Fuel price increase<\/p>\n
It is encouraging to note the relative calm in which the
\ngeneral public reacted to the increase in fuel prices on
\nThursday, the third since January. Unlike January's announcement
\nof price increases, which was met by major street demonstrations,
\nthe latest rise, though much higher than the one in early April,
\nseemed to be accepted as something unavoidable.<\/p>\n
This trend should be welcomed and appreciated as representing
\na significant advance in the education of consumers in the
\neconomics of commercial energy. Consumers have now begun to
\nrealize that sooner or later they will have to pay for fuel based
\nupon its economic cost or face supply disruptions.<\/p>\n
There are, we think, several factors responsible for the calm
\nreaction to the price increases. First of all, the rate of the
\nlatest price increases for the most widely-used fuels -- 9.3
\npercent for gasoline and 12 percent for kerosene -- is not as
\nhigh as the average 22 percent hike in mid-January.<\/p>\n
Most important, though, is the relatively effective
\ninformation campaign launched for the introduction of the new
\nfuel-pricing policy in January when prices were floated, except
\nfor the price of kerosene, based upon international market prices
\nusing Mid Oil Platts Singapore (MOPS) quotations as the
\nreference. This meant that domestic fuel prices became adjustable
\nevery month based on the MOPS quotations and the rupiah's
\nexchange rate.<\/p>\n
The new pricing policy seems to have gained political
\nacceptance because the reasons for the new mechanism are seen as
\nbeing both rational and sensible, and the principle of fairness
\nin burden-sharing and efficiency in fuel use has been emphasized.<\/p>\n
While the prices of other fuels have been floated, the price
\nof kerosene, the commercial energy source most widely used by the
\ncommon people, was fixed at Rp 600 (6 dollar cents) for
\nhouseholds and small business users.<\/p>\n
Resistance to the new policy was also minimized as consumers
\nwere not fully exposed immediately to international prices.
\nDespite their floatation, the price of fuel for industrial users,
\nexcept mining firms, has been set at only 75 percent of MOPS
\nquotations. However, gasoline, which is used mostly by passenger
\ncars owned by the wealthier members of society, has been set at
\n100 percent of the MOPS price.<\/p>\n
The January policy also protects consumers from wild
\nfluctuations in international market prices by setting floor and
\nceiling prices for each fuel so as to provide a reasonable degree
\nof predictability.<\/p>\n
The latest prices announced on Thursday, for example, are
\nstill below the ceiling prices announced on Jan. 16, except for
\ngasoline, which has reached its ceiling price of Rp 1,750, even
\nthough international oil prices have risen to as high as $26 per
\nbarrel, far above the $22 assumed for the ceiling price, and the
\nrupiah rate still languishes at around Rp 9,400-Rp 9600 per
\ndollar, compared to the average of Rp 9,000 assumed when drafting
\nthe fuel pricing policy.<\/p>\n
The government, however, should not take the public's
\nacceptance of the automatic fuel price adjustment mechanism for
\ngranted even though the public now seem relatively comfortable
\nwith the policy. The marketing of the new policy should continue
\nbecause it greatly helps the government in that it is now spared
\na round of political wrangling with the House of Representatives
\nevery time a price adjustment is needed.<\/p>\n
The education of consumers is an ongoing process. The
\npolitical acceptance and credibility of the policy could be
\neroded if the government cannot improve its administrative
\ncapacity to manage fuel distribution under the current two-tier
\npricing system, and to ensure the smooth distribution of the Rp
\n2.8 trillion in compensation funds allocated to help mitigate the
\nimpact of higher prices on the poorest segment of society.<\/p>\n
The policy's political acceptance would further be
\nstrengthened if the government continued to show to the public
\nthat it was also shouldering its full share of the burden by
\nminimizing waste and inefficiency, cracking down on corruption
\nand dealing firmly with smugglers.<\/p>\n
Attention will also be focused on the credibility of
\nPertamina, which is now responsible for determining the monthly
\nprice adjustments. With its monopoly over oil supplies, Pertamina
\nplays a vital role in facilitating smooth fuel distribution and
\npreventing fuel smuggling. It should work harder to improve its
\ncorporate governance and to bolster its image given that in the
\npast it was notorious for corruption and gross inefficiency, as
\nwell as being a cash cow for senior officials and politicians.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/fuel-price-increase-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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