Observations & Debates

Polemic on Fuel Prices in Indonesia

The fuel price polemic can refer to various issues related to fuel prices, such as fuel price increases, fuel subsidies, government policies in regulating fuel prices, foreign situations and the impact of fuel prices on society.

One of the main issues in the fuel price polemic is the increase in fuel prices. The increase in fuel prices can occur due to various factors, such as rising world oil prices, currency depreciation, and changes in government policy on fuel subsidies. The increase in fuel prices can affect inflation and people’s purchasing power, especially for people with low income levels. The increase in the price of BBM (fuel oil) in Indonesia occurred in line with the increase in world crude oil prices. The price of fuel in Indonesia is determined by the government through a fuel pricing policy that is adjusted to market mechanisms and is based on the average world crude oil price and the rupiah exchange rate against the US dollar. In early 2021, there was an increase in subsidized fuel prices in Indonesia. This increase was made by the government as an effort to pursue budget targets for countries affected by the COVID-19 pandemic. Even though the increase in fuel prices was only between IDR 500 and IDR 2,000 per liter, this still sparked pros and cons among the public. Proponents of increasing fuel prices are of the opinion that this policy is necessary in order to reduce the state budget deficit and reduce Indonesia’s dependence on imported fuel. On the other hand, opponents of the increase in fuel prices believe that this policy is detrimental to society and has the potential to trigger inflation. The Indonesian government itself has attempted to overcome the impact of rising fuel prices, among others by providing direct subsidies to the poor and allocating funds from fuel subsidy savings for infrastructure development and social programs. However, the increase in fuel prices in Indonesia remains a controversial topic and is being debated among the public, especially amidst the ongoing pandemic.

Fuel subsidies are also an important issue in the fuel price polemic. Fuel subsidies in Indonesia are government policies that provide assistance or waiver of fees for the public in purchasing certain fuels, such as premium and diesel, to reduce the burden on people’s living expenses. This fuel subsidy policy has been carried out since the 1950s and has become a controversial policy in Indonesia. On the one hand, the fuel subsidy is considered a pro-people policy because it provides benefits for the community, especially those with low economic levels, because they can buy fuel at a lower price. In addition, fuel subsidies are considered a policy that can assist the government in maintaining price stability and strengthening national energy security. However, on the other hand, fuel subsidies are also considered an unsustainable policy because they place a large burden on the state budget and tend to benefit only certain groups, namely motorized vehicle users. In addition, fuel subsidies are also considered to be a trigger for environmental damage because they increase the use of motorized vehicles and reduce incentives to switch to cleaner alternative energy. Since 2014, the Indonesian government has taken steps to gradually reduce fuel subsidies by introducing a fuel price adjustment program that regulates regular fuel price adjustments to reflect fluctuations in world oil prices. This step sparked controversy and protests from some members of the public because a sudden and significant increase in fuel prices could increase their cost of living. Nonetheless, efforts to reduce fuel subsidies are considered a necessary policy to achieve better fiscal and environmental sustainability for the state and society.

The government’s policy in regulating fuel prices has also become an issue in the fuel price polemic. The government has an important role in determining fuel prices, both through subsidies and price regulations. Some parties criticize government policies that tend to provide large fuel subsidies, while on the other hand the government also imposes high excise and taxes on fuel. Initially, the price of fuel in Indonesia was determined based on the market mechanism set by the government. However, in 2005, the government began implementing a fuel price policy that was regulated by the government through periodic price adjustments. This policy was taken as a response to the unstable and increasing fluctuations in world oil prices. The government sets domestic fuel prices based on Indonesian crude oil prices. However, due to an increase in world oil prices in 2008, the Indonesian government was forced to increase fuel prices by 28.7%. This fuel price increase policy sparked protests from the public and large-scale demonstrations throughout Indonesia. In 2013, the government again increased fuel prices by 44%. This policy was taken to reduce the state budget deficit due to fuel subsidies that were too large. However, this policy also led to protests and demonstrations in several cities in Indonesia. In 2014, the government removed fuel subsidies for the Premium type and introduced new subsidized fuels, namely Pertalite and Pertamax. This policy aims to reduce the state budget deficit and reduce the use of premium fuels that are not environmentally friendly. However, this policy also caused polemic in the community because of the significant increase in the price of Premium fuel. In 2020, the government will again adjust fuel prices by reducing prices in line with the decline in world oil prices. However, this policy again reaped controversy because it was considered not to provide significant benefits for the community and was not comparable to the previous increase in fuel prices.

In addition to the fuel price policy in Indonesia, the situation abroad is also a factor influencing fuel prices. If the price of crude oil on the world market rises, then the price of fuel in Indonesia is likely to rise as well. This is because Indonesia still imports most of its fuel needs from abroad, especially from crude oil producing countries such as Saudi Arabia, Iran and Russia. Political instability in oil-producing countries can disrupt the supply of crude oil to Indonesia. The Russia conflict could have an impact on the supply of fuel in Indonesia because Indonesia imports most of the fuel it consumes. If Russia’s crude oil production is disrupted due to conflict, then the supply of fuel produced will also be affected. In addition, the price of fuel on the global market may increase due to supply uncertainty, which may result in an increase in fuel prices in Indonesia. In addition, companies operating in the energy and mining sectors in Indonesia can be affected because they are bound by long-term contracts with Russian companies. If the conflict affects the performance of Russian companies, it could result in supply uncertainty and higher prices. Another impact that could occur is an increase in the cost of importing fuel because the Indonesian government may need to look for supplies from other countries at higher prices if supplies from Russia are disrupted. In addition, uncertainty and rising prices could impact inflation and the overall stability of the Indonesian economy. Overall, the conflict in Russia could impact the supply and price of fuel in Indonesia, and could affect the performance of companies in the energy and mining sectors. Therefore, the Indonesian government needs to monitor the situation and take the necessary actions to ensure the supply of fuel and the stability of the country’s economy. Changes in regulations in oil-producing countries. If oil-producing countries change regulations that limit crude oil exports, the supply of crude oil to Indonesia can be disrupted. The depreciation of the rupiah exchange rate against the currencies of oil-producing countries can also have an impact on fuel prices in Indonesia. If the rupiah exchange rate weakens against the currencies of oil-producing countries, then the price of fuel in Indonesia may rise because the cost of importing fuel becomes more expensive.

The impact of fuel prices on society is also an important issue in the fuel price polemic. The increase in fuel prices can affect various economic sectors, such as transportation, industry and agriculture. This can affect production costs, prices of goods and services, and inflation rates. On the other hand, fuel subsidies can provide benefits for people with low income levels who need fuel to meet their daily needs

From a legal perspective, the fuel price polemic in Indonesia concerns several legal aspects related to price regulation and national energy policies. There are several laws that regulate fuel prices in Indonesia, namely Law Number 22 of 2001 concerning Oil and Gas, Law Number 8 of 1997 concerning National Development Planning Documents, and Regulation of the Minister of Energy and Mineral Resources Number 39 2014 concerning Determination of Retail Selling Prices of Oil Fuel. In relation to the fixing of fuel prices, Law Number 22 of 2001 stipulates that price fixing must be based on the principles of fair business competition, fairness and the national interest. In addition, the regulation also stipulates that the government must pay attention to the economic conditions of the people in setting fuel prices. However, fuel price setting must also pay attention to the national energy policy as stipulated in Law Number 30 of 2007 concerning Energy, which stipulates that national energy policy must prioritize national interests and the continuity of energy supply with due regard to environmental sustainability. In practice, the setting of fuel prices in Indonesia often becomes a polemic due to government policies that are less transparent and often political. In addition, changes in fuel prices that are too fast and drastic can also cause uncertainty and injustice for the community, especially for those who are less well off. The government must pay attention to the principles of fairness, fair business competition and the national interest in setting fuel prices. In addition, transparency and public participation in the price fixing process must also be guaranteed to ensure that the policies taken are in accordance with the interests of society as a whole.

To overcome the polemic on fuel prices, the government needs to consider various factors related to fuel price regulation, such as increases in world oil prices, fuel subsidies, and the impact of fuel prices on society. The government can consider alternative energy that is more environmentally friendly, such as renewable energy, to reduce dependence on fuel. In addition, the government can also optimize the fuel subsidy policy to ensure that fuel subsidies are right on target and do not burden the state budget.

Magister Sains Hukum dan Pembangunan Universitas Airlangga
email : Nawawi.unair@gmail.com

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