Fuel Price Adjustment

The government decided to increase the prices of the subsidized fuel brands Pertalite gasoline and Solar diesel, as well as Pertamax, from 2:30 p.m. on 3 Sept. 2022.

KOMPAS/BAHANA PATRIA GUPTA

An officer changes price information after the increase in fuel prices at a gas station in Sidoarjo Regency, East Java, Saturday (3/9/2022).

The price hike for subsidized fuels was announced by President Joko “Jokowi” Widodo, accompanied by a number of ministers, at the State Palace on Saturday (3/9/2022). It is said that the subsidized fuel hike cannot be avoided in order to cope with the difficult situation. The per liter price of Pertalite was increased Rp 7,650 to Rp 10,000 (70 US cents), Solar from Rp 5,150 to Rp 6,800, and Pertamax from Rp 12,500 to Rp 14,500.

In addition to cope with the impact of the fuel price increase on inflation, which could disrupt economic growth, the government has also prepared a number of social assistance programs to reduce the impact on people's buying power and the poverty rate.

We view the subsidized fuel hike as the correct measure to cope with the swelling fuel subsidy, but it needs the support of all parties. If the price hike were delayed even further, it would have brought a greater burden to the state budget and would have been unhealthy for the economy.

Also read:

> President Receives Results of Price Hike Calculation

> Supervision Tightened Over Subsidized Fuel Sales

So far, the fuel subsidy has not reached the targeted recipients, because 80-95 percent are actually enjoyed by affluent consumer. As such, this needs to be corrected for the sake of justice and sustainability of future development.

At the same time, the subsidized fuel hike must be used as an opportunity to improve the distribution of subsidized fuel so that the subsidy is actually enjoyed by the targeted recipients.

Although the fuel price hike will not really reduce the government’s financial burden in 2022, increase the price of subsidized fuels will set a better price base for controlling the fuel subsidy in 2023.

KOMPAS/HERU SRI KUMORO

Hundreds of vehicles line up to refuel in the Bintaro area, South Tangerang, ahead of the price increase, Saturday (3/9/2022), following the government's decision to increase the price of fuel oil.

The increase in global crude prices to above $100 per barrel has prompted the government to increase the fuel subsidy three times, from an initial budget of Rp 152.5 trillion to Rp 502.4 trillion and then to Rp 649 trillion this year. The benchmark Indonesia Crude Price (ICP) has reached $100 per barrel, far above the assumption of $63 per barrel in the 2022 state budget.

Global crude prices have recently dropped slightly due to concerns related to global recession, but prices are expected to remain high throughout this year and next.

In addition, cheap energy prices have been proven to cause wasteful behavior in energy use and hinder the development of new and renewable energy. This is quite unhealthy, especially with our status as a net oil importer.

Also read:

> Fuel Price Hike and Social Protection

> Economic Resilience and Fuel Subsidy

The President has emphasized that part of the fuel subsidy allocation will be diverted into targeted assistance programs, such as cash transfers totaling Rp 12.4 trillion for 20.65 million disadvantaged families, each of which will receive Rp 150,000 per month for four months starting this month.

In addition, the government will also provide wage subsidies worth Rp 9.6 trillion for 16 million workers that make a monthly income of up to Rp 3.5 million. The workers will each receive a subsidy of Rp 600,000. There will also a public transportation subsidy. The President has ordered regional administrations to set aside 2 percent of general transfer funds, worth a combined total of Rp 2.17 trillion, as a subsidy for public transportation, on-demand motorcycle taxi drivers and fishermen.

As with other subsidy schemes, a number of observers have warned that the key to the success of diverting the fuel subsidies to poor and vulnerable households relies heavily on the availability of up-to-date, accurate data. Only with accurate data will the subsidies reach their targeted recipients.

This article was translated by Hendarsyah Tarmizi.