Fuel Price Increase: Heavy Burden for All

The government has recently increased the prices of subsidized fuel. As in the past, the price-cap increase has drawn public outcry, especially from students, workers and households.

I am not sure this will be the last time such a policy will be pursued because, unlike in many other countries that leave it to the market to respond, the prices for some types of fuel are regulated by the government.

Whenever the elements that make up production costs in particular suffer pressure, although the pressing factors do not always come from outside, the government is forced to squeeze the subsidies in order to maintain fiscal resilience, with the consequence being the ensuing burden shared by the state and citizens.

Among the executive heads, of course, Pak Harto resorted to fuel price raises most frequently because he was the longest-ruling head of the state.

In our history, from the past until today, all sitting presidents, except for BJ Habibie, have turned to fuel price raise. Why was there no increase in fuel prices during Pak Habibie's term? It was because in the beginning of his presidential stint, which coincided with the end of Pak Harto's long reign, fuel prices had been raised substantially enough to withstand the pressure within a year and a half of Pak Habibie's administration.

Among the executive heads, of course, Pak Harto resorted to fuel price raises most frequently because he was the longest-ruling head of the state.

Compelling situation

While Pak Habibie was “freed” from the obligation to raise fuel prices, the others found themselves coping with a compelling situation, in which uncompromised necessity finally forced the ruling administration to embark on this unpopular policy. The increase in fuel prices does cause an impact of strain to the people. The decision over fuel prices, which unavoidably triggers price hikes in other essentials for people's lives, is a difficult option for the government to take. No administration has been happy to go for this policy.

From my own experience, raising fuel prices was one of the toughest decisions the government had to make. I endured such a situation myself when I headed the Mining and Energy Ministry (now Energy and Mineral Resources Ministry). I had to wrestle with my conscience. I had no other option for the sake of the greater interest of the country. It was a tough moment.

Also read:

> Fuel Price Adjustment

> Fuel Price Hike and Social Protection

During my office time in 1988-1993, as far as I can remember, the fuel prices were periodically capped three times. Then in 1998, the latest round of this unpopular policy hastened the collapse of the government. By then, I was no longer mining and energy minister. However, with my new position as the coordinating economy, finance and industry minister, I was responsible for the overall governance of the economy.

The policy was reviewed and the prices were lowered in May 1998, but the excess was insurmountable. Instead of giving a lift-up to the situation, the reviewing step might have been seen, from the public’s perspective, as an indication of the weakening government, thus allowing the wave of rallying students to come further to the forefront to spearhead a reform movement by making the fuel price raise one of the main spirit-provoking issues.

We may argue that the forced transfer of government in 1998 was sealed by the deadly shooting of Trisakti students, but the incident was inextricably linked with the decision over fuel prices as inter-correlated events.

What is the message I want to convey in this article? Governments come and go; so do those in the executive seat. If the governance system still prevails as it does today, we are up for such a problem over and over again before we can expect to finally arrive at a time when there is no longer a necessity to provide subsidies. And we do not know when that time will come.

Another aspect of this problem is that, based on the objectively quantified data, subsidy beneficiaries appear mostly to be those who can afford unsubsidized fuel. It is an irony that the efforts to ensure social justice for the citizens through subsidies end up in injustices, in which people in the financially abled stratum of society largely enjoy the subsidies.

Direct cash assistance

The government, from time to time, has attempted various ways to ease the burden on the people due to rising fuel prices. The New Order government, for example, raised the price of unhusked rice grain or rice at the farmer level in a bid to increase people’s purchasing power extensively.

Entering the Reformation period, the government has introduced a direct cash assistance (BLT) program, whose concept (unconditional cash transfer) is also applied in other countries, with a high degree of success in terms of subsidy transfer.

I hope the public can understand that government-administered adjustment of commodity prices, as well as in the case of cooking oil in particular, is imperative because we do not live alone.

It is worth noting that there are various aid schemes of conditional cash transfer for certain purposes, such as purchasing empowerment for basic needs, education or healthcare, or disaster mitigation. This concept of conditional cash transfer was once implemented during the New Order era by virtue of presidential instructions (inpres). Known as Inpres Desa Tertinggal (IDT), or the presidential instruction on disadvantaged villages, the program disbursed grants for poor villagers as business capital. The IDT program was launched when I was chairman of National Development Planning Agency (Bappenas) in 1993-1998.

Through this article, I hope the public can understand that government-administered adjustment of commodity prices, as well as in the case of cooking oil in particular, is imperative because we do not live alone. We are part of world communities with economic dynamics, which are volatile to fluctuation due to geopolitical or natural factors.

Fuel governance

As a closing note, while the rationale for the fuel price raise as described above is acceptable, there is still another problem, which is gas and oil producer Pertamina's operational efficiency as a state enterprise (BUMN). Oil drill and production has thus far fallen short of the target. Still relying on old refineries, the production is not optimal.

The most-recently built refinery plant in Balongan, West Java, has now been in operation for almost 30 years since 1994 following its construction in 1990. As a result, the crude-processing capacity cannot meet daily fuel needs, which prompted the government to turn to imports to offset the deficit. This is where one of the problems arises, because the transactions are often done without enough transparency.

Also read:

> Economic Resilience and Fuel Subsidy

> Fuel Subsidies Mostly Enjoyed by the Rich

In addition, the distribution of fuel is exposed to leakage. As it is often reported, 80 percent of the fuel subsidy has missed the target because it favors non-poor people. Big companies are still found using subsidized fuel (diesel) for their operations.

Our concerns are how to build efficient governance in fuel management, from production and procurement to distribution, so that fuel subsidies are truly received by those in need. Proper catering of subsidies will help ease the state and other members of society from the burden. President Joko “Jokowi” Widodo has repeatedly reminded Pertamina to look for efficiency in order for fuel subsidies to get to the target properly.

Ginandjar Kartasasmita, Former mining and energy minister (1988-1993)

KOMPAS/DEONISIA ARLINTA

Ginandjar Kartasasmita

This article was translated by Musthofid.