Commentary: Indonesia, a nation in a constant state of denial

Endy M. Bayuni ,  Jakarta   |  Mon, 06/23/2008 10:35 AM  |  Headlines

Few people saw the irony when President Susilo Bambang Yudhoyono this month told giant oil companies operating in Indonesia "to share the pain" and divide some of their recent windfall profits with the country, which has been struggling with soaring world oil prices.

With prices in world markets reaching US$130 a barrel and counting, it is easy to assume that these foreign companies that operate most of Indonesia's big oil fields are flush with unexpectedly huge profits. One does not need to be a math genius to see just how much money is being reaped if the average production cost for extracting a barrel of oil in Indonesia, according to one industry estimate, is at between $6 and $7 a barrel.

What the President did not say, and what the media reporting on his meeting with foreign oil executives failed to point out, is that it is not the oil companies alone that are reaping huge profits from the dramatic increase in oil prices from $80 a barrel just a year ago.

With an average 85:15 split on oil produced in Indonesia in favor of the government, the biggest beneficiary of the present situation in world oil markets is our own government. One estimate puts the government's daily share of the Indonesian oil output at around 600,000 barrels a day, after paying the oil contractors their share of the profit and recoverable production costs.

While President Yudhoyono was within his rights in asking the oil companies to share the burden of the country in dealing with higher oil prices, the unanswered question is what his government has done with its own share of the oil windfall, which is large by any measure.

The answer is simple: they have been squandering it, or more precisely, they have been burning the oil money like there is no tomorrow. Most if not all of the oil money, even after last month's 30 percent average increase in gasoline prices, has gone up in smoke, in the form of subsidies on gasoline prices.

The chief beneficiary remains the wealthy middle class, people who drive their own cars and people who light up their houses as much as they can. They get the lion's share of the money. The poorest of the poor only now are getting some of that money after the government introduced a direct cash assistance program to help cushion them from the increase in gasoline prices. The smugglers, the hoarders and the thieves who cash in on the huge margin between domestic and international prices are also on the take, but theirs is another story.

The rest of us get a little share of the oil windfall here and there.

With oil prices unlikely to ease in the near future (some even now predict they will go past the $200 a barrel mark by the end of this year), the government is still looking at paying around Rp 200 trillion ($22 billion) in fuel subsidies for the 2008 fiscal year.

It is safe to assume that there won't be any further increases in gasoline prices, no matter what happens to prices in world oil markets, given that the country (or rather President Yudhoyono) is facing an election year in 2009. Going by his administration's thinking, the government is prepared to sacrifice other spending, including on education, health and defense, as well as on badly needed economic infrastructure, to keep gasoline prices at their present levels.

In fact public sentiment won't have it any other way. Just look at the student demonstrations, statements from politicians of all colors as well as editorials and press commentaries. Everyone seems to agree that Indonesia cannot afford to increase domestic fuel prices again.

While we are admittedly flush with oil money, we seem to be burning it as fast as possible, which explains why we never seem to see the money in the first place.

What the nation seems to have forgotten completely (or some of us conveniently choose to forget) is that technically, every drop of oil we produce is actually burned here, and much more. Indonesia has been a net oil importer (meaning that we import more than we export) for some years now thanks to a combination of rising domestic production and declining output.

Yet, we have continued to behave like it was still the 1970s, when we were still exporting a reasonable amount of crude oil, so much so that we were an important member of the Organization of Petroleum Exporting Countries (OPEC) and even at times chaired the oil cartel. The fact that we remain a member of OPEC today (the government is only considering quitting the organization) actually speaks volumes of our ambivalent attitude toward the current state of affairs when it comes to soaring oil prices.

This is a nation that seems to be in a constant state of denial; a nation that continues to live in its past while at the same time squandering its future; a nation that seems unwilling to confront the truth and unwilling to change to the new realities.

As we gear up for a presidential election next year, no one in the political elite is heard to be advocating another increase in gasoline prices. Not the politicians, not the bureaucracy, not the academics, not the media, not the NGOs and not the students.

The question is not so much how long can we keep this game up, as how high must oil prices go before we wake up to reality. Is it $150 a barrel, $200 a barrel? I hesitate to guess.

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