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Editorial: Withering energy policy
After months of thorough studies on several alternative measures to reduce fuel subsidies, the government again decided to indefinitely postpone its plan to limit the distribution of subsidized fuels due to what it sees as its technical unfeasibility
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fter months of thorough studies on several alternative measures to reduce fuel subsidies, the government again decided to indefinitely postpone its plan to limit the distribution of subsidized fuels due to what it sees as its technical unfeasibility.
The government had, over the past few months, mulled over several plans on how to reduce subsidies, not through price increases, which are seen as politically unfeasible, but by way of reducing the use of subsidized fuels.
The government revisited several ideas already studied in early 2008 when international oil prices rose to over US$100/barrel, such as limiting the access of private passenger cars to subsidized fuel through smart cards. But amid the vociferous debate about how to reduce fossil fuel use, efficiency and conservation have taken a back seat to politics.
The weak government and the narrow-minded House of Representatives did not have the political courage to bite the bullet.
Now, the government apparently no longer sees any urgency to cut fuel subsidies because international oil prices have, by and large, been on a par and sometimes lower than the average level the government has assumed for estimating the fuel subsidies for this year.
The misguided government thinks that because the budget allocation for fuel subsidies is still adequate, there is now no point in reducing the use of subsidized fuel. The government and the House still do not get it that the fuel subsidy is not only an issue of budget appropriation.
Nor do they realize the huge subsidy ($16 billion for this year alone) is a wasteful expenditure, a gross misallocation of scarce resources and future tax, and a burden on the economy. It is also a gross injustice because the bulk of the subsidy has been enjoyed by private car owners.
And given our vast, porous coastal areas, the wide fuel-price differences with our neighboring countries such as Singapore and Malaysia, which are only 30 minutes away by boat, are highly vulnerable to abuse by smugglers.
We are suspicious that the larger-than-estimated consumption of subsidized fuels is being caused not only by the large increase in new car sales but is also due to fuel smuggling.
The latest cancellation of a sound energy policy simply throws any incentive for energy conservation and efficiency out of the window, putting future investment in renewable energy such as biofuel in limbo.
Further down the line, it also means planting a fiscal “time bomb” which may explode any time international prices rise drastically, because the state budget remains held hostage by the fuel subsidies.
Since the House will most likely reject the government proposal to cut electricity subsidies by 15 percent, phased in over the next four years, total energy subsidies, which will be wasted and burned into carbon dioxide on the streets, will be much larger than the combined capital spending on education, health and badly needed infrastructure.
As long as the government and parliament are not united in their aims and do not have the political will to gradually phase out energy subsidies, the state budget will never be able to allocate a sizeable sum for investment in such key sectors as education, health and infrastructure.
The blunt fact, as Finance Minister Agus Martowardojo warned Tuesday, energy subsidies and interest payments alone would take up 30 percent of the state budget and the bulk of the remaining 70 percent would go to personnel costs and transfers to regional administrations, leaving less than 10 percent for investment.
