Fuel oil : Political commodity of the past and present

Fuel oil : Political commodity of the past and present Imanuddin Razak ;   A Staff Writer at The Jakarta Post

JAKARTA POST, 21 April 2013

For the umpteenth time, the issue of fuel prices and its derivative topic — fuel subsidies — over the last few days have made the headlines in the national media. After having maintained a rigid stance of “no increase in the subsidized fuel price until election year” for quite a long time, in an unprecedented move on Tuesday, the government announced a plan to raise the subsidized Premium gasoline price. The plan, however, will only be a partial rise as the government will introduce a dual pricing system for Premium: The existing price of Rp 4,500 (46 US cents) per liter will be for motorbikes and public transportation only; and a new price of Rp 6,500 per liter will be for privately owned cars. Aimed at curbing fuel subsidies, the policy is expected to come into effect in early May, though it remains to be seen whether the policy will actually be implemented. As part of the scheme, subsidized Premium will only be available at selected gas stations. Djoko Siswanto, a director at upstream oil and gas regulatory special task force SKK Migas, said that only 55 percent of the 5,000 gas stations owned by state-run oil and gas company PT Pertamina would still sell gasoline at the old (subsidized) price. The abrupt fuel hike is obviously controversial and at the same time politically motivated.  It is controversial because the dual price scheme will probably cause more problems than it solves. No less a person than former vice president Jusuf Kalla has warned that the partial price increase might create chaos at the gas stations, particularly at those selling only subsidized gasoline. There is of course huge potential for smuggling and illegal sales of subsidized gasoline because of the huge margin between the real market price and the subsidized price. The decision is controversial too because with such partial implementation, the government will be unable to reach its own target of reining in the fuel subsidy. The government claim the scheme will save up to Rp 21 trillion. A total sum of Rp 194 trillion from the 2013 state budget has been allocated for fuel subsidies. The planned is politically motivated because it was introduced after the opposition Indonesian Democratic Party of Struggle (PDI-P) announced its opposition to such a fuel price hike, as it has on many occasions. The scheme is a political gamble by the Democratic Party-led coalition to win hearts and minds before the 2014 elections. That the planned increase will not affect motorbikes and public transportation — whose riders and users obviously represent the greater part of the population, unlike the private car owners who represent a considerably smaller number of people — only adds to the aroma of political motivation. To be fair, manipulation of oil fuel and fuel price as a political commodity by the government is not the soul prerogative of the incumbent, but outgoing, government of President Susilo Bambang Yudhoyono only. We still remember the attitude of the preceding government of Megawati Soekarnoputri (2001-2004), who in the early years of her presidency endorsed a gradual increase of the fuel prices, but decided to call it a day when her term in office was about to end and the nation was welcoming the 2004 elections. Long before then, during the first half of the 32-year government of president Soeharto, oil fuel – though in a different form – also served as a political football for the New Order government. At that time, oil fuel was abused in such a way that it became a significant factor in the incubation period for the now acute illness of corruption. Indonesia, with abundant oil and natural gas reserves, became a significant oil and gas exporter in the wake of the oil boom era and enjoyed the spectacular income from oil and gas sales, which represented around one tenth of the overall growth in national income over the three decades of New Order government. Soeharto saw his legitimacy as leader closely linked to developmental success. He was shrewd enough to realize that his ability to stay in power required a measure of popular approval and rapidly rising living standards provided it. There was massive spending on productive development programs, such as on primary schools and health centers and on rural infrastructure. Yet, many billions of oil revenue dollars were wasted on loss-making projects, including mismanagement of PT Pertamina, which went bankrupt in 1975. The sad story in the oil sector continues to date. Indonesia is currently a net importer of both crude oil and refined products. Indonesia’s crude oil production has been declining since 1998, due to maturation of the largest oil fields and failure to develop new, comparable resources. Indonesia was a member of the Organization of Petroleum Exporting Countries (OPEC) from 1962 to 2009. In 2004, the country became a net oil importer and in January 2009, suspended its OPEC membership. We, as a nation, have made serious mistakes in the past, i.e., abusing the oil boom and our natural resources, particularly fuel oil. Although we do it in a different way now, we continue to abuse the oil issue. It is now to stop all these practices. The decision to increase or not to increase the fuel price should not be politically motivated, but merely depend on the real condition of the state’s finances — and the people’s true welfare. ●