Toward a fair fuel-pricing system<\/p>\n
By Otto Soemarwoto<\/p>\n
This is the first of two articles on fuel pricing.<\/p>\n
BANDUNG (JP): Fuel oil -- commonly known as bahan bakar
\nminyak, and by its acronym BBM -- is making headlines again. In a
\nbid to reduce the BBM subsidy, the government decided to increase
\nits price, but because of fierce protests the government
\nretreated by announcing the postponement of the price hike.<\/p>\n
The dilemma lies in the narrow vision which the government,
\nnon-governmental organizations (NGOs), the general public and
\neven the International Monetary Fund (IMF) and the World Bank
\nlook at the subsidy system of fuel oil.<\/p>\n
The current system is unfair. The more one consumes fuel, for
\nexample by driving more kilometers by car, the more one enjoys
\nthe benefits of the subsidy. These are the richer people.<\/p>\n
Since the subsidy is derived from public funds, the poor are
\npaying subsidies to the rich. The government tried to overcome
\nthis unfairness by issuing BBM coupons to the poor, a program
\nwhich was later changed to cash subsidies.<\/p>\n
But considering the still corrupt bureaucracy, this system was
\nbound to fail miserably. What then are the alternatives?<\/p>\n
This article is confined to the transport sector, a major
\nconsumer of fuel oil. The article also seeks a synergetic
\nrelationship between the economy and ecology.<\/p>\n
In the transport sector there are many hidden subsidies which
\nare not recognized by the government, the experts, the public and
\nthe IMF.<\/p>\n
Firstly, car tax does not cover the costs of the construction
\nand widening of roads and bridges, and their maintenance; the
\nproduction, placement and maintenance of traffic signs and
\noperation of traffic lights; the training and salaries of traffic
\npolice, and the maintenance and operation of ambulances and the
\nhealth costs of traffic accidents.<\/p>\n
The government also has to pay for many parking lots, while
\nonly a small fraction of the revenue goes to the government's
\ncoffers.<\/p>\n
It is, hence, ironical that the large amount of public funds
\nspent on the widening of roads often ends up creating more
\nroadside parking places, which increase traffic jams.<\/p>\n
A publication of the World Resources Institute estimated that
\nin the United States this subsidy, excluding the health costs,
\namounted to US$175 billion annually.<\/p>\n
No data is available for Indonesia. Assuming this to be only
\n0.1 percent of the U.S. subsidy, it would still be an annual
\nsubsidy for motorists of $175 million.<\/p>\n
Secondly, there is the subsidy in the form of external costs.
\nBeing external costs they are not borne by the motorists, but by
\nthe public. Motorized vehicles produce fumes which cause asthma
\nand contain toxic and carcinogenic substances.<\/p>\n
The lead in the fumes is suspected of inhibiting the
\ndevelopment of the brains of children and thus reduces their
\nIntelligence Quotient.<\/p>\n
The traffic officers, parking employees, street vendors,
\nstreet musicians and beggars at traffic lights are the ones who
\nsuffer most from the air pollution.<\/p>\n
The World Bank estimated that for 1990 the health cost for
\nJakarta alone was $220 million. For the whole country this figure
\ncould easily reach $500 million. Because of the growth of the
\npopulation and car numbers, this health cost has increased
\nsteadily.<\/p>\n
This is another subsidy for the motorists. To illustrate the
\nmagnitude of this subsidy, compare it with the foreign aid of
\n$400 million which is currently being delayed by the IMF, because
\nIndonesia has not been able to satisfactorily meet its Letter of
\nIntent.<\/p>\n
Another external cost is related to the effect of roads and
\nparking lots from the increasing frequency and intensity of
\nfloods in the rainy season and water shortages in the dry season.<\/p>\n
These two effects are interrelated. Roads and parking lots
\nreduce the rate of rainwater infiltration into the ground. On one
\nhand, this increases the volume of the overland flow, causing
\nmore floods.<\/p>\n
On the other hand the rate of the refill of the ground water
\nis diminished so that in the dry season the river flows are
\nminimized and many wells become dry.<\/p>\n
Floods in the wet season inflicting billions of rupiah in
\ndamage alternate between water shortages in the dry season,
\nforcing the poor, who are not served by the state water company,
\nto buy water.<\/p>\n
Floods and water shortages are also serious sources of
\ndiarrheal diseases. Roads also contribute to floods in the
\ncountryside which cause many thousands of hectares of rice fields
\nto produce poorly or even to suffer complete failure. Again the
\nones who pay are mostly the poor people who are subsidizing the
\nmotorists.<\/p>\n
A third external cost is that roads, parking lots and traffic
\ncreate areas with higher temperatures than their surroundings,
\nthe so-called heat islands.<\/p>\n
Even the mountain resort of Puncak, Bandung and other mountain
\ntowns are not cool anymore. In Kuala Lumpur the temperature
\ndifference between the business center and the city outskirts is
\nclose to 5 degrees centigrade. No such data is available for
\nIndonesia.<\/p>\n
The higher temperatures increases the need for air-
\nconditioning which in turn accelerates the rate electricity
\nconsumption, and also fuel, which increases the amount of subsidy
\npaid by the government.<\/p>\n
Air conditioning also works as a positive feedback loop for
\nthe heat islands, making them worse. Naturally, the poor cannot
\nafford air-conditioning and just have to bear the heat.<\/p>\n
Heat islands also stimulate the development of living
\norganisms, including mosquitoes and flies, hence, they exacerbate
\ninfectious diseases and dengue hemorrhagic fever, increasing the
\nhealth budget of the government and the people. Still more
\nsubsidies for the motorists.<\/p>\n
Logically, it is these subsidies which should be cut first.
\nThis can be done by adopting a stick-and-carrot policy. The stick
\nwould be to force the motorists to pay the external costs
\ndescribed above.<\/p>\n
Firstly, the tax on cars should be increased significantly and
\na road tax be introduced. For those who have more than one car,
\nthe tax should be increased exponentially.<\/p>\n
Secondly, parking fees should also be increased significantly
\nand parking on roads should be banned. This latter step would
\nhave the additional advantage of reducing congestion, which would
\nreduce the amount of fuel subsidy paid by the government, and
\nwould lower air pollution.<\/p>\n
Conversions of lawns to parking lots should be permitted
\nsparingly and the conversions should also be taxed.<\/p>\n
The writer is an environmental expert, teaching at Padjadjaran
\nUniversity in Bandung.<\/p>",
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