OBSERVERS OPT TO OIL PRICE HIKES

By Andi Abdussalam

Jakarta, Jan 27 (ANTARA) - The government is preparing  to implement its policy of limiting subsidized fuel oil consumption as of April this year but observers say that raising the prices will be a more advantageous and realistic option.          "Based on economic calculations, raising the fuel oil prices is a more rational policy. There will be no need to prepare infrastructure and monitoring instruments," Komaidi Notonegoro of  ReforMiner Institute, told a discussion at the Economic Journalists Communication Forum.          He said that raising the prices of subsidized fuel oils is more advantageous than a policy to limit their consumption. Komaidi's view was shared by economist Nugroho SBM  of  Diponegoro University.          Nogroho said that increasing the present gasoline price will be a more realistic policy than the government's plan to limit subsidized fuel oil consumption to reduce its subsidy burden, an economist here said.          "It will be very difficult  to control the fuel oil market if there is a wide price disparity between two categories  of oil  (subsidized and non-subsidized gasoline). The condition could lead  people to seek profit illegally," Nugroho.           Besides, raising prices would be more advantageous. According to Komaidi,  if the prices of subsidized premium gasoline and diesel oil were raised by Rp1,000 per liter, there would on a national scale be a saving of Rp38.7 trillion and if they were increased by Rp1,500 per litter, a saving of  Rp57.4 trillion.          He said that limitation of subsidized premium in Java and Bali would only save Rp26.71 trillion and Rp41.91 trillion if diesel consumption was also cut.          The government is planning to restrict the use of subsidized gasoline to public transport and motorcycles as of April 1, in an effort to cut oil subsidy which has been burdening the state budget.          Based on Law No. 22 / 2011 on the 2012 state budget, the government is required to limit subsidized premium gasoline consumption in Java and Bali as of April 2012. The program will start in Jakarta and its buffer towns of Bogor, Depok, Tangerang and Bekasi (Jabotabek) as of April 1, 2012. It will cover Surabaya in East Java in June and the whole Java and Bali at the end of 2012. Premium gasoline consumption cuts in Sumatra will begin in April 2013  and diesel consumption limitation in June 2013.          The government decided to carry out subsidized fuel consumption limitation because consumption of subsidized fuels in 2011 reached 41.7 million kiloliters or about 103.3 percent of the 2012 revised budget quota.           Virtually, the advantage of raising prices as compared to cutting consumptions was also realized by the finance ministry.       The finance ministry noted that an increase by Rp1000 per liter of subsidized fuel oils could save Rp21 trillion in state budget funds. "If the subsidized fuel oil is raised by Rp1000 per liter from Rp4,500 to Rp5,500, it will save Rp21 trillion," Acting Head of the Finance Ministry's Center for Budget Policy Rofyanto Kurniawan said on Friday.          He said that the figure was higher than the figure that could be saved with the implementation of subsidized fuel consumption cuts and the fuel-to-gas conversion program in Java and Bali.          Rofyanto said that the consumption cuts and conversion polices based on the set quota of 40 million kiloliters would only save some Rp7.8 trillion to Rp8 trillion.         But such a fuel oil price hike, according to Komaidi, would cause  an increase of 1.07 percent in inflation  (if the price increase was Rp1,000 per liter) and an increase of 1.58 percent (if the price increase was Rp1,500 per liter).          Premium consumption cuts in Java and Bali will only raise inflation by 0.64 percent and diesel by 0.88 percent.          Yet, according to Komaidi, an oil price hike would be a more simple policy because there was no need to prepare infrastructures and had no significant social impacts. The social impact that he meant here was a condition where people wanted to buy pertamax oil but it was not yet available at filling stations.          Besides, private cars where gas converters had been installed needed adjustment by the automotive industry because insurance firms were not willing to insure machines with gas converters. Private cars with gas converters should also be parked in an open place.          "These matters will need a long preparation. Pakistan for example had to prepare 4,000 training at the early stage of its fuel-to-gas conversion program. It could only produce 450 thousands cars with converters per  year. So, if the government plans to produce 1.2 million vehicles with converters per year, it must be a very optimistic plan," Komaid said.          He said that there were several countries which had implemented fuel-to-gas conversion, namely Pakistan, Argentina, Braizil and India.          "After all, based on assessment, raising the premium price has no correlation with inflation. Unlike diesel oil which has positive correlation with inflation. This is because so far, those who enjoy premium subsidy are rich people or about 52 percent," Komaidi said.          Thus, raising the fuel oil price is more advantageous. After all, according to Nugroho, if the price of subsidized "premium" gasoline was maintained at the current price of R4,500 per liter for public transport and motorcycles while private cars are only allowed to buy non-subsidized gasoline at a far higher price, it would provide an opportunity for speculators to take  benefit illegally out of the price disparity.          Speculators might buy premium in a large quantity at gasoline pump stations and later retail it at Rp6,000 per liter to private car owners to get a profit. Nugroho said he believed many private car owners would take it rather than buy non-subsidized gasoline at  pump stations at a far higher price.          The economic lecturer said raising the gasoline price to Rp6,000 per liter would still be acceptable as the present price has remained at the level for years. He said motorists have also enjoyed economic growth in the past few years.      (T.A014/A/HAJM/00:05/a014) 28-01-2012 00:16:3