Apart From High World Oil Prices, Here Are Some Reasons The Government Will Raise Fuel And LPG Prices

JAKARTA - The government's signal to increase the price of fuel oil (BBM) is getting stronger. Even the Head of the Center for Macroeconomic Policy at BKF, Abdurohman, revealed that there are three reasons the government has adjusted the price of fuel and 3 kg LPG.

According to him, this decision cannot be separated from the energy subsidy reform agenda which is included in the direction of the energy subsidy policy in the 2022 State Budget.

"The momentum coincides with the pressure of world oil prices which is quite high and is the right momentum. There are three reasons why it is necessary to adjust the energy subsidy policy", Abdurohman said in a virtual discussion, Monday, April 18.

First, the energy subsidy, especially for fuel that has been imposed by the government, is considered to be not on target. He explained, based on data from the National Socio-Economic Survey (Susenas), that about 40 percent of the lowest social group in Indonesia only enjoy about 20 percent of the benefits of fuel subsidies.

"While 80 percent is enjoyed by the upper middle-class household group. LPG is the same. The lowest household only enjoys 24 percent of the benefits of energy subsidies", he added,

Meanwhile, he continued, the total users of LPG which are still subsidized are 92 percent of the total households.

Second, he mentioned the need for strengthening justice because the perceived benefits are enjoyed by the upper class so that in the future the adjustment of the fuel subsidy policy will strengthen justice and focus on the issue of inequality.

Third, with a fairly wide price difference, there will be economic distortion. He said there was a possibility of smuggling of fuel.

"If we look at the fairly large price difference between Pertamax, which is currently not subsidized, and Pertalite, it is wide enough that there may be a shortage because there will be a switch from Pertamax to Pertate", he explained.

Previously, the Minister of Energy and Mineral Resources (ESDM), Arifin Tasrif, reminded the current selling price of subsidized fuel and LPG is still far from the high economic price. For this reason, the public is advised to use fuel according to their abilities, so that the allocation of fuel and LPG subsidies is not eroded and is more targeted.

He also warned that the misuse of subsidized fuel would increase the financial burden on the state and asked the public to participate in monitoring and reporting if they found irregularities in the distribution and use of subsidized fuel.

"So if world oil prices stay at their current level, the government risks spending IDR 320 trillion for subsidies and compensation for fuel and LPG. That doesn't include electricity, maybe the electricity won't be that big", said Arifin.

In retrospect, under the current state budget assumptions, the price of Indonesian crude oil or ICP is set at US$63 per barrel, and the calculation of the allocation of subsidies and compensation for fuel and LPG is around Rp130 trillion.

"So there is IDR 190 trillion that must be prepared again", said Arifin.