Letter: Subsidies

Current issues bring out how the government of Indonesia is facing huge subsidy arrears, or what you can term a shortfall in revenues, in the power sector — a deficit of Rp 90 trillion (some US$ 10 billion). Coming from India, this does not stagger me at all.

The only difference is that the deficits are scattered in so many budgets of all state governments. A subsidy per se is governed by so many considerations. It could be given to encourage exports or keep prices of essential commodities low or to encourage a particular industry or activity to succeed.

The subsidies on the power and fuel sectors, which are closely interlinked (this has been mentioned in the write up too) have a direct bearing on prices of essential commodities and the cost of living for the poor. Often power supply to the poor or farmers is subsidized.

We have in our country many such variations, such as a lower tariff where the consumption is below a certain level. This presumes that the poor would be figuring in this list as they hardly use much power. Or pumping sets drawing certain level of electricity could be exempted in farms and so on.

Much as we would like to do it properly, there are so many pitfalls in actual practice. More often than not, the facility is misused. Like rural connections could be used for non-agricultural purposes such as appliances. When the power utility finds it difficult to discriminate, for various reasons, it may make the subsidy applicable across the board.

Vote bank politics is an inherent weakness of the democratic system. In this manner, targeting subsidies becomes a critical issue. If the wrong class of people is going to benefit, it only makes the rich, richer.

The continued deficits in recoveries by the utilities results in running up huge losses in their books that are periodically written off by governments. Management is becoming somewhat defeatist: A kind of “we will never improve” syndrome creeps in, which makes the organization more inefficient.

A sense of apathy, or resignation, pervades the entire management, including the political leadership.  Money is not available for proper maintenance of the system, renewals and expansion plans. It is like a tunnel with no light at the end. The morale boosting has to come from the political leadership who should take pride in running a cheap and efficient public utility, not dispirited wallowing in self-pity or self-condemnation.

Since your economic situation is comparatively more stable and considering the fact that you have a presidential form of the government, maybe SBY could take the plunge as he did when he boldly enhanced the prices of petroleum products more than once in his tenure.

Similarly, an attempt can be made to at least cross-subsidize the poorer sections with a differential tariff where consumption is higher. This should focus on the household sector, only so that neither commerce nor industry is affected where the costs would be passed on. Delay in making such decisions will result in snow balling the arrears, making it an impossible situation for a successor government.
M Seetharam
Kuta, Bali