COULD WE EVER ELIMINATE OIL SUBSIDY

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

ASSIGNING BULOG AS STRATEGIC FOOD STABILIZER IS NOT IN VIOLATION WITH THE LAW

To support task of the National Logistics Agency (Bulog) as food stabilizer, it is necessary for the government to prepare a buffer stock mechanism for strategic food so it will be able to fully control food reserve. In the past, a food reserve mechanism has been formed, but since IMF’s interfered, everything was in a mess. Therefore, restoring the function of Bulog as stabilizer of strategic food commodity is not in violation with the law. this is the opinion of Chairman of Business Competition Supervisory Commission (KKPU). Tadjudin Noorsaid, economic Observer of CSIS, Pande Raja Silalahi, and rice entrepreneur, Nelly Soekidi, in response to government’s policy on assigning of Bulog as strategic food stabilizer.

Chairman of KKPU, Tadjudin Noorsaid, said that government’s attempt to designate Bulog as stabilizer of three food commodities (rice, soybean, and sugar) should receive appreciation. As food matters are related to the lives of many people. The state must intervene by controlling supply and prices of food.

Tadjudin explained that government’s intervention must be carried out. Bulog has had tens of years of experience in handling food matter. Bulog function as food stabilizer should be restored. If necessary, Bulogs status as an institution which reports directly to the President should be restored.

To restore Bulog function is not an easy job. The reason in that Bulog does not have authority in budget matter or in determining importation. From the aspect of fund, Bulog must find its sources of fund from banks in the form commercial loans. Commodities tackled by Bulog are only rice. In such a condition, it is impossible for Bulog to function as food stabilizer.

If Bulog function will be restored as buffer stock body and stabilizer of food prices, the government must provide fund sourced from APBN. Or, the government could provide a loan with low interest. If this is also impossible, the government could transfer part of fuel subsidies to food subsidies to food subsidies.

Currently, the function of Bulog is as operator, so in carrying out its tasks, it must ask for the approval of many institutions, such as the Ministries and the House of Representatives. This condition makes Bulog difficult to move. For example, in distribution of Raskin (rice for the poor), there must be a request from each regional government. And, to give aid to disaster victim, there must be an instruction from the Coordinating Minister for Social Welfare, while for import there must be an instruction from the Trade Ministry.

No Need to Hurry

CSIS Economic Observer, Pande Raja Silalahi, agreed if Bulog’s function as buffer stock body and stabilizer of prices of strategic food should be restored. But, it should not be done in a hurry and there has to be a more mature planning as it involves a quite significant amount of fund. But, the fund can be sourced from APBN or in the form of soft loan from Bank Indonesia.

Currently, what should be paid attention to by the government is to stabilize of prices of staple food or to protect prices from highly fluctuating. Therefore, the main thing that needs to be done is managing stock. This is related to buying from farmers at the right quantity and price. Therefore, Bulog’s availability of fund and liquidity are determining factors.

Nelly Soekidi said that the nations that the nations food affair must be tackled by the government. So, he agreed on the idea of restoring the function and role of Bulog as stabilizer of food prices.

The nations food affair must be handled by the government (Bulog). It should not be transferred to private sector as private sector prioritizes personal interest by seeking high profit. So far, Bulog has been proven successful in stabilizing price of rice.

Support Flows Continuously

Support to Bulog as stabilizer of strategic food is flowing continuously. But, to support the role of Bulog, the government must stipulate food policy which is in favor Bulog’s ? function and task. President Director of Perum Bulog, Sutarto Alimoeso, said that to make Bulog a food stabilizer, we must first agree on Indonesia’s? food politics, including deciding what the strategic food commodities are. If the government has decided strategic food commodities, these food commodities must receive full protection. Not only protection producers from fall of prices, but also protecting producers from fall of prices, but also protecting consumers from price fluctuation.

Designation of strategic food commodities must be provided in the draft of Food Act which is currently being deliberated by the House of Representatives and the government. Strategic food commodities, such as rice, corn, soybean, sugar and cooking oil must be protected by the government from fluctuation.

Also regarding sharp increase of soybean prices. If the government has designated soybean as one of strategic food, the government must protect soybean producers. So, when the concerned must be imported, it must make a more accurate calculation of demand. Import policy should not distort local farmers. This is the actual role of Bulog as food stabilizer.

But, it is admitted that there are several are parties who doubted the role of Bulog as food stabilizer. But, since the past few years, Bulog's management has made many changes to Bulog's performance. For example, conducting entrepreneurship training for Bulog's employees. It requires time to make big changes. Moreover, Bulog has had the experience of handling staple food.

Within the framework of management improvement, Bulog has opened three business units, namely service, logistics, and marketing. Then, Bulog Mart was developed whose orientation is marketing of strategic food. Actually, the strategy is in the framework of network opening as well as a stabilizer. When the government assigned Bulog to maintain stability of food prices, Bulog'smanagement will be ready.

Business News - October 5, 2012

PUBLIC WORK MINISTRY TO TAKE OVER JAKARTA SEWERAGE PROJECT FROM DKI JAKARTA REGIONAL ADMINISTRATION

The government will continue the Jakarta Sewerage project by taking over the project from the DKI Jakarta regional administration. Director General of Housing, Planning and Urban Development (Dirjen Cipta Karya) stated this matter after opening a Workshop on Program of Acceleration of Jakarta Residential Sewerage Construction in Jakarta on Tuesday (10/2).

According to Budiyuwono, Jakarta Sewerage System master plan has been prepared 15 years ago, but the local regional administration was unwilling to realize the plan. So, with the change of DKI Jakarta governor, the central government will continue the plan on domestic waste water treatment system in Jakarta.

Construction of Jakarta Sewerage System will be done gradually by dividing Jakarta into six zones. Zone one covers Setiabudi area up business center in Kota as a densely populated area with high pollution level.

Construction of Zone One requires a cost of around Rp6.7 trillion. For construction of integrated Sewerage system in the six zones, Rp70 trillion fund is required.

The Jakarta Sewerage System Master Plan is a grant from Jakarta International Cooperation Agency (JICA). If the project blueprint has been approved by the President, sources of fund for construction of the project will be sought, one of them is attempted to be obtained from the Japanese government. Construction of zone will take around three years.

Construction of Sewerage system is necessary as sewerage is serious problem to East Asian countries, including Indonesia. There are 671 million people who do not have access to proper sewerage system, and there are more than 100 million who dispose their feces carelessly that it causes more than 450 million diarrhea cases each year in East Asia, including Indonesia, while death toll due to water and sewerage-related diseases reaches 150,000 a year.

Budiyuwono stated that concerning sewerage condition is a big homework to all parties, including the central, provincial, argent/municipal governments as well as ministries and institutions. This problem must be solved by a breakthrough performed collectively. From the central government side, the budget is very large. When he worked as Dirjen Cipta Karya, he received a special budget for sewerage project at Rp800 billion a year. Now, the budget has increased to Rp30 trillion.

The Indonesian government has stated a global commitment through MDGs to decrease up to 50% of household proportion without sustainable access to drinking water and sewerage up to 2015. So, it is expected that by end of 2015, 62.41% of people (76.82% in the cities and 55.55% in rural areas) will have full access to safe drinking water and sewerage. Until 2010, Indonesia has reached a 55.54% target. It means that there is a 7.1% shortage. And, if 2015 becomes the deadline, each year Indonesia should reach target of averagely 2.3% of additional scope of sewerage service to the society each year. 

Business News - October 5, 2012