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Analysis: Government stuck with costly and ineffective household gas subsidy
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Investment Coordinating Board (BKPM) head Bahlil Lahadalia. (JP/Donny Fernando)
A
nother government drive for financial efficiency has been shot down following a public outcry against restrictions on the sales of subsidized household gas introduced on Feb. 1. The new policy quickly gathered heat, with long lines of angry people around the country trying to buy 3-kilogram canisters of LPG and amid harsh criticism going viral on social media.
President Prabowo Subianto, who marked his first 100 days in office on Jan. 28, reversed the policy.
The restrictions were imposed to ensure that the subsidized fuel only goes to the poor. Much of the subsidized fuel, which this year was budgeted at Rp 87 trillion (US$5.4 billion), has gone to people ineligible for it. The inability to control the sales of 3 kg canisters, which had been freely available in the market threatened to overwhelm the gas subsidy.
The price differential, hence the subsidy, is so large as to make it irresistible for many to pass it up. The 3 kg canister sells for Rp 22,000 while the real cost is put at Rp 52,000. State oil and gas company Pertamina introduced the 3 kg canister in 2007 targeting the poor while encouraging them to switch away from kerosene. Everyone else is supposed to buy the unsubsidized 15 kg canisters.
Energy and Mineral Resources Minister Bahlil Lahadalia, who is the target of much of the public wrath, said that because of the unrestricted sales, up to 40 percent of the gas subsidy money “leaked”, meaning that the gas canisters were bought by people who were not poor. He may be understating the problem since Finance Minister Sri Mulyani Indrawati had cited a figure of 68 percent.
The government this year is budgeting a whopping Rp 203 trillion for subsidies on fuel, LPG and electricity. Similar to LPG, much of the fuel subsidies also miss their target, going mostly to people who are ineligible.
Successive governments have struggled to cut the size of the energy subsidy, each time meeting a huge push back from the lower middle class, which makes up a sizeable proportion of the 280 million population. Their sheer size means they are political group that no government can afford to upset.
