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his is a comment on “Power price hike must take place soon: Finance Minister, (The Jakarta Post, Feb. 3).

The fact that government of Indonesia subsidizes a full one-third of the price of electricity in the country is absolutely ridiculous. The subsidy regime providing blanket subsidies for all electricity users, regardless of income or usage, is in serious need of a re-think.

The public is up in arms when lawmakers splurge for Rp 20 billion (US$2.2 million) for renovations to the Budget Committee’s meeting room, and rightly so, but where is the sense of outrage when Rp 40 trillion of taxpayer’s money is being used to subsidize the wealthy electricity user’s bills?

The solution is quite simple — raise prices for those who can afford it, provide cash disbursements/vouchers to help those who can’t, and ensure that any price hikes are kept in line with the country’s overall investment strategy so as not to give foreign factories yet another reason to consider relocation.

Guarantees on perpetually high energy prices provided by this subsidy program, on the other hand, provides power providers such as PLN immunity from basic market pressures that would otherwise force them to provide the best possible product — high quality and reliable service at a low cost. In the absence of market pressures (including competition and cost variability) PLN lacks concrete incentives to find serious cost-saving measures, such as the development of cheap, alternative fuels.

This isn’t rocket science. It is basic market economics and fairly simple arithmetic at that. You can’t perpetually sell a product for cheaper than it costs you to make it, and expect to be in business long. These subsidies, like the fuel subsidies, are a double-edged sword. They not only incur immediate costs, placing a burden on the country’s budget, but the opportunity costs of these subsidies are massive as well.

Investing this money in other areas, such as infrastructure development, public health, and education would guarantee long-term gains, and secure Indonesia’s economic prospects for generations to come.

Or, the government can continue to shirk its responsibility to provide sound policy guidance, and provide everyone with a cheaper hour of electricity or liter of gasoline for the next few years. Let’s all hope those in the cabinet and the DPR make the right choice.

Justin Snyder
Jakarta