Fuel Subsidy - Vol II

Just after big discussion about subsidized fuel consumption, the price of non-subsidized fuel is going down. The price of non subsidized fuel is in the range of IDR 6400 to IDR 7400 per liter. The price is attached to international crude oil price, therefore there is always a chance that the non-subsidized fuel price to be higher or lower. If the crude oil price goes down extremely, the price of non subsidized fuel might also be very close to the price of subsidized fuel (i.e. IDR 4500 per liter).

In this case why don't the government also attached the subsidized fuel price with the international crude oil price?

The idea is that the government sets the fixed amount of subsidy per liter fuel (say IDR 1000 per liter), then when the crude oil price is going up, the subsidized fuel price also goes up and the other way around when the crude oil price goes down. Precondition for this kind of subsidy mechanism is the transparent production cost of subsidized fuel. Pertamina as, currently, the only company producing and distributing subsidized fuel, must be clear and transparent with their production cost components (whether they can do it or not (or willing), is another matter). Clear cost components will give clear basic information for the government to calculate the subsidy.

The subsidy per liter fuel can also be different from area to area. For example, to boost the development in certain area (say Papua), the subsidy in that area is higher than Java (which normally is more developed than Papua). With this kind of scheme, I guess, there will be more development equality. Current subsidy scheme puts the government into a difficult position because subsidy creates heavy burden on the budget. 

Anyway, I am always a fan of subsidy reduction. Such thing will push people to be more efficient, more productive and more rational in using energy. There might be a shock on the economy, but if the government plans and implement the strategy wisely and cleverly, the shock will be absorbed and the economy will be back to normal.

Let's see what the government will do about this.