2008 will be a nightmare for residents of Jakarta and the surrounding areas. It is planned that the government will reduce the supply of 88 octane Premium gasoline to just Jakarta, Bogor, Depok, Tangerang and Bekasi, the Greater Jakarta region, otherwise known as Jabodetabek. In return, the government will ask state oil & gas company Pertamina to make 90 octane gasoline available for private vehicles.
Premium 88 gasoline will still be subsidized by the government but only for motorcycles and public transportation. This is one of the options that the government can take in the future in order to overcome further fluctuations in subsidized fuel as a result of global oil price increases. For the 2007 budget year, the government prepared fuel subsidies amounting to Rp55.6 trillion. This was with the assumption that oil prices on the international market would only be US$60 per barrel. In reality however, oil prices are far above the assumptions that were made in the Revised 2007 State Budget. The government is now estimating that Indonesia's average oil price will end up at US$72 per barrel. As a result, according to Minister of Energy & Mineral Resources Purnomo Yusgiantoro, fuel subsidies have risen to Rp91 trillion. Next year, some Rp45.8 trillion has been budgeted for fuel subsidies.
In addition, according to Pertamina calculations, the consumption of Premium gasoline next year will also rise to 18 million kiloliters, up from this year's total of 17.6 million kiloliters. Pertamina has also estimated that if oil prices continue at around US$90 per barrel and consumption of Premium gasoline does not go down, then next year's subsidies will increase to Rp54 trillion. Like in 2004, the government does not have many choices. The budget is still safe. Efficiencies in the state expenditure sector or increases as regards revenues can be carried out in order to equal fuel subsidy increases. Oil price increases will also still provide a surplus for Indonesia. Even so, any increase in subsidies will not be healthy as far as the budget is concerned. In fact, rather than being blown out of exhaust pipes, it would be better to spend these funds in other sectors such as education and health. This is why the government is trying to find ways of avoiding such subsidy increases.
Increasing fuel prices would clearly be a difficult choice to make. The experience of what happened three years ago indicates that if fuel prices were increased then this would slow down economic growth even though the budget would in fact be healthier. The effects were still being felt at the beginning of this year. With the elections coming up in 2009, it is also expected that the government will not want to raise fuel prices. Two weeks ago, Minister Purnomo summoned the Pertamina board of directors. According to A. Faisal, Pertamina Director of Trade & Marketing, Minister Purnomo asked about Pertamina's preparedness if subsidies were reduced. The government then offered several options, one of which was to replace subsidized 88 octane Premium gasoline with new variants and 90 octane Premium. It is planned that these new products will be sold at market prices. According to Pertamina's calculations, if Indonesia's standard crude oil price is US$90 per barrel, Premium 90 will then be sold at a price of Rp7,458 per liter. Once value-added tax at 10 percent and motor vehicle tax of 5 percent are added in, the price becomes Rp8,600 per liter.
"If the government says January 1, we're ready," said Faisal. There is a good chance, continued Faisal, that the government will soon apply this option. However, Pertamina has proposed that this policy be implemented in stages, starting with Jakarta and the surrounding area. Sales are also limited to gasoline stations on toll roads, on protocol roads and in elite housing estates. But the government has not yet decided if this will only apply to private vehicles or to all. Minister Purnomo confirmed Faisal's statement. According to him, the planned move to Premium 90 was still being discussed. This will perhaps not apply to public transport vehicles and motorcycles. The government, according to Purnomo in an SMS to Tempo, has not yet made a decision. "The government is also still considering what public reaction will be," continued the SMS. In principle, however, Paskah Suzetta, State Minister for National Development Planning and concurrently Chairman of the National Development Planning Board, has emphasized that this plan is in fact already final.
All that remains to be done are technical matters. Paskah has calculated that if the government was able to reduce fuel subsidies by 40 percent, then some Rp6 trillion in funds could be saved. Why only Jakarta and the surrounding area? Because, said Paskah, this region consumes the most subsidized fuels. According to Faisal, the consumption of Premium gasoline in Jabodetabek amounts to around 10,000 kiloliters per day, or about 22 percent of total national consumption. Both Paskah and Faisal are optimistic that this transfer to Premium 90 program can be carried out smoothly. It would not be possible for people buying Premium in Bandung, for example, to drive back to Jakarta. What could happen, according to Faisal, might be that users of Pertamax gasoline would move over to Premium 90, which is cheaper. However, it is considered that this would still be better than if the government were to still subsidize Premium like it does now. There is still in fact another option. Private cars that still use Premium could be moved over to Pertamax 92 octane gasoline.
Pertamax has already been sold at market prices for a long time now. In Jakarta and the surrounding area, Pertamax is sold at Rp7,500 per liter. The sales prices of Shell and Petronas are also not that different to this Pertamina product. Automotive manufacturers are already worried about this option being implemented. According to Bambang Trisulo, Chairman of the Indonesian Association of Motor Vehicle Manufacturers, private car owners don't think they are all "Mercedes Benz" class. If forced to buy Pertamax or Premium octane 90, this would clearly cost more. "This would be a real burden to car owners," said Bambang. Nevertheless, Bambang considers that this mechanism would still be better than if the government were to increase fuel prices. According to him, the effects of this policy would be directly felt. Prices of goods would go up, inflation would rise and eventually Bank Indonesia would have to increase interest rates in order to safeguard inflation. In the end, economic activities would be stalled. Johnny Darmawan, CEO of Toyota Astra Motor, agreed with Bambang. What the government is doing is much the same as increasing fuel prices. The difference is that consumers will obtain added value because they will be using higher octane gasoline. If it becomes more difficult for consumers to obtain Premium 88, like it or not they will have to buy Premium 90 or Pertamax. "This will be the same as buying gasoline that costs more. However, there will be no psychological effects involved," he said. He only pointed out that the execution of this program would have to be supervised properly. He said he was worried that this good concept would not be properly executed. "Don't let the implementation be sloppy," said Bambang.
If supervision were weak, he said, there was always the possibility that there would be those prepared to buy subsidized Premium and then to sell again. Similar concern was voiced by Sudaryatmo, a member of the general management board of the Indonesian Consumers Foundation. He asked that tight supervision be carried out because without this there would be chaos in the field. He said he considered that this policy was being forced onto consumers because previously the government had already failed in the implementation of the kerosene to LPG conversion program. "Now the government wants to use a similar scheme to move over to Premium," he said. So far, there has not actually been any decision made by the government. However, according to automotive industry observer Soehari Sargo, this matter must not become a political commodity. Whoever is leading the country has to be brave enough to reject an unpopular policy. "The government must be brave enough to raise fuel prices in stages, for example by a maximum of 5 percent," he said. If this was done, then the government would not have to face the sort of disorder that it is currently having to deal with. MTQ, Grace S. Gandhi, Bambang Harymurti, Arti Ekawati, Nieke Indrietta and Yandhrie Arvian Prices of 90 Octane Premium Petrol
Comments