Increase in Biodiesel Subsidy Will Hurt State Budget

KOMPAS/NIKSON SINAGA

Vehicles queue to fill biodiesel at a gas station on Jalan Sisingamangaraja, Medan, North Sumatra, Monday (28/3/2022)..

JAKARTA, KOMPAS – The House of Representatives (DPR) has urged the government to increase the quota of subsidized biodiesel this year to cope with the shortage of the fuel supply in a number of regions. However, economic observers warned that there should be a price adjustment in order to reduce subsidy spending in the state budget because the market (economic) price of fuel had almost doubled from the subsidized price of Rp 5,150 (36 US cents) per liter to Rp 10,000 per litter.

The House Commission VII had urged the Energy and Mineral Resources Ministry to increase the annual quota for subsidized biodiesel by 2 million kiloliters to 17.1 million kiloliters from 15.1 million kl. (Kompas, 30/3/2022).

The executive director of the ReforMiner Institute, Komaidi Notonegoro, said the price of the subsidized biodiesel should be adjusted to the rising market price of the fuel so that the increase in subsidy would not have a significant impact on the state budget. The price adjustment, he said, would reduce the burden of the state budget, which had to be borne by the people.

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“The price of the crude palm oil which is used to make biodiesel is indeed very high now. Meanwhile, at the same time, the government has not anticipated the increase in the commodity prices, which has also occurred amid an increase in demand due to the economic recovery from the pandemic," said Komaidi when contacted in Jakarta on Wednesday (30/3/2 022).

If the government had to increase the price of palm oil-based biodiesel, Komaidi added, its impact on the cost of the procurement of goods and services should be well calculated. In addition, the purchasing power of the people who use biodiesel should also be taken into account. He also said that the subsidized biodiesel should be distributed only to the targeted recipients in order to prevent the misappropriation of subsidized fuel sales.

Meanwhile, commenting on the same issue, a senior economic analyst at Bank Danamon, Irman Faiz, said if the price of subsidized biodiesel was increased, it would not bring a significant impact on inflation. Its impact on inflation would be different from the increase in prices of non-subsidized fuel such as Pertalite (gasoline with RON 90).

"If the price of the biodiesel increases by Rp 500 per liter, it will only contribute 0.05 to 0.08 percentage points to inflation," said Irman.

KOMPAS/SUCIPTO

Drivers take their trucks with them during a demonstration in front of the Balikpapan Mayor's Office, East Kalimantan, Wednesday (30/3/2022). They demand that the distribution of subsidized diesel is evenly distributed. Because, for almost a month the drivers lined up for days to get subsidized diesel at the gas station..

Previously, the president director of state-owned oil and gas company Pertamina, Nicke Widyawati said the price of subsidized biodiesel was now well below the market price. The difference between the market or economic price and the subsidized price of the fuel, which is now Rp 5,150 per liter, has reached Rp 7,800 per liter.

In fact, subsidized biodiesel accounted for 97 percent of the biodiesel distribution in the country while non-subsidized diesel only contributed 3 percent.

Despite the growing demand, Pertamina will continue to provide a sufficient supply of the fuel in the market, Nicke said in a press statement. Until February, the subsidized biodiesel distributed by Pertamina had reached 10 percent above the allocated quota.

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"Pertamina and the government have agreed to relax the quota restriction, for areas that have exceeded the quota limit so that the supply of biodiesel can meet the demand, especially in regions where many people have to take a long line to buy the fuel,” Nicke said.

Nicke said that the supply of diesel fuel in Indonesia reached more than 1.9 million kl per day or enough for 23 days.

The shortage of biodiesel supply has occurred in North Sumatra and along the Sumatran Highway in the last two weeks. However, according to Kompas monitoring, biodiesel has been available at a number of gas stations on Jl. Sisingamangaraja, Medan, since the beginning of the week. The long line of motorists buying fuel at gasoline stations was no longer seen. Previously, almost all gasoline stations along the Sumatra highway had run out of biodiesel.

Subsidies

During a hearing with the House Commission XI on Wednesday, the president director of the Palm Oil Plantation Fund Management Agency (BPDPKS), Eddy Abdurrachman, said the subsidy for the raw material for the production of biodiesel continued to increase. The subsidy, which amounted to only Rp 460 billion in 2015, had increased sharply to Rp 51.86 trillion in 2021 due to the rising price of CPO in the world market.

"Possibly, in 2022, if CPO price remains high and the price of subsidized diesel is not increased, the price difference [that must be covered by subsidies] will remain high," said Eddy.

There is a growing call on the need to increase the prices of fuel, not only subsidized diesel but also non-subsidized fuel such as Pertamax. At present, Pertamina sells Pertamax fuel at Rp 9,000 per liter, which is below its economic price of Rp 14,500 per liter. However, it is not clear whether Pertamina will increase the fuel price.

This article was translated by Hendarsyah Tarmizi.