Tussle over fuel stocks<\/p>\n
State oil and gas company Pertamina learned an important
\nlesson from its earlier success in quickly collecting its
\naccounts receivable from the government. Last week, the company
\nused the same ploy it deployed in April, warning the government
\nthat national fuel stocks were dangerously below the minimum
\nsafety level of 22 days.<\/p>\n
The warning, relayed through the media and reinforced by
\nscenes in several provinces of long lines of motorists at gas
\nstations and some stations completely out of fuel stocks, worked
\nwonders for Pertamina -- the government rushed to make another
\npayment to the oil monopoly.<\/p>\n
The government never seems to learn from Pertamina's game of
\nbrinkmanship. The government should have realized as early as
\nApril that international oil prices for the year were not likely
\nto fall below the US$45 per barrel level, and accordingly
\nexamined the cash flow of Pertamina and worked out mechanisms for
\nthe improved disbursement of fuel subsidies to the company.<\/p>\n
Maintaining a minimum national fuel stock of 22 days is vital
\nfor a vast archipelago like Indonesia, where about 70 percent of
\nfuel has to be transported by sea. Certainly, building a fuel
\nstock and storing the fuel costs a lot of money, given the
\ndomestic consumption of about 1.1 million barrels of oil per day,
\nof which more than 350,000 barrels have to be imported. There
\nshould be a political consensus on how to finance the fuel stock
\nand pay its storage costs.<\/p>\n
This was one of the problems that was resolved by the
\ngovernment during a limited Cabinet session chaired by President
\nSusilo Bambang Yudhoyono on Thursday night. The government
\ndecided to inject $320 million into Pertamina to replenish its
\nfuel stocks from 17.2 days as of last week to the minimum level
\nof 22 days.<\/p>\n
But there should be a more expedient and transparent system
\nfor the disbursement of fuel subsidies to Pertamina. This means
\nthat however the new system is designed, it must ensure the
\namount of reimbursement paid to Pertamina is based on actual fuel
\nsales to eligible consumers, while at the same time not
\njeopardizing the company's cash flow. We do not want taxpayer
\nmoney wasted subsidizing fuel for industrial users or fuel that
\nends up being smuggled overseas.<\/p>\n
Without better reimbursement mechanisms, similar fuel stock
\nproblems could reoccur and Pertamina might once again resort to
\nthreats in its dealings with the government.<\/p>\n
However, improved reimbursement mechanisms, besides being only
\nan ad hoc measure, will not resolve the root of the problem --
\nprice subsidies.<\/p>\n
The fact is that global oil prices will likely remain above
\n$50 per barrel for the rest of the year, while the Rp 76.5
\ntrillion ($8.05 billion) allocated by the government for the fuel
\nsubsidy this year is based on an average oil price assumption of
\n$45 a barrel. This means the government will have to use a larger
\nportion of its scarce resources for the fuel subsidy, unless it
\nhas the political courage to bite the bullet once again and raise
\nfuel prices on top of the average 29 percent price increase in
\nMarch.<\/p>\n
The government has said it will not spend a single rupiah more
\nfor the fuel subsidy than what has already been allocated, and
\nPresident Susilo has ordered the energy ministry to design a
\ncomprehensive fuel conservation program.<\/p>\n
While a fuel-saving program is essential, its implementation
\nwill be extremely difficult if domestic fuel prices remain more
\nthan twice as low as prices in other countries.<\/p>\n
Domestic fuel consumption will certainly expand by at least 10
\npercent a year to support annual economic growth of 5 percent.
\nJust look at a report released by the automotive industry
\nassociation last week, which cited a 35 percent rise in car sales
\nin the first five months of the year.<\/p>\n
The most effective way to force the efficient use of fuel is
\nto sell fuel at least at its cost price. Moreover, energy
\ndiversification -- the only permanent solution to the fuel crisis
\n-- is not feasible as long as domestic fuel prices remain heavily
\nsubsidized. Cheap oil fuels make investment in other energy
\nsources such as natural gas and coal, which are abundant in the
\ncountry, commercially unfeasible.<\/p>\n
The 2002 pricing mechanism, whereby domestic fuel prices,
\nexcept kerosene, were floated on market quotations in Singapore
\nas the reference prices, should be revisited.<\/p>\n
Adjusting domestic fuel prices every month based on the
\nSingapore quotations and the rupiah exchange rate would provide
\npolicy predictability for the general public, notably
\nbusinesspeople, and spare the government the annual hassle with
\nthe House of Representatives in determining the budget allocation
\nfor the fuel subsidy.<\/p>\n
More importantly, price parity with neighboring countries
\nwould curb smuggling.<\/p>",
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