The world oil price is steadily increasing with a little hiccups here and there in connection with the oil politics played by the US and Arab’s countries. As a negative oil producing countries, meaning, it is importing consumable oil products more than it is exporting crude oil; Indonesia suffers from the high oil price. In practice, the monopolistic one and only oil company, Pertamina, could not give away their profits in the form of public subsidy. Pertamina concerns is only to make a lot of profits, pay its dividend, pay bonuses to all members of boards: directors and commissaries, to ensure that the company is running as smoothly as possible. Therefore, the petrol price subsidy shall be burdened by the government.
To begin with I should underline the inefficiency of subsidy. In the standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases the production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price. Both cases result in a new economic equilibrium. Therefore it is essential to consider elasticity when estimating the total costs of a planned subsidy: it equals the subsidy per unit (difference between market price and subsidized price) times the new equilibrium quantity. One category of goods suffers less from this effect: Public goods are—once created—in ample supply and the total costs of subsidies remain constant regardless of the number of consumers; depending on the form of the subsidy, however, the number of producers on demanding their share of benefits may still rise and drive costs up.
The recipient of the subsidy may need to be distinguished from the beneficiary of the subsidy, and this analysis will depend on elasticity of supply and demand as well as other factors. The net effect and identification of winners and losers is rarely straightforward, but subsidies generally result in a transfer of wealth from one group to another (or transfer between sub-groups).
OPTIONS AVAILABLE
In regards to the petrol subsidy in Indonesia, there are more and more opinions on lifting the subsidy due to the increasing amount of demand triggered by the fact (1) the oil supply is monopolistic by Pertamina, the state oil company, so that it is inelastic towards the low price (2) there is no strict control over the quota, because Pertamina can always ask the Finance Minister to pay for the price difference. Therefore, the possible options are (1) to give competing oil companies the right to freely sell Premium – the subsidized petrol (2) to limit the quota of Premium which can be used by a car; (3) to convert the use of Premium into its cheaper substitutes, e.g. LNG, LPG, electricity, bio-diesel; (4) to ban private cars from using Premium; (5) to cross subsidize Premium with vehicle taxes.
LET THE INVISIBLE HAND OF COMPETITION DECIDE THE PRICE
There are oil companies selling petrol apart from Pertamina. They are Shell, Petronas, and Total, who can actually sell the higher quality petrol (Pertamina names it Pertamax) cheaper at least IDR2,000 per litre (as per 11/05/11). Many believe that this higher price of Pertamina is due to its inefficiency by only importing Pertamax, instead of self-producing the fuel, but I don’t think so. Under President Director Karen, Pertamina has been reorganised to be very efficient – you can ask any of its employees about his/her now much reduced fringe benefits. The only reason for the higher price is the bigger bills, Pertamina can charge to the Finance Minister in the name of fuel subsidy. The president director Karen Agustiawan is an alumni from Mobil Oil and Haliburton, two of the most efficient oil companies operating in Indonesia. You can clarify this statement by examining how small, these companies pays their corporate taxes, but not by how unbelievably big these companies claim their cost recovery. Therefore, in order to stop president director Karen from doing her old bad habits of abusing the Indonesian government’s lousy system, we shall grant its competing oil companies the equal right to freely sell Premium – the subsidized petrol. I’m quite sure that all this mambo-jambo about subsidized petrol is rooted in the monopoly nature of Pertamina, combined with the lack of integrity of its president director.
LIMITING THE SUPPLY OF SUBSIDIZED FUEL
Theoretically, limiting or reducing the supply of goods in the market, ceteris paribus, will always push the price to increase. As the shadow price is higher, the shadow market will emerge. Efforts of smuggling Premium to a shadow market abroad will definitely be multiplied. And the shadow market has already been existed. For example, on 27/08/11, Indonesian Navy patrol boats cornered and detained a North Korean-flagged ship off the Riau Islands. The vessel, the Mount Tioman, with an Indonesian crew, was carrying more than 18,000 barrels of oil and sailing toward China when it was caught offloading some oil to several smaller vessels. Officials arrested the crews of the boats and confiscated the oil. On 30/08/11, police also stopped several military trucks carrying gasoline to East Timor by land. In recent weeks seven employees of state oil company Pertamina have been detained for questioning in connection with smuggling. No charges have been filed.
On 15/10/11 police from Bintan Timur confiscated 1 ton of subsidized diesel, in Kijang, Bintan, belonging to Sarifudin (aka Edi), 41, a taxi driver, in his fuel kiosk in Kampung Tanah Kuning, Kijang Kota. He admitted reselling the diesel to local fishermen charging IDR500 extra per litre.
Hence, limiting the supply of subsidized fuel is a very hard thing to do, if not impossible at all.
CONVERSION TO OTHER FUELS: GAS, ELECTRICITY, & BIO-DIESEL
This option in theory, is an idyllic and long-term one, because not only these fuel alternatives are cheaper, but they are also environmental friendly. Unfortunately, the conversion kit from petrol to gas will cost the car owner IDR30million. Government initially expected Pertamina to buy the conversion kits and do the conversion to as many cars as possible on a voluntary basis. But Ms Karen Agustiawan obviously has never joined a scout or any other voluntary organization before, as Pertamina finally refused to be in charge of the non-profit fuel conversion program.
In my humble opinion, this option needs to be supported not only by Government, but also by the industrialists. Instead of converting, they can simply produce and sell cars with hybrid fuel combustion system, be it petrol and gas, petrol and electricity, diesel and gas, diesel and electricity, and so on and so forth. How would the car manufacturers join this program when they can sell cars as easy as selling peanuts. Of course, the Government needs to give incentives to the car industry. Thai government already introduced this fiscal incentives package in 2009. Why can’t Indonesian government do something about it? Nonetheless, be careful, because Indonesia actually do not have much gas left. Due to stupidity, and maybe greed, someone signed a long term contract to sell natural gas cheaply to China. Therefore the solutions left are only electricity and palm oil biodiesel. Many of these palm oil plantations are now owned by Malaysian corporations. So, Indonesia therefore have limited options of either build expensive electricity generating dams all over the country, or build cheaper but high risk nuclear power plan.
NO SUBSIDIZED PETROL FOR PRIVATE CAR OWNERS
First of all, there are many small and medium size industry who do not have the resources to apply for public transport ‘yellow’ plate number. Secondly, how many cars out there that have ‘red’ government plate number. Try to multiply the number of Pemda, Pemkot, and Pemprov with the number of fleet they have. Also add the number of ‘green’ or ‘blue’ or ‘red’ military plate number. This option, therefore is not effective at all. Fourthly, the owner of those private ‘black’ plate number cars are tax payers. With the corruption are still rampant in most tax offices, many people on Facebook already gave ultimatum of not wanting to pay their taxes. This option will definitely make them really pissed off, hence their executing their ultimatum is just a matter of time. Finally, the tension among the poor population against the the MPs, government officials, police, satpol and so on is a bit high due the many recent cases where they do not show any sympathy for the poor people. Many experts believe that if the burden of disallowing drivers of private cars from buying subsidized petrol, poor people and middle class people with turn to violence and anarchy. The easiest target would be the gas stations that are vulnerable to catch fire.
CROSS SUBSIDY FUEL PRICE WITH VEHICLE LOCAL TAXES
The fact that there are many big cars, like Toyota Land Cruiser, Pajero sports, Volvo, Mercs, BMW, Toyota Camry, Honda Accord, Infinity, Audi, VW, Ford, any brand you name it, the manufacturer must have a line of their big engine fitted cars for some reasons. In the name of speed and power, they put big engine that always thirsty for petrol into their expensive cars. In my humble observation, most of the owners of these luxury cars always buy Premium – the subsidized fuel. They are rich people, but they are smart. Understanding that their cars drink a lot of fuel, they do not want to buy the more expensive petrol, like Pertamax.
On the other hand, many poor to middle class car owners can only afford cheap small cars with their small fuel-efficient engines. Even these cars have only small capacity fuel tanks. These people only use very limited amount of subsidized petrol and when they have to buy the double more expensive petrol, they are the one that will be hit very hard. The difference petrol price could mean a tuition for their children schools. While for the rich people who are currently abusing the subsidy, the difference could only mean a change from having dinner in a very prestigious restaurant into a smaller but still luxury restaurant.
Since, there is a progressive rate of car tax rates depending on the size of the engine, why not ask local governments to help pay the subsidy. They can always increase the taxes they annually charge to luxury car owners without hurting the owner of small cars.
CONCLUSION
From all the options available, in my opinion the most pragmatic one is the cross subsidy with vehicle taxes. The local government’s SAMSAT office have the capacity to do further investigation as they have the actual number of cars with their engine size. It is time for the government to show that they really care for the poor and middle class people.


via PT PLN must build its rather expensive infra structure while charging the hydro fuel producing company e.g. PERTAMINA for the energy used. Technology wise, OTEC was invented in 1880s by a French physicist,
Dr Williams said the UK had to “face up to the fact” that some citizens do not relate to the British legal system, and argued that officially sanctioning Sharia law would improve community relations. “Nobody in their right mind would want to see in this country the kind of inhumanity that has sometimes been associated with the practice of the law in some Islamic states,” he told the BBC’s World at One programme.








Of course, the government needs to influence the population for example by exempting the bubble cars, especially the electric ones from road tax or even 3-in-1 zone.

