K

udos to the government for ending the subsidy on Premium, the most widely used gasoline in the country, while simultaneously lowering its retail price because of the recent massive plunge in global oil prices.

To most people, the cut in the Premium price to Rp 7,600 (US 0.63 cents) from Rp 8,500 a liter was a New Year'€™s gift from President Joko '€œJokowi'€ Widodo. In the announcement before the turn of the year, the government also cut the prices of diesel and kerosene but still kept them subsidized as they are widely used by the poor and fishermen.

More significant about the announcement but somewhat little appreciated is the government'€™s new fuel strategy to completely end the sale of Premium in two years time and replace it with a relatively cleaner but more expensive type of gasoline.

If Jokowi can pull it off, he will go down as the president who ended the oil curse that has spellbound the nation for decades even after the country stopped exporting oil and began relying on imports for its ever-growing oil needs at the turn of the century.

Premium defies its name for it is a fuel with Research Octane Number (RON) 88, a low-grade gasoline, which most countries have long stopped selling because it is dirty, with hazardous effects on health, the environment and even a vehicle'€™s engine. Most other countries in the world have already moved on to higher-grade gasoline.

Indonesia has been slow in upgrading its gasoline because the country remains under the spell of the oil curse, with successive governments and politicians insisting that fuel, particularly gasoline for motorists, should be kept cheap for everyone, almost at any cost.

In 2014, this cheap-and-dirty fuel policy presented the government with a subsidy bill of Rp 330 trillion, or 17 percent of total state spending. That is money that incoming President Jokowi in October felt could be better spent on his social programs and on building badly needed infrastructure.

A month after taking office, Jokowi raised the price of Premium from Rp 6,500 to Rp 8,500 a liter in the hope of slashing the fuel subsidy bill and giving him some fiscal breathing space. As it turns out, global oil prices slid from a high of $115 a barrel in June to around $60 at the close of the year, giving Jokowi ample room to completely remove the subsidy on Premium and still cut its retail price beginning in the New Year.

As a result, the fuel subsidy for 2015 has now been set at Rp 60 trillion, down from an early estimate of Rp 276 trillion.

In the 1980s and 1990s, such a sharp drop in world oil prices would have left the economy reeling because Indonesia was heavily dependent on oil both for exports and government revenues, sometimes by as much as 70 percent. Then president Soeharto would have immediately ordered a roll-back in government spending and other belt-tightening measures.

This time, Indonesia has become the beneficiary of lower world oil prices, while countries '€œcursed'€ with large oil and gas resources like Saudi Arabia, Venezuela and even newcomer Malaysia are feeling the pinch.

Indonesia has come a long way with its economy and the government is no longer dependent so much on oil income. But we are not there yet. The oil curse will remain with us as long as politicians keep touting the cheap-fuel policy to the nation.

This is where President Jokowi comes in. His job is to lift the oil curse once and for all, and with it, the cheap-and-dirty fuel policy. He should take advantage of the low global oil prices to plan a better, cleaner and a much more efficient energy strategy.

The current plan is to remove RON 88 Premium gasoline and replace it entirely with RON 92 gasoline, which retails under the name of Pertamax at Pertamina'€™s outlets and '€œSuper'€ in other gas stations. Pertamina, the state oil company, has two years to build or upgrade its refineries for this purpose. In the meantime, the Premium retail price will be reviewed each month taking into account changes in the world market levels.

Jokowi could and should go one step further than the policy announced last week.

The government should already be thinking of moving higher to RON 95 gasoline, which is even cleaner, friendlier to the environment and to engines, and is now used worldwide.

The message of the new energy policy should be clear: Fuel is not cheap, and motorists must be prepared to pay the real market price and then some.

Many motorists, including two-wheelers, have already switched to the unsubsidized Pertamax or Super when the price differential with Premium became sufficiently insignificant for them to move to the higher, cleaner and more efficient gasoline. More and more motorists not only accepted the new higher price when it was announced in November; they have also learned of the economic gains of moving to higher and more expensive gasoline.

Instead of lowering the Premium price further when the opportunity presents again (with predictions that oil prices could plunge further to $50 a barrel this year), the government should be taxing gasoline, not only to earn revenue, but more importantly to help promote alternative sources of energy.

The end of the cheap-and-dirty fuel policy should be seen as part of the nation'€™s overall energy security strategy, and that includes promoting and developing alternative energy sources for transportation like gas and biofuels.