The speech in my dream

A twitter @andidio said something about his dream about SBY announcing the fuel price hike, and apologizing to the people about the possible impact of it. Suddenly I wanted to write my own hypothetical dream. With an apology to the President, I would like to dream. So here goes.

Dear my fellow countrymen,

I am standing here in front of you to tell you that I have decided to make an adjustment on the prices of BBM, or fossil fuel. I apologize because this issue has created a rising tension among you. I understand that students and many others oppose the plan. But let me explain.

First off, I have to bring to you some inconvenient facts. Sorry to tell you, we are not an oil-rich country. We have to quit the OPEC because we are no longer eligible as a member of “petroleum exporter countries”. Our oil reserves now hover around 4 billion barrels – the proven ones are below that. Our lifting capacity is below 1 million barrels per day – not all of this is ready to consume: we have to export the crude and import the refined, because our technology is limited and our production is short. At the same time, our consumption keeps increasing – now it almost reaches 1.5 million barrels per day. And this is rising: our young people are abundant, but so is their energy need. If nothing is done to reduce the dependency on fossil-based BBM, if nothing is done to right the incentive for technology to improve our production, we will exhaust our reserves in 12 years down the road. Good if by that time we have alternative energy ready. But if we now keep holding the BBM price well below its market price, nobody will have the incentive to start developing the alternatives. Think about it: if you are an investor, would you put your money on an industry whose product’s expected price can not beat the existing alternative? So, my friends, if nothing we can do to adjust the BBM price, we are exposing ourselves to an energy crisis. Again, let’s face it: we are not an oil-rich country.

My fellow countrymen,

I am aware that out there some heated debates on the budget numbers, allocation, and all the nitty-gritties have been escalating. I thank Kwik Kian Gie and others who brought this up again. I appreciate my ministers and their staff who responded and clarified. And I embrace constructive reminders from students and activists.

But deficit or surplus is, my friends, only a small part of the big picture. It is good to be transparent on the budget details and to conduct thorough assessment on the numbers or the assumptions used. So I welcome any scrutiny from ICW and others. I have asked my staff to check all the numbers again very, very carefully. Let us improve the transparency and accountability for that matter. Nevertheless, may I humbly ask everyone to start looking at the bigger problem of this current subsidy scheme? This is not really a deficit or surplus issue. We are today facing at least three crucial issues: the lack of infrastructure, the mis-distribution of subsidy, and the harm to the environment.

First, let’s talk about infrastructure. It saddens many of you that in Jakarta, the price of Pontianak oranges are far more expensive than those imported from China. The cost of transporting goods on our land is almost 50% higher than that of the average ASEAN’s. Due to difficult access, the prices of cement or even staple goods turn exorbitant as they reach Yahukimo, Paniai, and other remote places. Now, one might say that because Indonesia is an archipelago, it would have been less expensive if we relied more on water transportation. Sounds logical? Well, as it turns out, the cost is even higher, at 150% higher than ASEAN’s average. Why? It is because the ports are not yet efficient. Isn’t it ironic that a country of thousands of islands doesn’t have a single hub port in par with those in Singapore or Hong Kong? Exporters complain. When they want to ship their products via ports, their container trucks have to compete with your cars and motorbikes just to get into the toll way. And that toll way is jammed, too. They also have problem entering the port. Let alone the still-heavy bureaucratic procedure in the port. Some rational firms shift these burdens on to the consumers. How? By increasing their prices. That explains, to some extent, why we are not very competitive in the international market. So we have to do something on all this. That is, we should improve our infrastructure and logistic system. Hence the heavy emphasis on these issues in our planning documents. But of course this needs a lot of money. The government budget can only cover 30% of it, while the private parties will come only when, understandably, they perceive good returns on investment. In the meantime, we keep allocating more money to subsidize the energy consumption than to build infrastructure. This is not productive.

Secondly, the intention of all this subsidy business is to help the poor. Unfortunately, we now realize that the major bulk of the fuel subsidy is actually consumed by the not-so-poor. In fact, almost half of it goes to the high-income group; while less than 2% goes to the bottom 10%. This is regressive – we don’t want a subsidy scheme like that. Even worse, the resulting price gap creates an incentive to smuggle. Or, oplos. You may have read in the media that the government warns against speculators and irresponsible traders who take advantage of the price gap by buying low and sell high, or by mixing the different types of fuels and sell them at the price of whichever is higher, for a handsome additional profit. Now this practice is actually a form of entrepreneurship. In the ideal time, I would have encouraged this. But this is no ideal time. We are talking about security of energy, a necessary good whose stock is steeply decreasing amidst the absence of its alternative.

My third but in no way the least concern is about the environment. Climate change is happening. Yes, debates are still ongoing on the degree and the risk of it, but it does happen. We are one of the biggest carbon emitters. Our deforestation is one major culprit. But the contribution from energy sector that includes transportation is increasingly worrying. This is because the energy source is still dominated by highly-polluting fossil fuel. And the consumption of such energy is what we keep subsidizing. In other words, we actually encourage higher pollution. As I said above, the alternative, cleaner energy can’t compete against the dirty energy since the latter is protected by our subsidy.

My fellow countrymen,

With those three factors – infrastructure, poverty, and environment – accounted for, I hope we can now see the bigger issue beyond simply budget deficit big or small. By fixing the current subsidy regime, we hope to be able to improve our infrastructure, fine-tune our poverty eradication programs, and to help better up the environment. I’m fully aware that this might create a shock in the economy, especially to the poorest. But I hope the shock will be short-lived, as our experience has shown. We will also employ some temporary compensation to those at the bottom of the pyramid.

Dear friends,

That was long already. But let me close with some final remarks. Some of you said that I should have made this price adjustment last year. I cut the price two times in 2008 and another once in 2009 – in an attempt to follow the world price dynamics, as promised when I increased the price big time in 2005. I should have been consistent by raising it again in 2010 and especially in 2011. But I didn’t. I hope this time I can do better. Keep reminding me. If I somehow fail to improve the infrastructure after doing all this, you be the judge.