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Unraveling the untamed tangle of fuel issues
Fuel subsidies and management pose a two-pronged challenge for the government to solve in light of ever-increasing domestic demand, declining supplies and ongoing global uncertainty.
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Subsidy addicts: Motorists line up for subsidized RON-90 Pertalite fuel at a gas station in Bogor city, West Java on Aug. 9. The government has begun discussions on whether to increase the price of Pertalite soon. (Antara/Arif Firmansyah)
T
he geopolitical crisis resulting from the protracted Russia-Ukraine war has triggered a steep rise in global energy prices, including the price of crude oil. Indonesia, an oil net importer, has felt the pinch of soaring crude oil prices. Its fuel subsidy, budgeted at Rp 207 trillion (US$14 billion) for this year, is projected to swell to Rp 502 trillion.
President Joko “Jokowi” Widodo has said that the fuel subsidy is important to maintain purchasing power and to suppress inflation. The policy on maintaining subsidized fuel oil is considered appropriate as a short-term solution. Moreover, President Jokowi said that the budget had recorded a surplus Rp 106 trillion as of mid-2022.
Inflation has been kept in check at 4.9 percent, while the ASEAN rate averages 7 percent and in developed countries, 9 percent.
In the midst of the threat of a global recession, Indonesia's economic fundamentals look solid, recording economic growth of 5.44 percent and a trade surplus for 27 consecutive months.
Increasing the 2022 fuel subsidy allocation by more than 20 percent will certainly burden state finances. Moreover, the budget surplus was largely supported by commodity exports, which are also highly dependent on the volatility of commodity prices in the global market.
Considering the dynamics of the global economy, which is difficult to predict, it is not certain that the budget surplus from the commodity windfall will be sustained.
Until last month, consumption of Pertamina’s subsidized RON-90 Pertalite fuel, a special assignment fuel type (JBKP), had reached 16.8 million kiloliters (kl). This means that a supply of only 6.2 million kl of Pertalite is left until the end of this year. Meanwhile, consumption of subsidized diesel fuel as a certain fuel type (JBT) had reached 9.9 million kl out of a quota of 14.91 million kl allotted for this year.
