Yesterday, my friend showed me about the Kwik Kian Gie’s article about his counter statement against the increasing of fuel price in Indonesia, last June. The same things has been shown by Professor Kwik in Aula Setyaningrum, University of Indonesia 4 years ago. I don’t know, is Mr Kwik speaking up as an economist or politician. The Mr Kwik’s article can be read in here. He said that we still have profit although the world oil price has been raised since we have our own oil reserve and it can be sold with low price (moreover, it can be free). We just have to spend the production costs to make the raw oil materials into finished good like premium, pertamax, etc. Instead of sold to another countries, the oil should be retained to fulfill our needs. So, the government still can subsidize the civilians. It looks like a good idea, right? But for me, Mr Kwik opinion doesn’t make sense.
There are many reasons for me to go with the raising of the fuel price in last June. The first one is all about arbitrage’s problem. As we know that when the goods have similar or same value, but they get different price, the disparity would be possible to take a one-side profit in arbitrage.
Today, the world oil price has attained US $ 120 per barrel. The scarcity which is caused by political will of the middle-east countries that have 40% of the world oil reserve is one of the factors affecting the world oil price. Many countries has increased their oil price. So, do Indonesia stand in old price for subsidizing the people? If the answer is yes, Indonesia has opened the gate for many speculator to ‘play’ here. Let say that the world price has attained US $ 120 per barrel and Indonesia still sell it in US $ 70 per barrel. If the ‘oil trader’ catch that signal, he will buy the Indonesian oil and then he’ll sell it in another country with high disparity. So, who will get the profit? Are they the proletariats?
The second reason is vendor’s problem. Vendor I meant is Pertamina as National Oil Company of Indonesia. As we know that Pertamina is the one and only company trusted by government to produce the oil. Do you know that their cost of goods sold (COGS) to produce premium is US $ 34 per barrel or six times more than market cost of COGS. You can compare it with Chevron, they only need US $ 6-8 per barrel to produce premium. So, can you imagine how Pertamina make profit when their COGS is too big? I predict that Pertamina will get some losses when they sell in the old price. May be they will increase the price step by step.
The big deal for me is the fact that Indonesian people have big dependence to the oil so that the oil has became inelastic goods, whereas the oil is nonrenewable resources. The scarcity of the oil can make the raising of their price. We should aware of this market law. I guess, in the next three years, the oil price will be increased more and more since the scarcity is getting more significant. It makes a trade-off when the people purchasing power will be reduced.
The government should make a substitution energy to hedge the big dependence to the oil and we have to summon it. For instance, instead of summoning the decreasing of oil price, we should campaign about how to reduce the using of motorcycle and car in Indonesia. In my college, the bike to campus campaign has been operated. Beside that, the increasing of vehicle tax can be a negative incentive to use motorcycle or car, so that it can economize the premium using.
Salam,
The original article in Bahasa Indonesia has been posted in here
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