Consistent fuel subsidy a must

Is the government ready with its program to limit subsidized fuel, which is due to begin on April 1, 2012? The effectiveness of the policy will be determined by the interdepartmental coordination in its implemention, as the Energy and Mineral Resources Ministry cannot run the program alone without involving other ministries; also the policy will have a multisector impact.

The government has chosen not to raise the subsidized fuel price as stipulated in the 2012 state budget. Article 7 (6) of the State Budget Law also stipulates that subsidized fuel prices will not be raised in 2012.

The House of Representatives through its Budgetary Body (Banggar) has reminded the government that it should act to control the volume of subsidized fuel in response to soaring fuel prices in the global market. The government increased the Indonesian Crude Oil Price (ICP) from the targeted 2011 state budget of US$80 per barrel to $95 per barrel in the revised 2011 state budget.

Then, there was an option of managing the quota of fuel subsidies and the option to increase the subsidized fuel price in a bid to control the budget for subsidy.

However, none of these options were implemented at until the end of 2011. Even the results of a review by three leading universities (the Bandung Institute of Technology, the University of Indonesia and Gadjah Mada University) have so far failed to influence the government to take any concrete measures in controlling subsidized fuel.

In 2011, we saw an oversized quota of subsidized fuel volume due to high consumption. Of the quota set by the revised state budget of 40.5 million kiloliters, the volume jumped to 41.7 million kiloliters by the end of 2011. Surely this will bring a direct impact of increased burden on the budget for the fuel subsidy. The significant budget increase was caused by the increase on the number of vehicles across Indonesia consuming subsidized premium fuel.

The government is right with its decision to limit subsidized fuel. However, how ready is the government with the instruments to carry out the policy? What should the government do to ensure success if the policy is to be put into effect on April 1? And how can it anticipate public reaction?

It is worth noting that both the government and the parliament have agreed the fuel subsidy has missed its target. Originally aimed at the impoverished, the subsidy has been largely enjoyed by the rich – 70 percent of subsidized-fuel consumers are the haves.

The government has been considering the strict monitoring of subsidized fuel consumption, but to no avail. Some regions have even suffered from subsidized fuel scarcities because of stockpiling and smuggling practices.

Strict montioring, therefore, would not on its own be enough without strong law enforcement to ensure the distribution of subsidized fuel to the most in need.

It is important to ensure that subsidized fuel reaches its actual target – low-income people. Therefore, the government must take concerted action so as to avoid the subsidy from reaching others for whom it is not intended.

Measures should include a campaign to educate the haves to consume non-subsidized fuel only as well as a strict implementation of the ban on private car owners buying premium. This means, private car owners must convert non-subsidized fuel – Pertamax or Pertamax Plus – which is twice the price than subsidized premium. If that was the case, a limitation on subsidized fuel would mean a 100-percent fuel price increase for private car owners.

In my opinion, however, increasing the premium price for private car owners by Rp1,500 per liter from the current price of Rp4,500, is more acceptable to the public rather than forcing them to buy Pertamax or Pertamax Plus with their market prices of Rp9,000 and Rp11,000 per liter, respectively.

The proposed solution for the government is to wisely implement its policy on subsidized fuel limitation and provide an option for private car owners, who are completely barred from buying subsidized premium (at the price of Rp4,500 per liter), to buy non-subsidized premium at a higher price.

This would mean that private car owners could still use premium without using up the quota for the impoverished, plus they would buy the premium at an economic price. This could be a constructive solution for middle-class society with its owners of private cars, rather than forcing them to buy Pertamax or Pertamax Plus.

Meanwhile, regarding the conversion program from oil fuel to gas fuel as part of the overall program to limit subsidized fuel consumption, it is imperative that owners of private cars and public transportation vehicles, as well as small-scale transportation operators voluntarily and consciously convert to gas fuel, either CNG (compressed natural gas), LGV (liquefied gas for vehicles), or LNG (liquefied natural gas).

For its initial phase, conversion to gas fuel should be implemented gradually after intensive dissemination of the policy to the public. The availability of infrastructure — or, rather, lack of — is one area of concern although it is true that gas fuel is cheaper than premium or diesel fuel. Another is the availability of gas fuel stations (SPBG), which are still rare.

The development of new SPBGs will take time and huge investment, as recognized by businessmen in the fuel sector. A major breakthrough should be taken by requiring existing gas stations (SPBU) to install special dispensers for gas fuel on their premises so that consumers would be able to purchase gas fuel quickly and easily. For SPBU owners, the investment needed for installing gas dispensers would be much lower compared to developing a new gas fuel station.

For the government, the challenge is how to convert the price subsidy, derived from subsidized fuel, to direct subsidy.

Once again, we call on the government to be more focused in ensuring the fuel subsidy reaches its intended recipients and maintains its volume so as to avoid the massive migration of car owners to motorcycles, which are allowed to continue using subsidized premium.

It is expected that the effort to limit subsidized fuel consumption can be done fairly by providing rational options to the public.

The key for its succesful implementation lies in the consistency of policy, which involves interdepartmental coordination, emphasizing justice and prosperity and the employment of strict monitoring in order to prevent any negative impacts.

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