Revolution in Indonesia’s Oil Industry (3-end) *

Further problem that should be anticipated after the implementation of “pro competition regulation” in oil industry is mostly related with volatility of oil price and distribution of the oil. As we know that oil is a very sensitive good. The increasing of fuel potentially can create instability. Nevertheless, the explanation will be different if we relate or compare the effect of increasing fuel price with increasing price of other basic need such as food. Particularly for low or middle income people, the consumption share of fuel is absolutely lower than food. Therefore, the subsidy for all kind of fuel is actually only being beneficial for rich people. It may be true that the increasing price of fuel will affect to increasing price of other good. But, some research shows that the effect is actually lower than direct effect when the price of food increases. That’s why, it is better for people if government gives more subsidy to food sector than oil sector. Regarding to the current policy of oil subsidy, in my opinion government has set the correct policy by giving subsidy only for “low level of fuel”. It will be beneficial for low income people and prevent the absorption of subsidy by rich people. However, this kind of argument actually has not spread out to all people yet. The government should continue to giving explanation to people in order to reduce the shock affected by volatility of fuel price.
Related with the distribution of fuel, the emergence of Law No 22/2001 may make the distribution system of fuel will be more complicated. Now the distribution of fuel is not fully under control and responsibility of Pertamina. Each involved company has own distribution system to sell its product. It will become challenges for government to ensure the availability of fuel in every region of Indonesia. The possibility of scarcity of fuel will rise during competition period. Facing this problem, actually government already has institution that deal with managing the distribution of fuel. BPH Migas is the institution that deals with the problem. Thus, In order to ensure the availability of fuel in every region, government should strengthen the role of BPH Migas.
Based on all explanation above, we can conclude that deregulation of oil industry in Indonesia is on the right track. Current regulation has given benefit for consumer, Pertamina as national oil company and domestic economy in general. The law also has prepared all institution to solve various problems that potentially happen. So the urgent action that should be done by government in dealing with oil industry is strengthening those institutions and keeps supervising the implementation of the law.

*) this article has been posted at my previous blog. originally, it was written at 18 agustus 2008

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