some of the cheapest petroleum products in the world.

"Removing the subsidies is a big political pill to swallow and ... would create a backlash," said Victor Shum, a consultant at Purvin & Gertz Inc, a Houston, Texas-based energy consultancy in Singapore. "But fiscally the government is coming under pressure to do so. It is a difficult balancing act."

Regular gasoline currently sells in Indonesia for around US$0.20 a liter (US$0.76 a gallon).

Over the last few weeks, state-owned oil company Pertamina has been unable to meet demand for gasoline in major cities across the country, leading to long queues at gas stations and reports of hoarding.

The oil issue is shaping up to the first major political test for President Susilo Bambang Yudhoyono, who was elected last year promising to battle poverty and boost growth in Southeast Asia's largest economy.

Hiking fuel prices is a sensitive issue in Indonesia.

A small increase in the price of kerosene, a common cooking fuel, hurts the household finances of millions of poor families. Gasoline hikes translate into higher costs for basic goods because of increased transportation costs.

Former dictator Suharto was ousted in 1998 in part because of anger at fuel price increases.

Yudhoyono's predecessor, Megawati Sukarnoputri, saw weeks of protest when she cut subsidies.

In March, Yudhoyono slashed the subsidies and allowed prices of various gasoline products to rise by around 30 percent.

The move -- which was accompanied by increased spending on health and education programs for the poor -- was praised by foreign lenders and economists, who have long argued that subsidies are disproportionally enjoyed by wealthy car and home owners.

Nationwide demonstrations took place, but they were smaller than predicted and quickly fizzled out. But raising prices again before the end of the year -- something Yudhoyono has vowed not to do -- would likely trigger large protests.

"We understand that cutting fuel subsidies would have a huge social and political impact, but sooner or later the government will have no other option to do so," Indonesian Chamber of Commerce chairman Mochamad Hidayat was quoted as saying by the Jakarta Post.

"The government should be realistic and address the fuel problem," he said.

Although Indonesia is the sole Southeast Asian member of the Organization of Petroleum Exporting Countries, declining investment in oil exploration and extraction in the country has reduced output in recent years and even made the country a net crude importer for several months last year.

With international prices hitting US$60 a barrel and strong domestic demand for gasoline sparked by a recovering economy, subsidies that last year cost the government US$7.4 billion -- or about 3 percent of gross domestic product -- are rising daily.

The energy conservation measures announced last week will do little to soften domestic consumption, and appear to be mostly symbolic, economists say. There are no legal sanctions for those who violate the various decrees.

TV stations and local cable operations are for now obeying the government request to stop airing at night, but many are questioning its effectiveness.

"As long as this proposal is for the good of the country then we follow it," said Marah Bangun, executive producer for music and sport at national broadcaster TPI.

"But we wonder whether it will do any good," Bangun said. "Is TV watching such a great consumer of energy?"
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