Rp 9.7t in subsidized fuel lost last year

Rp 9.7t in subsidized fuel lost last year

Urip Hudiono, The Jakarta Post, Jakarta

The Supreme Audit Agency (BPK) has found that at least one-eighth
of last year's Rp 80.42 trillion ($7.99 billion) in subsidized
fuel, or Rp 9.7 trillion, was lost due to smuggling and that the
total subsidy itself may have been overestimated by Rp 3.64
trillion.

Speaking after submitting the results of the BPK audit of last
year's fuel subsidy to the House of Representatives on Monday,
BPK chief Anwar Nasution said the findings were the outcome of a
prolonged failure on the part of the government to determine
precisely the exact demand and supply of fuel in the country, as
well as to protect the subsidized fuel from rampant distribution
irregularities and misuse.

"The subsidy policy has caused a disparity in fuel prices --
particularly that of kerosene and diesel fuel -- resulting in
unscrupulous parties trying to reap illegal benefits from the
subsidized fuel," he said.

Following a request from the House in February, BPK had
conducted a four-month audit from April to August on last year's
fuel subsidy, focusing on the country's production of crude oil
and refined products, the production cost of refineries and the
distribution of the subsidized fuel.

The audit was complemented by a study by University of
Indonesia's Institute for Economic and Social Research (LPEM-UI)
on the effectiveness of the fuel subsidy.

In its study, LPEM-UI revealed a mismatch of some 8 million
kiloliters of fuel worth Rp 9.7 trillion, between the sales data
of fuel from state oil and gas firm PT Pertamina and the full-
year estimate of domestic fuel consumption, concluding that it
had been lost through smuggling out of the country.

The government, in this case the finance ministry, disburses
the fuel subsidy through Pertamina, which still acts as the
country's main fuel distributor.

LPEM-UI also concluded that 3.9 million kiloliters of diesel
fuel valued at Rp 4.5 trillion had been smuggled last year alone
-- while some 1.7 million kiloliters of kerosene valued at Rp 3.5
trillion vanished on the way to low-income households, its
targeted consumers.

"Being the most flexible type of fuel in terms of its usage,
large amounts of kerosene had been misused, particularly for
illegal fuel mixing," LPEM-UI said in its report.

BPK found that last year's total subsidy might have been over-
disbursed by as much as Rp 3.64 trillion, with Anwar deploring
the fact that Pertamina did not have a definite system to
calculate its fuel production cost, resulting in the obscure
subsidy costs and disbursement.

"It is embarrassing that such an old and big company as
Pertamina does not have a method to make an exact calculation,"
he said.

The government and Pertamina only acknowledged a revision of
Rp 936 billion to the subsidy, arguing that the additional Rp
2.71 trillion was for Pertamina's domestic market obligation
costs.

BPK has calculated in its audit that the production cost of
kerosene stands at Rp 2,545 per liter, diesel at Rp 2,588 and
Premium gasoline at Rp 2,750. The fuels are currently sold at Rp
2,000, Rp 4,300 and Rp 4,500, respectively, after the latest fuel
price hike on Oct. 1.

Anwar also highlighted the weak supervisory system at both
Pertamina and the government's Upstream Oil and Gas Regulatory
Body (BP Migas), resulting in the failure to save up to Rp 480
billion in the fuel subsidy each year.