Plunging
price of oil
resolves
several complex problems for Jokowi
Vincent Lingga ; Senior editor at The Jakarta Post
|
JAKARTA
POST, 25 Januari 2015
The more than 55 percent plunge in oil prices since July
has resolved several potentially explosive political and economic problems
for the new government of President Joko “Jokowi” Widodo.
But he should not get complacent, as the condition is
largely a matter of good fortune.
As the saying goes, lightning never strikes twice in the
same place. This could be the only oil-price down-cycle during Jokowi’s
five-year term until October 2019.
The government, therefore, should seize the opportunity
for energy reform to reduce the nation’s dependence on fossil fuels and gear
up the economy for weathering perpetually volatile oil prices.
As a net oil importer since 2004, Indonesia enjoys a
state-budget windfall savings every time international oil prices drop
steeply that creates fiscal room for a massive cut or the abolishment of fuel
subsidies. Now that oil prices have fallen to below US$50 a barrel, the
government expects to save almost
Rp 200 trillion ($16 billion) throughout this year.
The government should not succumb to the temptation to
squander the huge savings on populist programs. It should instead direct them
toward more productive programs in poverty alleviation and infrastructure to
improve our economic competitiveness.
The government made the right policy with its quick
decision to put domestic fuel prices on a managed floating market-price
mechanism early this month.
This move immediately set off a virtuous circle: it will
spare the government from wasteful political bickering with the House of
Representatives every time international oil prices rise sharply and has
freed the government from being held hostage to the wildly volatile
international oil market.
In the oil market nothing is simple. Predicting oil prices
is always a mug’s game because the prices are influenced by both economic and
non-economic factors.
In mid-2008, for example, international prices skyrocketed
to a peak of almost $150 a barrel, but collapsed to as low as $47 later the
same year. A similar down-cycle has taken place since last July.
Consequently, by its very nature oil trading is beset by
uncertainty and it is not just due to the precarious geopolitics in countries
where most of the world’s oil reserves are located.
But bringing domestic fuel prices closer to — or on par
with — their economic costs will also remove the fuel-subsidy time bomb.
But more important is that abolishing subsidies will
encourage the development of renewable energy, energy efficiency and
conservation.
Energy reform will cut Indonesia’s trade deficit and,
consequently, the current account deficit, which has been exerting strong
downward pressure on the rupiah exchange rate.
But energy reform should not end at putting fossil fuels
on a managed floating market-price mechanism.
The government should instead bolster energy
diversification programs by providing fiscal incentives for investment in
developing more biofuels and gas and their infrastructure, mini hydro-power,
geothermal and other renewable energies.
In short, the government should launch a more concerted
effort to implement the 2007 Energy Law that stipulates strategic measures
aimed not only at reducing dependence on fossil fuels but at compelling the
government to provide incentives for energy efficiency and conservation.
Companies should be given fiscal incentives to invest in
energy-conservation programs, such as in-house management of energy
efficiency; performing maintenance and housekeeping measures; replacing
select equipment; or modifying entire manufacturing processes.
No one can predict how long the oil price down-cycle will
last or where prices will bottom out. But the government should design a
formula for determining the ceiling and floor prices for oil to cope with
future price volatility.
Ceiling prices should be set at levels that will encourage
fuel efficiency, but which will not impose large subsidies on the state
budget. Floor prices, meanwhile, should be designed to make the development
of renewable energies like biofuels, geothermal and biomass still
commercially viable.
The oil-price collapse has changed almost all the basic
assumptions used for predicting key economic indicators for the 2015 state
budget for the better.
We are glad to learn that the proposed amendments in the
2015 state budget the government proposed to the House will allocate the bulk
of savings from the slashed fuel subsidies to developing infrastructure.
The rationale is that poor and inadequate infrastructure
has become the biggest barrier to investment and among the main drivers of
high logistics costs limiting the competitiveness of exports.
But given the dismal record in infrastructure development
over the past decade, the new government should be able to make headway on
several vital projects, including roads, airports, seaports and power
generation that have been stalled for several years due to arduous land-acquisition
procedures.
Making a breakthrough in such high-profile projects as the
multibillion dollar Batang power plant in Central Java; the access road to
Indonesia’s biggest seaport, Tanjung Priok; and the access railway to
Soekarno-Hatta International Airport in Tangerang will boost market
confidence in the government’s capacity to develop basic infrastructure.
Fortunately, this year marked the start of the full
enforcement of the 2012 Land Acquisition Law, which provides stronger legal
certainty for land appropriation for infrastructure projects.
The law stipulates a clear-cut, shorter time frame for
land acquisition, expedites court proceedings for appeal and mandates the
appointment of an independent committee for setting compensation levels with
property owners.
The acute
lack of strong legal frameworks to regulate land acquisition and rampant land
speculation has long been the main obstacle to infrastructure development, as
the costs of land often make projects financially unfeasible. ●
|
Tidak ada komentar:
Posting Komentar