The government should not enforce its plan to limit subsidized fuel consumption by early 2011 unless they give a crystal clear explanation to the public about the policy to avoid social and economic disorder.
There have been fears that the motive of distraction was behind the government’s will to cut its subsidy budget.
There are three options for the government to revise the subsidized fuel policy.
First, the government has to ensure the subsidy goes to the eligible recipients.
Second, the government needs to make sure the money that is saved as a result of the policy change is used for something useful for the people.
Third, the government must guarantee supply of subsidized premium gasoline, non-subsidized premium and non-subsidized Ron 92 Pertamax.
The working meeting of Commission VII at the House of Representatives along with the coordinating minister for the economy and the minister of energy and mineral resources on Dec. 13 approved the government’s proposal to control the distribution of subsidized fuels, especially premium and diesel.
After a tough meeting lasting 14 hours, which was interrupted by three suspensions, the government’s stance finally softened. It would be too naive for the government to stick to its plan to enforce the policy in January 2011. The program to limit fuel consumption would take effect gradually from the end of the first quarter of 2011.
Commission VII has underlined that the program to limit subsidized fuel consumption cannot be imposed hastily early next year without a comprehensive and independent study. This would give a chance for the government to design a mature policy comprising a strategy to minimize social and political risks.
The decision to delay the policy until the end of the first quarter of 2011 will also give the public time to come to terms with it and prepare for it.
It is important to highlight the many glitches that occur in the distribution of subsidized fuels, particularly the fact that the fuels often do not reach the eligible people. Besides, the fuel subsidy, which reached Rp 88.9 trillion in the Revised State Budget (APBN-P) 2010 and increased to Rp 95.5 trillion in the State Budget 2011, serves as a strong argument for the government to limit subsidized fuel consumption.
Indeed, premium and diesel fuel consumption is high despite their limited supply in the market. The government assumed that a reduction of 1 million kiloliters of premium would save Rp 1.7 trillion and 1 million kiloliters of diesel oil would save Rp 2.17 trillion. The government has set a target of saving Rp 13.62 trillion from fuel subsidies in 2012, or equivalent to 6.81 million kiloliters of fuel, and Rp 20.76 trillion in 2013, which equals 10.38 million kiloliters of fuel.
Critics have said that the fuel subsidy will always spark complicated problems as it is often decided in the absence of a national agreement under a long-term policy basis. The long-term development plan (RPJP) as well as the medium-term development plan (RPJM) as the road map for the nation’s energy sufficiency has in fact been reduced to a five-yearly program that follows the government’s paradigm but without any assurance of continuity.
There is only a partial solution to the problem, while fuel issues must be handled in an integrated way. The national consensus is important here. If necessary we need a legal umbrella in the form of a law, instead of a presidential decree.
Based on government data, consumption of the three subsidized fuels as of October 2010 reached 31.6 million kiloliters, or 86.9 percent of the quota set in the Financial Memorandum of Revised State Budget 2010, which stood at 36.5 million kiloliters.
Premium gasoline consumption reached 18.9 million kiloliters or 88.57 percent of its quota of 21.4 million kiloliters. Distribution of diesel fuel reached 10.6 million kiloliters or 95.3 percent of 11.2 million kiloliter quota. While for kerosene oil, consumption amounted to 2 million kiloliters or 52.8 percent of its quota of 3.8 million kiloliters.
The House had previously agreed to increase the volume of subsidized fuels by 1.874 million kiloliters by the end of the year to 38.3 million kiloliters, up from 36.5 million kiloliters set in the APBN-P 2010.
The extra volume of 1.874 kiloliters is a consequence of the government’s mis-assumption on the increasing number of motorized vehicles, especially motorcycles. The additional volume comprises 1,675,769 kiloliters of premium gasoline, 1,410,235 kiloliters of kerosene and 1,609,188 kiloliters of diesel fuel and biodiesel.
The extra volume of subsidized fuels was approved on the condition that it would not affect the existing fiscal policy.
Basically, the additional volume would be based on the Indonesian Crude Price (ICP). If the ICP declined, then the quota of subsidized fuels would increase.
An extra 1.874 million kiloliters is worth Rp 81.1 trillion, which is still below the amount agreed in the APBN-P 2010 and therefore will not see the ceiling for the fuel subsidy met, which for 2010 which was set at Rp 88.9 trillion.
The writer is a member of House of Representatives Commission VII and the Golkar Party’s budget committee.
