Subsidy squabbles derided

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The government and lawmakers must stop their personal political interests from driving the nation’s fuel subsidy policy for the sake of a sustainable state budget, experts have agreed.

The current policy on fuel subsidies was placing the fiscal health of the nation in jeopardy, as it leaves no flexibility to adjust subsidized fuel prices, Fabby Tumiwa, an energy expert from the Institute for Essential Services Reform, said in Jakarta on Thursday.

“The best way to reduce fuel subsidy pressure on the state budget is by opening a space for the government to raise subsidized fuel prices,” Fabby told The Jakarta Post.

Fabby also had a caveat. “Raising subsidized fuel prices has always been difficult, due to the House of Representatives’ reluctance to approve the government’s plans. The House always cites the ‘welfare of the common person’ when it rejects the idea of raising subsidized-fuel price rates.”

The House’s rationale for rejecting fuel price hikes was “unreasonable”, according to Fabby.

“The lower segment of the economy uses public transportation, not private vehicles [....] The best policy on fuel subsidies is to provide subsidies only for public transportation vehicles, not for private cars. By doing this, the subsidy would be better targeted at those who deserve it,” Fabby said.

Under the 2012 revised state budget, the government can only adjust the subsidized fuel price if the average Indonesian Crude Price (ICP) deviates by at least 15 percent from an assumption of US$105 a barrel over a six-month period.

The ICP stood at $111.72 per barrel in August, while the average ICP for the six month period from March to August was $115.11 per barrel.

The average ICP would have had to have been at least $120.75 for the government to raise the price of subsidized fuel according to a deal reached with lawmakers in March.

The government’s inability to adjust subsidized fuel prices, coupled with excessive consumption driven by the nation’s growing economy, has put further pressure on the budget.

Finance Minister Agus Martowardojo previously predicted that a significant gap between the price of subsidized and non-subsidized fuel might cause subsidized fuel use to exceed the 40-million kiloliter cap imposed by the revised state budget.

The price of subsidized fuel price stands at Rp 4,500 (46 US cents) a liter, while non-subsidized fuel sells for Rp 9,850. Poor regulation means that wealthier motorists can buy subsidized fuel intended for poorer people.

Agus’ prediction came true as the interim head of the Finance Ministry’s fiscal agency, Bambang Brodjonegoro, recently said that the government planned to boost subsidized-fuel allocation by 4 million kiloliters at the cost of an additional Rp 12 trillion.

Coordinating Economic Minister Hatta Rajasa said on Thursday that the government might have to ask lawmakers to increase the subsidized fuel allocation.

Hatta also called on all stakeholders to better manage subsidize fuel distribution, which lawmakers previously said would be a condition for increasing the allocation.

The extra fuel might not be enough, even if the House approves the additional allocation, according to University of Indonesia energy expert Kurtubi, who said that additional 8 million kiloliters might be needed by the end of the year.

Kurtubi said that the government had continuously missed its subsidy targets due to poor initial planning, calling the 2012 target “unrealistic”, as it was lower than the actual realization in 2011 of 41 million kiloliters.

Agus himself had previously estimated that subsidized fuel consumption might top 47 million kiloliters by the end of 2012.