Jakarta. The government's plan to cap fares of online ride-hailing services may lead to the end of discounts enjoyed today by their customers, but in the long run it will help ensure a healthy competition in the transportation sector, a consumer advocacy group said.

Mustafa, the complaints and legal officer at the Indonesian Consumer Protection Foundation (YLKI), said on Wednesday (15/03) that app-based ride-hailing services have been operating in the country without a "clear understanding of the rules of the game."

"The online services effect many things, from having too many vehicles on the road to a never-ending conflict between online-based drivers and drivers of conventional transport," Mustafa told the Jakarta Globe.

He said price gauges and promotions offered by the app-based ride-hailing services are reaching a fever pitch and are ultimately skewing competition.

Uber has been offering a 50 percent fare discount to its customers for the past several weeks, while rival Grab has cut as much as Rp 40,000 ($3) in fares for some of its daily passengers. Gojek also currently offers a 50 percent discount for every motorcycle taxi service booking and a 30 percent discount for customers opting to use its car service.

Conventional taxis in Jakarta are having a tough time keeping up with the online price gauges as they must charge a minimum of Rp 3,600 per kilometer as stipulated by a city regulation.

"[The discounts] are advantageous for customers in the short term, but in the long run, if app-based services become the only real option for the commuters, cartels will have a window to exploit them," Mustafa said.

Under a proposed revision of a ministerial regulation on public transportation services without fixed routes, local governments would have the power to limit fares as they see fit. The regulation supposedly aims to level the playing field between online services and conventional transportation services.

That revision is expected to come into force early next month if ratified.

Harris Turino, an economist at IPMI International Business School, said the government should deregulate taxis or buses in order to make them more competitive instead of inhibiting app-based services, which have become immensely popular in Jakarta and other cities across the archipelago.

Companies will not be able to keep subsidizing their customers through discounts, Harris said, "there will be a time when conventional taxis and the app-based ride services become comparable in terms of fares."

Against the Law

The online ride-hailing service Uber has pushed back against the government's plan to cap its fares, arguing that the new limits contradict existing transportation laws and will ultimately undermine the company's ability to provide reliable services to customers.

Agung Ismawanto, chairman of the Koperasi Jasa Trans Usaha Bersama, a union formed for Uber drivers in a bid to legally operate throughout Indonesia, said that under current law their cooperative is categorized as a car rental company. The fares its drivers charge, Agung added, are based on an agreement between customers and the transport service companies.

Fare fixing by local governments could in fact contradict that law, he said, and the revision might be challenged at the state administrative courts.

The revision, according to a statement by the Ministry of Transportation, will also include new requirements for drivers of app-based ride-hailing services, such as obtaining road-worthiness certificates, providing evidence of direct ownership of the vehicles in use, using a vehicle with a certain engine capacity and paying higher taxes.

"If implemented, [the revision] would make it harder for Indonesians to access reliable transportation options as well as have access to the flexible economic opportunities that ride-sharing unlocks," a statement from Uber Indonesia said.

"We will continue to engage with the government to ensure that the interests of riders and drivers are put first, and that innovation is allowed to thrive in Indonesia," Uber Indonesia said.

Gojek did not respond to an inquiry by the Jakarta Globe, while Grab Indonesia declined to comment.

Ridzki Kramadibrata, Grab Indonesia's managing director, only said that the company has yet to make adjustments in its marketing strategy.