INDONESIA’S ENERGY ADDICTION The looming dilemma of fuel subsidies

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The latest data also shows that economic recovery is actually hampered by the delay in normalized economic activity of the community, especially in urban areas. Data shows the poverty rate decreased to 9.54% as of March 2022, but the inequality level or Gini ratio actually increased from September to March, to 0.384. This shows that the recovery speed of the lowest and the top groups is increasingly unequal. When the prices of goods increase, especially energy prices, the impact on poverty-level society can trigger social unrest. 

The history of energy subsidies cut under Jokowi is problematic. The claim that cutting energy subsidies and then relocating them to infrastructure development will improve people’s welfare is also very naïve. Following significant cuts in fuel subsidies throughout 2015- 2019, many infrastructure projects have experienced problems, ranging from effectiveness to increased cost overruns due to poor planning. Meanwhile, people lost their way in buying ‘Premium’ type fuel, resulting in a continuous decline in purchasing power during that period. ( Figure. Sharp increase on Energy Subsidies (2010-2022) ) 

Nowadays, the increasing burden on the Government to maintain fuel prices is also correlated with an increase in the burden of government debt, because previous governments paid too much attention to megaprojects financed through debt and energy subsidy cuts. Now the problem is not only that the debt ratio is considered safe, but also the debt-to-service ratio is relatively risky, at 36.7%. Then in 2023 there are many budget needs that create the risk of widening the budget deficit. The cost of holding simultaneous elections will be IDR 110 trillion, then priority infrastructure projects are being pursued to be completed before the election – another quite expensive matter. This means that the burden of government debt is getting heavier next year. 

Ahead of the election, the issue of price increases and political stability will become inseparable. If inflation is too high, then people will be easily provoked, entering a vicious circle of money politics, and even doubting election results, due to a sharp decline in government legitimacy. A study conducted by the Economist Intelligence Unit in 2014 revealed that “The data confirm the worrying trend of recent months and increase the likelihood that the cost of living will be a source of discontent and potential political unrest, particularly as the highest price rises are in sectors that affect the urban population”. ( Figure. Civil Unrest Index Verisk Mapplecroft 2021) 

At the end of Jokowi’s administration, the most obvious challenge will be to keep people from thinking that Jokowi had succeeded in dealing with inflation, and at least increasing people’s income levels in various regions, because this will be difficult to be accepted by the community and constituents: if on the one hand the development of the state capital project is encouraged, prices of basic necessities will rise significantly. People will not be satisfied with just looking at buildings, toll roads and other grand mega-projects while being forced to pay exorbitant fuel prices. 

Therefore, Jokowi should maintain a main focus on the last 1.5 effective years, so that economic stability becomes the most important legacy. During the SBY era, people remember that inflation at the end of 2014 penetrated 8.3%, stoked by fuel prices, playing a major role in inflation throughout the year. If Jokowi can repress inflation, it will be considered a success. Meanwhile, at the end of Jokowi’s leadership, fuel prices could again become a stumbling block that risk eroding the success of controlling inflation. 

MyPertamina apps is difficult to implement 

The impact on inflation is quite risky from the price adjustment set by the Government (imported inflation) from a fuel subsidy adjustment. Projected inflation could touch 6% year on year this year if the price of Pertalite is increased. The higher the price disparity between subsidized and non-subsidized goods, the higher the migration. At the same time, to prevent the migration of non-subsidized fuel users to subsidized types, Pertamina wants to carry out various restrictions. 

Now when it comes to restrictions, problems will arise. One of them is the problem of data collection that must be corrected so that decisions about which households are included in the subsidized and non-subsidized categories must be valid. The problem is that the restrictions are a little late, because the use of MyPertamina apps somehow contradicts the purposes of subsidies, making it difficult for the poor who have the right to buy fuel. 

MyPertamina apps obviously need a stable internet connection. The problem of unequal internet access is a serious problem. Just imagine that only 14% of the lowest decile households are connected to the internet, meaning that it is difficult for poor people who actually need fuel. Does Pertamina want to buy gadgets and data packages for every poor household? This is a strange policy indeed.