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Editorial: Fuel chaos in waiting
We should commend the government for its courage to revive a plan to start cutting down wasteful spending on fuel subsidies next month
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e should commend the government for its courage to revive a plan to start cutting down wasteful spending on fuel subsidies next month. But alas, four weeks into the scheduled execution of such an important program that will affect tens of millions of people, the government has yet to decide on a scheme and propose it to the House of Representatives.
The government last July formed a plan to prohibit all private cars manufactured in 2005 and thereafter from using subsidized fuel, but then abandoned it even before its technical details had been prepared for trial implementation.
Then, Coordinating Economic Minister Hatta Rajasa last month announced the revival of the July plan and even supplemented it with a much bolder scheme to slap a blanket ban on all private cars to use subsidized fuel.
But either one of the two proposed measures could cause chaos in fuel distribution across the country, unnecessarily setting off price spirals.
The core problem: How can thousands of gasoline stations across the country be prepared to execute either one of the programs within the next four weeks -- without knowing the technical details? There is already great uncertainty in the run up to the Jan. 1 launch of the program, setting off hoarding and excessive buying.
We simply cannot understand why the government is so careless and ignorant regarding the vital importance of technical details, adequate ground preparations and public-opinion preconditioning for such a big program that will affect tens of millions of consumers.
The government has been fully aware of the economic rationale of the long overdue program to stop wasting taxpayers’ money on subsidizing fuel for private car owners. These huge subsidies not only blur price signals, distort the consumption and investment decisions on alternative energy, they also increase the vulnerability of the state budget to oil-price volatility, encourage inefficient energy consumption and reduce incentives for energy conservation.
Hatta said if subsidized fuel sales to private cars were not restricted starting January, spending on fuel subsidies could reach up to Rp 97 trillion (US$10.7 billion) with a volume of almost 42 million kiloliters (kl) next year, up from 38 million kl as set in the state budget. The consumption of subsidized fuel this year is also estimated at 38.7 million kl, up from the original appropriation of 36.5 million kl.
The government seemed hesitant to acknowledge that the steep increase in the use of subsidized fuel has been mainly caused by export smuggling, not by higher demand.
When our domestic fuel prices remain twice as cheap as those in Singapore or Malaysia, which are only 20 minutes by boat, the profit margin is too large as not to lure the contraband trade. It is also technically unfeasible and humanly impossible for the understaffed and underequipped Navy and port authorities to prevent fuel export smuggling in view of our vast, porous coastal areas.
Taking into account the institutional capacity of state-owned Pertamina oil company to manage fuel sales under such a two-tier price scheme, we are in favor of the second measure, which will impose a blanket ban of subsidized fuel on all private cars, but with adequate technical, ground preparations.
Of more importance, though, is to execute the program gradually, starting in Jakarta and then extending to its surrounding cities, hence providing ample opportunity for consumers and gas stations in other areas and islands to adjust to the new system.
