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Your letters: On the plan for cutting fuel subsidies
More fuel: A worker fills with diesel fuel a container owned by a fisherman at a movable diesel fuel station in Tanjung Pasir, Tangerang, Banten
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span class="inline inline-center">More fuel: A worker fills with diesel fuel a container owned by a fisherman at a movable diesel fuel station in Tanjung Pasir, Tangerang, Banten. State-owned oil and gas company PT Pertamina is set to deploy more such movable stations to enable fishermen to get fuel, in order to prevent panic-buying resulting from the government plan to cut fuel subsidies. Antara/Rivan Awal Lingga
The two letters below refer to article, 'I am ready to be unpopular: Jokowi,' (The Jakarta Post, Nov. 7).
I think when the government-allocated funds for the fuel subsidies were budgeted oil was approximately US$110 per barrel. Now it stands at just under $76 per barrel.
That's a difference of almost $35 per barrel, which means the government will have more funds available in its 2014 budget that could be diverted to other areas-of-need to close the gap significantly between the real price of gasoline and the artificial one set by the government.
This is true even taking into consideration the drop in the value of the rupiah.
President Joko 'Jokowi' Widodo should use this window of opportunity to strengthen the rupiah by improving investment opportunities for foreign entities with a pro-business environment that in turn creates more employment and better paying jobs.
Also, if he is serious about cutting subsidies, then he should scale down Indonesia's military by creating a more efficient and smaller fighting force to protect the nation. The large numbers of military installations in places like Jakarta are a waste of money and manpower.
The fuel subsidy works like a government stimulus package to help the economy get going when it's depressed.
Jokowi wants to rid the Indonesian economy of this burden at a time when he has proposed massive plans for the country that will likely subject citizens to more taxes and fewer services for years to come.
As those who took Economics 101 well know, there is no such thing as a free lunch and therefore at some point government fuel subsidies should end.
The point is: why does it have to happen now when the price of oil is lowering dramatically, since this measure is
very unpopular across a broad spectrum of the Indonesian
population?
Jokowi left some grand projects unfinished in Jakarta, such as the monorail, so perhaps he should concentrate his time and effort on areas where he can be successful before venturing into waters where he is rudderless.
Dick Tracy
Jakarta
It is true to say that the cost of crude oil is the major input cost for refiners.
However, the relationship between such a cost and the final price for a petroleum product such as petrol or diesel is not as direct as one would think.
Hence, the spot prices shall be taken for indicative purposes only. The current spot price for West Texas Intermediate (WTI) is around US$79 and Brent / Light Sweet is $84 a barrel.
Indonesian Crude, as categorized by state-owned oil and gas company PT Pertamina, is of higher quality and sold at higher prices than Light Sweet but is not available on the spot market. The spot price will take effect in one month at the earliest.
Now we look to the current market. Assuming the market price is $84 per barrel (159 liters), it is $0.53 (Rp 6,450) per liter of crude oil, spot on trader's port.
Estimating the various costs of freight, fractionation, hydrocracking, distribution, conversion loss and others, we come to around $0.94 per liter of gasoline.
If Indonesia doesn't want to subsidize the price, gas prices would be around Rp 11.150 per liter.
Star-grade gas will be around $0.40 higher at around $4.50 to $5.00 per gallon (3.8 liters).
Now the question is, how come when WTI was $105 per barrel, Indonesian gas prices were less than $0.50 per liter?
I don't want to answer the question outright, but we can see the terrible effects now. The current fiscal year deficit is $20 billion. Indonesia is heading closer to bankruptcy, with the trade deficit at over $2 billion.
Further, facts show us that people from remote areas have been paying Rp 8,000 to Rp 10.000 per liter due to a homespun scheme of fuel distribution, while in the big cities fuel is provided at a much lower (Rp 6,500) price.
Let's be sensible and see that the fuel-price component contributes only a small fraction to the total cost, so we can predict that the unavoidable inflation is well under control.
On the other hand, the government can control some amount of money, enough to stimulate the infrastructure and maritime axis development.
Fussion B
Jakarta
