WAITING FOR THE MOMENTUM TO INCREASE SUBSIDIZED OIL PRICE

Economists believed that President JOKOWI-JK needed to be decisive and set the definite time when he would increase the oil price would be increased because the public would be extremely restless if the increase exceeded the acceptable limit or Rp.1,500 per litre amidst heightening inflation in October 2014.

The Government was asked was asked to make proper calculation and pick up the right momentum to exercise this unpopular policy. After installation of Joko Widodo as President on Monday Oct 27 last, now the public were anxiously waiting for the policy that he would adopt for the near future.

One of the long awaited and widely discussed policy was to increase price of subsidized oil and it seemed that President JOKOWI-JK could not escape from the dilemma, increase energy subsidy swelled in APBN.

To increase price of subsidized oil was necessary to heathen APBN State Budget, i.e. to relocate oil subsidy to other sectors like: infra structure development, health and education which was needed by the people. Limited Government spending, which was less than total subsidy in APBN State Budget, made it hard for the Government to realize their program.

The policy was needed because evidently oil subsidy had been off-target. Around 70% of oil subsidy was enjoyed by financially well to do people. So it was reasonable that the JOKOWI-JK Government had to bear the burden of swelling subsidy passed on by the previous Government.

In APBN-P State Budget 2014 energy subsidy was posted at Rp.350.3 trillion broken down as: oil subsidy [inclusive of gas fuel and bio fuel] Rp.246.6 trillion and subsidy for electricity was Rp103.8 trillion. In next year 2015 subsidy for oil increased to become Rp.276.01 trillion and electricity subsidy was lowered to become Rp.68.68 trillion in line with increase of electricity tariff.

The JOKOWI-JK Government had to bear the burden of budget deficit. In APBN-P budget deficit was posted at Rp.2.41.5 trillion or 2.40% of GDP. In APBN 2015 budget deficit came to Rp.245.9 trillion or 2.21% of GDP. The deficit must be covered up by releasing Government’s SUN Promissory Notes of higher interest.

Especially this year the Government allocated debt payment of Rp136 trillion in APBN. Meanwhile by August 2014 total Government’s outstanding came to Rp.2,531.81 trillion. The figure was an increase of Rp.1,232.31 trillion or 94.82% against debt of December 2004 amounting to Rp.2,299.5 trillion.

Amidst budget deficit state’s income from taxation, oil-gas and minerals was still not maximized. By mid October 2014 oil lifting was 798 thousand barrels per day or below APB-P 2014 amounting to 818 thousand bph. With state oil 500 thousand bph Indonesia still had to import around 1 million bph to fulfill consumption of 1.5 million bph.

Therefore increased oil price was expected to reduce consumption of subsidized oil; while import of oil which had been the cause of deficit in Indonesia’s trade balance could be reduce in volume.

Data of BPS had it that per August 2014 Indonesia’s trade balance again posted deficit of USD 3218.1 million. The deficit was on account of high import of oil and gas especially oil worth USD 2.04 billion of which USD 314.5 million was import of crude oil. Total deficit in oil was USD 801.1 million while non oil posted surplus.

Due to high oil consumption, the JOKOWI-JK Government would have to face reduced subsidized oil quota this year. Of total quota amounting to 46 million kilolitre till September 30, 2014 realization of subsidized oil pipelining had come to 34.9 million KL or higher by 1.7% compared to same period last year or higher by 1.7% compared to same period last year.

Of that amount, pipelining of subsidized oil had come to 22.24 million KL higher by 1.9% compared to same period in 2013. While realization of subsidy for solar had come to 11.94 million KL or higher by 3.9% against same period last year.

With oil consumption of that amount without any effort to put brakes on it, by Pertamina’s calculation consumption of subsidized oil this year would exceed quota by 1.61 million KL, meaning the JOKOWI-JK Government to cover up the shortage. Indeed not an easy task.

The scenario would be if the JOKOWI Government increased price of subsidized oil Rp.3,000,- per liter in November this year, there would be saving of budget amounting to Rp.21 trillion. In a year, with subsidized oil quota of 46 million kilolitre, increase of subsidize oil of Rp.3,000 per liter would save fund of Rp.138 trillion.

Having successfully increased price of oil, the Government must re allocate the fund to other posts which was more productive, if this was not done it would increase people; burden and hold back increase of people’s purchasing power.

However, to increase price of subsidized oil was not without risk. Whatever the size of increase it would trigger up jump of prices of goods which would erode people’s real income value.

In this case the poor people, which today numbered 28.28 million people were the most vulnerable to the effect of oil price increase. Therefore the Government was expected to prepare social safety net to keep the population of poor people from growing. The program was needed but without creating new problem which would pose as extra burden for the Government.

Rumors was out that the plan to increase of oil price be executed. Finance Minister Bambang Brodjonegoro disclosed that increase of subsidized oil price would be exercised this year, but the percentage was still not known.

In short, the JOKOWI-JK Government seemed to be more serious about increasing price of subsidized oil, for one reason that subsidy was enjoyed by the rich.

 
Relocation of subsidy was first done by the Government by distributing Indonesia Healthy Card, Indonesia Smart Card and Indonesia Welfare Card, which was the program promised by JOKOWI in his electoral campaign. By the time the three said cards were established, oil price would no longer be subsidized. All Indonesian people should be ready to face this bitter reality. (SS) 

Business News - November 5, 2014