Change needed in distribution of subsidy
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National Development Planning Board (Bappenas) head Armida Alisjahbana said that policymakers need to develop better concepts to manage the fuel subsidy, which at present mostly benefits the rich rather than the poor.
Armida said that the subsidy was still needed to help the poor but it should be properly managed so that it reached the right target. “At present, our subsidy distribution is distributed through an ‘across the board’ principle. The effectiveness of this kind of distribution needs to be reevaluated,” she told reporters here Tuesday.
Armida said that Indonesia could use Iran as a good example of targeted subsidy distribution. “For example, Iran uses direct cash transfers for people who are listed as eligible subsidy recipients,” she said.
According to her, Bappenas had been preparing a number of systems to make subsidy distribution more targeted. “This needs to be discussed further and room for discourse and analysis must be opened,” she said.
“For example, people must have options when it comes to the energy subsidy. If a person does not want to use Pertamax [non-subsidized fuel] because it is too expensive, then the government needs to provide gas as an alternative energy source or subsidized public transportation,” she added.
Energy subsidies have severely constrained Indonesia’s state spending in the last few years due to the government’s reluctance and incapability to properly manage the distribution of electric subsidy and subsidized-fuel.
This year’s fuel subsidy allocation might exceed its original quota of 40 million kiloliters.
The government managed to secure approval from the House of Representatives to add 4 million kiloliters to this year’s quota due to the excessive consumption of subsidized fuel.
The approval came with several requirements that mandated the government to improve its management and monitoring of subsidized-fuel distribution.
House lawmakers said that the government must take stiffer measures to prevent fuel hoarding, based on reports from the downstream oil and gas regulator BPH Migas on the prevalence of hoarding in regions such as Palembang in South Sumatra; Batam, Riau Islands; East Kalimantan; and Surabaya, East Java.
As fuel prices in Indonesia are far cheaper than in neighboring countries, smugglers have made brisk business in illicit cross-border sales.
Subsidized-fuel smuggling on a massive scale has made it difficult for the government to reduce its energy subsidy.
In the 2013 state budget bill, energy subsidies stand at Rp 274.74 trillion (US$28.85 billion). This figure outweighs the government’s planned allocation for infrastructure spending, which only stands at only Rp 200 trillion.
The energy subsidy for 2013 could swell further if the government fails to secure official approval from the House to cut electric subsidies by raising electricity prices by 15 percent by the end of 2013. The administration received preliminary approval, but it needs final approval from a House plenary session to put its plans into action.
— JP/Hans David Tampubolon