THE IMPLICATIONS OF CONTROLING SUBSIDIZED OIL

The case of subsidized oil brought head ache to the Government. Since the era of reformation the case had been the subject of debate, but always stuck on a dead end.  The excess among the public was always negative. Now again the Government had to face the same dilemma, as energy subsidy including oil was predicted to exceed Rp300 trillion.

               

Assuming that the APBN State Budget was Rp1, 600 trillion, it means that the subsidy value constituted 19% of total APBN, indeed an enormously high figure, quite close to the portion for education which was 20% as guided by the Constitution.

               

Energy subsidy, especially for oil had been constantly soaring up in the past few years which heavily burdened APBN. In 2009 it was only Rp45.04 trillion, the next year it almost doubled to Rp82.35 trillion, in 2011 going up to Rp168 trillion and last year Rp 222, 8 trillion. Without control, this year it was predicted to reach Rp320 trillion.

               

The Government felt the heavy burden of subsidy since 2 years ago. Various ways to control subsidy had been part of discourse from sticker pasting on private and official cars to conversion to gas, and even IT application; all ending up as discourse.

               

At the time there were already recommendation to increase price of subsidized oil, but was not responded positively as it was rated as unpopular act. The Government, especially the President still felt it necessary to safeguard his image. Besides there was a traumatic experience when the proposition to increase oil price was rejected by the Parliament. In the end the intention was never realized.

               

The restriction of oil consumption for Government official cars and BUMN showed no notable impact. The subsidy figure kept swelling up to fearful level; moreover the problems were getting mote complex than ever. Now the threat of high inflation and deficit in Trade Balance loomed.

               

Many circles believed the Government was too much indulged in discourses, not knowing how time flies. The right momentum was wasted. Now the situation had arrived at crucial stage. Many circles urged the President to make a sound decision in trying to reduce subsidy for oil. So far oil subsidy had been enjoyed by those who did not deserve it.

               

The Minister of Industry MS Hidayat who was in fact the President’s assistant urged the President to have the courage to take risk to increase oil price. The President must be ready to be unpopular, or even be opposed. Price increase of oil must be combined with other policies to make it more effective. This times no more hesitation.

               

It was noteworthy that the low income group did not agree to Government’s plan in increase oil price and substituted it with direct cash aid [BLT] to the poor people. The reason was that BLT could not be benefited by poor people who were not registered as poor people.

               

Not ignorable were the number of people who were not in the BLT list. That was on of the reasons they objected the Government’s plan to increase oil price and distribute Rp300 thousand per month as compensation. They argued that prices of all essential need would increase to adjust to oil price increase. Hence the BLT money that they received would not be of much help. For that matter again the Government must be able to convince the people that to increase oil price was the best option to take.

               

Today the discourse of increasing oil price was one of the probable options to be taken by the Government in line with the swelling subsidy amount which inflated deficit of APBN budget. Complementary to the plan, there was another plan very much like BLT under the name of BLSM worth Rp25.56 trillion.

               

In this case on behalf of the Government the Minister of Energy and Mineral Resources [ESDM] Jerro Wacik underscored there were many options for controlling subsidized oil. The control over oil consumption to minimize energy subsidy needed around Rp 300 trillion. If the option taken was by increasing price of oil, poverty would increase. For that matter the policy should be designed not to increase poverty significantly. Politically, this was a disadvantage to the Government.

               

President SBY stated that if oil price had to be increased, it should be complemented with a compensation plan to help the poor. The compensation plan was being discussed, but it should be basically aimed at the right target.

               

As the matter was sensitive, all circles outside the Government were asked not to suspect that if the Government exercised the BLT plan they would accuse the Government as building image toward the 2014 election.

               

Therefore to minimize the political side effects, it was advisable for the Government to consult the Parliament [DPR] first before exercising the option plan. This was necessary to minimize suspicion of non coalition parties. The spirit of the plan was to help the poor.

               

As know, even long before the plan was exercised, many parties already voiced their opposition to oil-price increasing plan before the Government troubleshoot the Oil Gas Mafia domination which causes oil price to soar high. Word was out that the Oil Gas Mafia reaped enormous profit from oil gas business which was not transparent. Many ways could be taken by the Government to save APBN without increasing oil price as it would burden the people.

               

Meanwhile the Ministry of Finance stated that more money could be saved if the Government increased price of subsidized oil. Acting Head of the Board Fiscal Policy [BKF] Bambang S. Brodjonegoro said that if oil price were increased by Rp 1, 500 per liter on May 2013, the plan would reduce subsidy by Rp35 trillion to Rp40 trillion. This policy was more effective than introducing new type of oil with octane of 90.

               

The point was that if the Government adopted the policy of introducing Octane 90 oil, austerity would not be significant. This was because the Octane 90 oil was also subsidized, although the subsidy was less. Meaning not bad as austerity, but not as drastic as increasing price.

               

The conclusion: the best option was to increase price of subsidized oil. The next option was restricted or prohibition for private cars to use subsidized oil and the to produce the new Octane 90 type of oil. One thing was sure to avoid confusion among the public the oil price dilemma should be end by firm decision.

               

The point was that the longer delayed, the less the value of savings made; this was not to mention swelling deficit in oil-gas trading. The Ministry of Finance forwarded all options and calculated the impact in terms of fiscal, economic growth, poverty, unemployment, and inflation. Meanwhile the Head of State should consider to social impact and political consequences.

               

Spontaneous response came from the Minister of Energy and Mineral Resources Jerro Wacik who stated that the Government had plans to increase price of subsidized oil as last option. If this option had to be taken, the Government would certainly extend compensation for the poor, which was most important. Obviously, if oil price increasing were taken as last option, the poor people would bear the consequences.

               

Finally the right phrase was “the sooner the better” for the Government to control subsidized oil either by way of increasing price or whatever, the most important thing was certainly so all elements of the society could adapt themselves to the new condition, i.e. to live more economically. (SS)

Business News - April 19,2013