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Controlling subsidized fuel

Jakarta Post Editorial - June 30, 2022

Jakarta – We support state-owned oil company Pertamina's initiative to control the use of subsidized Pertalite gasoline and diesel oil through the introduction of the MyPertamina app to prevent the wasteful fuel subsidy spending from exploding into an unmanageable fiscal deficit.

We do not argue against President Joko "Jokowi" Widodo's recent assurance that the government would fully protect the people from the inflationary impact of skyrocketing international oil prices. But we cannot allow the fuel subsidy system to remain so widely open as it is now.

Allowing domestic fuel prices at only half their economic costs as they are now would also damage the credibility of our long-term renewable energy plan. Worse still, according to the latest report by the World Bank, the middle and upper classes consumed 42 and 73 percent of subsidized diesel, respectively, and 29 percent of subsidized LPG.

Pertamina has invited car owners to register with its MyPertamina platform at https://subsiditepat.mypertamina.id/and submit such basic documents as the owner's identity card, car registration card and car photos. And the oil company and the Energy and Mineral Resources Ministry are finalizing the requirements to be used to screen those entitled to buy the two kinds of fuel.

The application will initially be introduced in 11 cities in Sumatra, Sulawesi and Java. Pertamina is also expanding the digital system in its 5,518 gas stations across the country.

In order to get the maximum impact of the system and to ensure that the subsidies really reach the most vulnerable consumers, we suggest that the application system only allow cars with an engine displacement capacity of up to 1,500 cc to access the subsidized fuels, otherwise bigger-capacity cars would shift from the higher grade Pertamax gasoline (RON92) to Pertalite (RON90).

We expect start-up problems in the introduction of the MyPertamina application, but as the system advances it will be able to better target the consumers of the subsidized gasoline. This system could also be used permanently to control fuel consumption because fuel subsidy will most likely be needed for a long time as the country depends on imports for 60 percent of its oil needs.

The government should fully realize that the current global energy insecurity and volatility is not a temporary phenomenon caused by an imbalance in the demand-supply equation that can be solved by boosting production increases in major producing countries.

The supply disruption, which has doubled oil and gas prices over the past few weeks, may last longer than the conventional market instability because the latest energy market turmoil was caused by the geopolitical conflict following the Russian invasion of Ukraine.

The Finance Ministry's latest estimate put total energy subsidies (fuel, LPG and electricity} for the current fiscal year at Rp 510 trillion (US$35.5 billion), over 16 percent of total budget spending, because international oil prices have risen to over $100/barrel, compared with the average $63/barrel used to fix domestic fuel costs.

But without any control, the subsidy could further balloon as more motorists, who now use Pertamax, could shift to Pertalite, already the most widely used gasoline, which is 67 percent cheaper and carries a $0.35 price subsidy per liter.

Source: https://www.thejakartapost.com/opinion/2022/06/29/controlling-subsidized-fuel.htm