New Fuel Pricing in 2009

Just read in Kompas daily newspaper today. House of Representatives (DPR) still works on the draft of Regional Tax and Retribution Act (RTRA). One of many things covered in the draft act is regional fuel price (i.e. gasoline and diesel fuel). The current mechanism does not involve regional government in setting the price. Pertamina (state oil company) includes value added tax (10%) and regional retribution tax (5%) to the base price. Gasoline price of IDR 6.000 (subsidized) is already including 10% VAT and 5% retribution.

The draft stated that in the future (maybe in 2009), Pertamina does not have the right to add retribution tax component to the price. Pertamina only takes care of the VAT and therefore the retribution component (RT) is taken care by provincial government. The value range of retribution tax is 0% to 10%. In the future there will be different fuel price in each province (especially subsidized ones).

What’s the effect of that? I try to look at my magic crystal ball to see the future and I see:

• Fuel price is lower than today. Today gasoline is IDR 6000 (10% VAT, and 5% RT). In the future the price will be lower than IDR 6000 because most of regional government will try to make this strategy to boost investment. Lower energy price will attract investment
• Less corruption in Pertamina. Because Pertamina will not manage the RT component and redistribute it to respective regions
• More traffic congestions in areas where the fuel price is lower. This might happen in border area. For example if Jakarta sets higher RT component (say 6%) while West Java sets lower RT (say 4%) then most of Jakarta people will drive to gas station in West Java area (border between Jakarta and West Java) to buy cheaper gasoline/diesel fuel. This certainly will create traffic congestions in those area e.g. Bekasi, Depok, Bogor, Tangerang
• Maybe more corruption in the regions. Because local government will manage the RT directly, the flow of fund is shorter. Officials can play their games with gas station owners. For example there should be 100% RT fund goes to government but the deal between gas station owner and tax collector set that only 80% goes to public and 10% goes to tax collector and the rest stay in the pocket of gas station owner. Actually I still do not know the mechanism of retrieving RT funds from gasoline selling to public pocket therefore the scenario above is just an imagination
• Richer gas station owner. Provided that above point really happens
• More fuel consumption. Middle class in Indonesia (i.e. who have cars) is not a true middle class. Usually they do not have strong commitment on something patriotic. They want it safe for themselves. Nowadays middle class people consume more imported goods than the poor and middle classers still buy subsidized gasoline. Middle class in Indonesia is supported by false economy (credits cards). They want it cheap therefore they might go farther to get cheap fuel price. This will actually consume more fuel and thus fuel consumption will be higher
  There might be a little boost on investment, especially gas station investment in lower RT component areas
• Chaos in some areas because people are angry they cannot get fuel. Stock is out
• Small business of fuel reselling will be booming. Because people cannot get fuel at gas station they turn back to their original area. On the way, the fuel runs out. People have to buy fuel from street vendor….ha ha…with unknown impurities in it
• Workshops will be booming and is towing service. People buy fuel from street vendor and make the engine break down. The cars are then towed to the nearest workshop for repair
  

That’s all. The crystal ball is exhausted. Investment advice: automobile workshop or car towing business. Cheers.