Tuesday, 1 July 2014


The Parliament doubted Government’s plan to reduce the volume of consumption of subsidized oil from 46 million kilo litre to 48 million kilo litre in APBN State Budget 2014.

House rated that the step to reduce quota of subsidized oil was a difficult thing to do. The Presidential election on July 9 was of the reasons. Many occasions this year like presidential election and Idul Fitri heightened people’s mobility compared to last year.

So far the Government had not run effective management of subsidized oil, moreover programs to control oil consumption had not run expected. However, the concept must be measurable considering the condition afield.

Without proper management of oil consumption, the consumption trend was predicted to continue. Finally, like in previous years, quota was surpassed.

House also rated it was hard for the Central Government to realized austerity plan for consumption of subsidized oil this year. Such was because the components that elevated the trend of oil consumption this year was different from that of last year. Saving in consumption of subsidized oil amounting to 46.83 million kilo litre of total quota of 48 million kilo litre in 2013 was not a form of controlling.

Instead, the so called saving was a case of over-estimation in setting quota of volume of subsidized oil. In 2013 last, consumption was 46.83 million kilolitres. It was reported as saving of 2 million kilolitres. In fact it was not austerity , but a case of over estimation. In view of the matter the effort to downsize oil would be difficult, it was even not impossible that the quota of 48 million kilolitres would be exceeded.

Many times before the Government threw a discourse about distribution pattern for subsidized oil by alternate mechanism. The concept was not a form of controlling subsidized oil. Many circles believed that the alternate distribution mechanism was only relocating queue lines oil consumers. It was not controlling because the volume of demand remained.

Meanwhile the Presidential election made oil consumption trend to increase. Many circles including the Parliament were pessimistic that the Government would be able to save oil consumption by 2 million kilolitres against of 48 million kilolitre.

The trouble was that high subsidy for oil in Indonesia tempted some law breakers to smuggle oil abroad since the price disparity was high between local price and overseas price and smuggling was at large.

Many cases of smuggling had occurred in borderline zones in Indonesia. Today the Directorate of Taxation, Ministry of Finance were handling cases of oil smuggling amounting to 60,000 metric tons of oil at Tanjung Balai Karimun, Riau that happened recently.

Smuggling tend to happen if there was disparity of price. If price of oil in Malaysia was the same as that in Indonesia, no one would be tempted to smuggle. Besides there was risk in every smuggle item. As long as the risk was more expensive than the benefit, people would choose not to smuggle.

Even if a product was forbidden for circulation, the potential for smuggling was still there. The higher the import tax, the stronger the driver to smuggle. What’s more prohibition would motivate smuggling instead. Understandable because Indonesia is an archipelago which was smuggling prone.

On the other hand, the Ministry of Energy And Mineral Resources [ESDM] was optimistic they would be able to save 2 million kilolitre out of 48 million kilolitres of oil. The successful effort to save oil from 48 million kilolitres to 46 million kilolitres last year was their reason of optimism.

From the moneymarket’s viewpoint, they would say that the Rupiah depreciation happening lately was due to APBN budget posture which was unhealthy, unproductive and unsustainable. One of the critical expenditure post was energy subsidy which amounted to Rp392 trillion.

Of the total amount of subsidy, around Rp210 trillion was allocated for energy subsidy especially oil. However, as oil consumption continued to expand amidst pressures on Rupiah, The Government planned to increase budget for oil subsidy to the amount of Rp 280 trillion.

Not just that, since electricity consumption also increased, subsidy for electricity was also increase to Rp105 trillion against the increased Rp79 trillion. If electricity tariff was not increased to finance fuel, PLN electricity company could not operate normally.

All in all, whoever the next president would be, he would have to face hard and complex problem ahead. National economic growth was predicted to slowdown this year while the burden to be shouldered turned heavier. Such was because the amount of energy subsidy kept increasing.

For energy subsidy, the Government must have the courage to take effective measures to prevent budget breakdown, which was because the consumption of subsidized energy exceeded to set quota. As known reduction of oil consumption would not be effective and such could disturb logistic operations while the negative impact on economy was inevitable.

So the Government must have the courage to eliminate subsidy for oil. Moreover in Asean only Indonesia estened oil subsidy.

Data of the Ministry of Energy and Mineral Resources [ESDM] had it that in 2013 last, price of oil in Asean states were : Singapore Rp15.695, Vietnam Rp 14,553, Cambodia Rp 13,298 the Philippines Rp 12,147, Thailand Rp 12,453, Laos Rp 13,396 and Myanmar Rp 10,340.

Hence, the most effective way to reduce oil consumption was to increase price of oil with the consequences lifting subsidy for private cars who constituted 93% of total users. To ease people’s burden, price could be increased by Rp 500 – Rp 1,000 gradually every 6 month. In 3 to 4 years, oil subsidy would no longer ne necessary.

However, the policy to increase oil price must be accompanied by betterment of transportation service for the people. This was to encourage the people to change to public transportation which was more comfortable, safer, and cheaper. The public would gladly change, moreover if the tariff was subsidized. Moreover public transportation could access residential areas.

Accumulatively the total amount of subsidy for the energy sector Rp 500 trillion. The Government was expected to be more focused in dissecting the matter, because subsidy of that amount could trigger anxiety. The point was that so far the parliament still had not heard of Government’s working scheme which was evidently effective without burdening the people. If the present Government could not do it, the next Government could.

The Budgetary Meering of Parliament last week [3/6] dissected subsidy for the energy sector which had swollen to Rp400 trillion, and yet the budget for it was only Rp292 trillion till end of 2014.Budget for subsidy in RAPBN-P 2014 rose steeply from the initial Rp74.3 trillion. The budget for subsidy rose because Rupiah value weakened while oil lifting target was not met.

On the other hand, state’s revenues could not cover up oil subsidy expenses which kept increasing each year. The Ministry of Finance Chatib Basri admitted, oil became a crucial problem. Moreover, timing was a hindrance because in July there would be Presidential election.

However, Finance Minister Chatib remarked, the option for realistic policy was politically in terms of volume, i.e. control of oil consumption. The Government was aware that increased consumption of oil boiled down to swelling subsidy fund. Nearly every year the problem of oil always emerged but submerged again without solution.

In fact the people was already tired of the Government’s rhetorics that ended nowhere. Now the people and the new Government would not repeat the same mistake done by the past Government who tend to wasted time instead of troubleshooting critical problem. Problems were to be overcome, not to be spoken as discourse which but drain energy.

Finally, to lean a lesson from the leadership of the past Government, the next Government was expected to act better because Indonesia was in competition against other countries, so the hook of “the sooner the better” was most appropriate to be applied in this country. (SS)

Business News - June 13, 2014

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