Thursday, 24 January 2013


Indonesian businesspeople unified the in Indonesia Chamber of Commerce asked President Susilo Bambang Yudhoyono to eliminate subsidy for oil. They rated that subsidy for oil had eroded state budget and make infra structure building to be neglected.

This was disclosed by Chairman of KADIN Suryo Bambang Sulisto in the National Meeting of KADIN attended by President Susilo Bambang Yodhoyono last week in Jakarta [2/10]. Subsidy for oil price should be written off provided the saved fund be used for enhancing development in the regions in that case KADIN would support the Government’s policy to reduce or even completely abolish oil subsidy.

Furthermore Chairman of KADIN said that APBN Budget was  today being over-burdened due to enormous size of oil subsidy which this year had come to Rp 216 trillion, while the allocation was off target and tend to be benefited by the wrong people. Grievances of the businessworld today was that high amount of subsidy might cause neglect of development in other sectors which were urgent and indispensable. KADIN was expecting that with the reduced burden of oil subsidy, the Government could save money which could be allocated for building infra-structures in the regions which were urgent.

Chairman of KADIN also once said that subsidy for oil was no longer appropriate. The price of one bottle of subsidized oil which was cheaper than a bottle of mineral water was not reasonable. According to KADIN, subsidy for energy [oil and electricity] which reached nearly Rp 300 trillion was too big and just to be burned and vanish.

If the Rp300 trillions were spent on infra structure and education, many people could benefit from it. Development of infra-structure for instance would generate positive impact such as creating job opportunities, to energize economy while businesspeople would benefit it as well. Compare this to subsidy for oil and electricity in effect today which was only enjoyed by business people and the rich.

Previously the Coordinating Minister Hatta Rajasa said that ideally oil subsidy be replaced by direct subsidy, but so far the Government dared not to exempt subsidy, the reason still unknown. The Board for Downstream Management of Oil and Gas [BPH Migas] once mentioned about the case of smuggling of subsidized oil amounting to 1,700 kiloliter [KL] or equal to 170 tanker trucks of oil to South Kalimantan which did not reach the gas stations.

The Minister of Energy and Mineral Resources Jerro Wacik admitted that lately oil smuggling had been at large because the price of subsidized oil was too cheap, i.e. Rp4,500 per liter compared to non -subsidized oil which was priced at around Rp9.700 per liter. Jerro Wacik did not deny smuggling of subsidized oil going on, although many of them had been arrested. The fundamental reason was the wide price gap between subsidized and non- subsidized oil.

Now it was up to the Government’s resolution to cancel subsidy for oil price. No matter how hard it might seem in terms of Government’s political image, to increase oil price should be right as long as the reasoning was well communicated; surely the public could accept the Government’s decision to increase price of oil. If the Government was afraid that that their image would fall, than perhaps the price increase could be done by stages so as not to upset the public.

By logic, subsidy for energy must be reduced, and the rest of asset should be allocated for infra structure and health sectors which could be benefited by the public. Justice and humanity was felt stronger instead of maintaining subsidy because apparently it was mostly enjoyed by the rich.

There should be a simulation by the Government to test how many percent of price increase could be tolerated by the people. In times when economic growth was still high, i.e. above 6% this was in fact the right momentum for the Government to increase oil price. At the same time, development of basic infra-structure and health in all regions would make more people happy rather than to continue oil subsidy policy. Indeed a hard decision to make, but for the long run it would generate more positive impact continuously for this nation

Business News - October 10, 2012

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