Fuel Subsidies Mostly Enjoyed by the Rich
Based on government calculations, the average consumer spending of Pertalite and diesel is 2.5 million kiloliters and 1.5 million kiloliters per month, respectively.
Motorcycle and car riders queue to fill up fuel at the Manahan gas station, Solo, Central Java, on Wednesday (12/18/2019).
The Finance Ministry has stated that more than half of the subsidized diesel, Pertalite gasoline and LPG are enjoyed by wealthy citizens. The distribution of the subsidized fuel should, therefore, be more effective.
JAKARTA, KOMPAS — The recovery of the people’s mobility, thanks to the decline in COVID-19 cases, has boosted energy consumption, especially subsidized fuel and liquefied petroleum gas (LPG). If their distribution is not controlled, this year’s fuel subsidy is estimated to far exceed the initial quota.
Unfortunately, the majority of subsidized fuel (BBM) and LPG are enjoyed by well-to-do households, namely those in the spending decile of 5 to 10 or households with the highest expenditures that account for 60 percent of the population. The bottom 40 percent of the population actually gets a small portion.
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Speaking during a press briefing following the coordination meeting on fuel subsidy in Jakarta on Friday (Aug. 26), Finance Minister Sri Mulyani said that with the budget allocation for energy and fuel subsidies of Rp 502.4 trillion (US$33.8 billion) this year, the total amount of subsidized Pertalite gasoline and diesel (Solar) will reach 23.05 million kiloliters and 15.1 million kiloliters, respectively.
With such a consumer spending level, the existing quota for subsidized fuel will be insufficient.
Based on government calculations, the average consumer spending of Pertalite and diesel is 2.5 million kiloliters and 1.5 million kiloliters per month, respectively. With such a consumer spending level, the existing quota for subsidized fuel will be insufficient.
"If the consumer spending pattern of subsidized fuel remains unchanged, the consumer spending of subsidized diesel will reach 17.44 million kiloliters and Pertalite 29.07 million kiloliters by the end of 2022. Based on our calculations, if consumer spending exceeds the quota, we need to increase the subsidy spending by Rp 195.6 trillion ($13.2 billion)," she said.
Not right
Initially, the government allocated Rp 152,5 trillion ($10.3 million) for energy and fuel subsidies in the 2022 State Budget. However, the allocation for energy and fuel subsidies was later increased to Rp 349.9 trillion ($23.6 billion) due to the increase in global fuel prices.
According to the finance minister, subsidized diesel is currently sold at Rp 5,150 ($0.35) per litter, far below its economic (real) price of Rp 13,950 per liter, while Pertalite with an economic price of Rp 14,450 per liter is sold at Rp. 7,650 per liter. While the 3 kilogram LPG canister is sold at Rp 4,250 per kg, far lower than its economic price of Rp 18,50 per kg.
Unfortunately, a larger part of the energy and fuel subsidies worth hundreds of trillions of rupiah is enjoyed by the middle and upper economic class. For example, 86 percent of Pertalite supply is used by households and 14 percent by the business world. From 86 percent of Pertalite consumer spending, 80 percent go to well-to-do households and only the remaining 20 percent is enjoyed by the poor (the bottom 40 percent of the population).
Finance Minister Sri Mulyani
Meanwhile, 11 percent of subsidized diesel is used by households, as 89 percent go to the business world. Of all the diesel subsidies used by households, 95 percent is enjoyed by well-off households and only 5 percent are enjoyed by poor households which include farmers and fishermen. For subsidized LPG, as much as 68 percent is enjoyed by wealthy households.
Sri Mulyani emphasized that the state budget would be used as a shock absorber to maintain people's purchasing power and consumer needs. However, the capacity of this year's state budget must be maintained in order to anticipate uncertainty in the coming years.
“The subsidies will not be removed, but an adjustment will be considered. Everyone must work together. Groups of well-to-do people should contribute more than the poor, who have to be assisted with various instruments,” said Sri Mulyani.
A number of schemes are being calculated, including their impacts, such as inflation.
Meanwhile, Energy and Mineral Resources Minister Arifin Tasrif, the change in subsidized fuel prices and limitation of their recipients, which will be regulated under a Presidential decree, are still being finalized. A number of schemes are being calculated, including their impacts, such as inflation.
Previously, the Indonesian ombudsman advised the government to limit the distribution of subsidized fuel to motorcycles with an engine capacity of under 250 cc and public transportation. In addition, the daily filling of subsidized fuel needs to be limited. This option is considered more appropriate than raising the price of subsidized fuel because it can trigger inflation.
The suggestion is based on the results of a quick study on the limitation of subsidized fuel through the MyPertamina application. This suggestion is also needed to cope with the depletion of the subsidized fuel quota allocated for 2022.
Energy and Mineral Resources Minister Arifin Tasrif
A member of the ombudsman, Hery Susanto, said that consumer spending of Pertalite and diesel fuel reached more than 70 percent. So, if the price is raised, it will trigger inflation.
Therefore, the restriction of vehicles that are entitled to use subsidized fuel is considered more appropriate. "Other than these modes of transportation (motorcycles under 250 cc and public transportation), they should be required to use Pertamax fuel and other non-subsidized fuel. This criteria should be included in the revision of Presidential Regulation Number 191 of 2014," said Hery.
The public awareness campaign is needed because many people do not understand the targeted recipients of subsidized fuel.
Pertamina, said Hery, must also provide public education on why certain groups of people are still prioritized to receive subsidized fuel. The public awareness campaign is needed because many people do not understand the targeted recipients of subsidized fuel.
According to the lecturer of the Development Economics Study Program at Sebelas Maret University, Surakarta, Lukman Hakim, prices of subsidized and non-subsidized fuel prices should not be too wide. It needs to be implemented in order to educate the public. The large price disparity is unhealthy for the people. (DIM/DIT)
(This article was translated by Hendarsyah Tarmizi)
