Transparency Urged in Use of Cooking Oil Subsidy

Kompas/Priyombodo (PRI)

Residents buy two liters of cooking oil during a cooking oil market operation in Johar Baru District, Central Jakarta, Monday (17/1/2022). Each resident has the right to buy two liters of cooking oil at a price of Rp. 14,000 per liter.

JAKARTA, KOMPAS — Economic observers have urged the Oil Palm Estate Fund (BPDP-KS) to be transparent in using the organization’s funds for subsidized cooking oil intended for sale of to the general public so as to avoid misuse. Transparency was needed not only in determining the price, or the economic value, of the cooking oil, but also the amount of funds spent on the subsidy.

The director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira Adhinegara, said in Jakarta on Wednesday that the subsidy allocated to help people cope with the increase in the price of both low and premium grade cooking oil should be given to palm oil producers to cover the difference between the economic (market) price and the government’s retail price ceiling (HET), set at Rp 14,000 per liter.

The subsidy is given not only for sales of low grade cooking oil, but also premium grade packaged cooking oils. The two grades of cooking oil differ significantly in their production costs, but they have been designated the same economic value.

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"Therefore, the use of BPDP-KS funds must be transparent. An audit or the accurate calculation of production costs should be carried out transparently, including in determining the [retail] price and subsidy," Bhima said when contacted in Jakarta on Wednesday (19/1/2022).

As of 19 Jan. 2022, the government has imposed a single-price policy for cooking oil, set at Rp 14,000 per liter, for both low and premium grade packaged cooking oils. The amount of subsidized cooking oil that will be disbursed over six months is expected to reach 1.5 billion liters.

The government is spending up Rp 7.5 trillion from the BPDP-KS funds to cover the difference between the market price and the price ceiling. The market price of cooking oil is evaluated every month based on the movement of global crude palm oil (CPO) prices.

KOMPAS/AGUS SUSANTO

A number of residents were disappointed after finding out that cooking oil had run out in a cheap market at the Bahagia Village Office, Babelan District, Bekasi Regency, West Java, Tuesday (18/1/2022). The 400 liters of cooking oil sold per liter for Rp. 14,000 were sold out in less than an hour.

Earlier, Trade Minister Muhammad Lutfi explained that the market price for low and premium grade packaged cooking oil for this month had been set at the same rate of Rp 17,000 per liter. So if the price ceiling is Rp 14,000 per liter, the amount of subsidy needed to cover the price difference is Rp 3,000 per liter (Kompas, 19/1/2022).

Apart from transparency, it was also necessary to pay attention to the subsidy’s effectiveness in controlling the domestic price of cooking oil. If global CPO prices remain high, the domestic price of cooking oil will also remain high. Global CPO prices on the Malaysian commodities exchange as of 19 Jan. 2022 reached 5,176 ringgit per ton. The price, which had increased 60.2 percent from the price recorded early last year, was the highest in 25 years.

Contacted separately, Lutfi said the government would be transparent in the use of BPDP-KS funds, especially with the revised Trade Minister Regulation No. 1/2022. The government had also determined the amount of subsidy and the market price of cooking oil for January 2022 at respectively Rp 3,000 per liter and Rp 17,000 per liter.

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The Rp 3,000 per liter subsidy would be used only to cover the difference between the market price and the price ceiling. The government would spend Rp 7.6 trillion in subsidies to cover shipping and distribution costs, especially in remote areas.

During a meeting between House of Representatives (DPR) Commission VI and palm and cooking oil business players on Wednesday afternoon, Adi Wisoko Kasman, the chairman of the Association of Indonesian Edible Oil Producers (AIMMI), said that the single-price policy did not benefit producers despite the subsidies.

"The price of the primary raw material, CPO, that we buy is above Rp 11,000 per liter. This does not include shipping, packaging and production costs," he said.

According to Joko Supriyono, the chairman of the Indonesian Palm Oil Association (Gapki), the single-price policy is intended to offer cooking oil at affordable prices. “The subsidy of Rp 3,000 per liter is quite small. Entrepreneurs must bear or pay the difference [in costs]. However, this is what is called sharing the burden, sharing the pain," he said.

This article as translated by Hendarsyah Tarmizi.