· The Government of Indonesia confirmed it will execute its plan to limit subsidized fuel distribution in October 2010. The mechanism is conducted through closed distribution system that prohibits vehicles to buy subsidized fuel. Only several vehicles produced in particular years are allowed to buy subsidized fuel (premium).
· The reason behind this step is a possibility that domestic consumption on subsidized fuel will exceed Government’s budget next year as this year’s realization is likely to pass its budget by 2.09mn kl at 38.59mn kl.
· There is no further explanation on what vehicles will be prohibited, or whether it will be 2W or 4W. Thus, this would sparks questions and likely to affect automotive players in JCI.
· From a positive side, this step may help Government to control inflation next year and lower pressure on its 2011 budget.
· Thus, despite the limitation may affect domestic automotive sales in the short run, manageable inflation would translate into a still favorable interest rate condition, which is the main key driver of domestic automotive sales volume.
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