Indonesian President Susilo Bambang Yudhoyono announced on March 13 that he would soon be introducing new measures to curb soaring fuel subsidies. His economic advisers then dropped broad hints that the new measures would use developing technology to limit consumption.
It turns out that the new control measure will be a tiny radio frequency identification (RFID) chip. It will make sure only vehicles of a certain category will be able to fill up with subsidised Premium petrol. Without it, pump sensors will automatically shut off the flow of fuel. State-run oil company Pertamina is expected to start distributing the chips in Jakarta early next month and roll out the scheme nationwide from July.
The RFID chip is Jakarta's latest weapon to tame a long-running menace: the ever-growing cost of fuel subsidies. Financing those subsidies has led to growing deficits, in part because too-cheap fuel has spurred "inappropriate usage" - including smuggling of cheap subsidised fuel out of the country.
The budget deficit is squarely on course to breach the legally forbidden 3 per cent mark this year. Internal forecasts show that if the world oil price stays the same and consumption continues to rise, the deficit will swell to an estimated 327 trillion rupiah (Bt983.2 billion) or 3.54 per cent of gross domestic product (GDP), with a negative year-end cash flow reaching 156.7 trillion rupiah.
To curb over-consumption of the subsidised fuel, the government is toying with the idea of introducing a 90-octane fuel, to be sold for about 7,000 rupiah a litre, much higher than the cut-price 4,500 rupiah motorists pay for the 88-octane Premium. But Dr Yudhoyono is resisting a price increase, worried not only about another public outcry, but also the impact the resulting higher transport and commodity prices will have on already burgeoning inflation.
Planners estimate that at the current pace, oil consumption will rise to 49 million kilolitres by the end of this year, compared with 45 million kilolitres last year. That would mean a subsidy bill of 280 trillion rupiah, a 193 trillion rupiah increase over last year. With electricity factored in, last year's energy subsidies totalled 306.5 trillion rupiah, a year-on-year increase of 24.3 per cent. That is hardly sustainable and is depriving the country of money to improve its creaking infrastructure.
Another problem is the persistently low projections of oil prices, which have seen the government fork out more for actual subsidies than budgeted. The government was forced to spend an additional 17 trillion rupiah to cover an unexpected fuel shortfall last December, 14 trillion rupiah of which will be added to this year's Budget and three trillion rupiah to next year's.
The oil price presumption of US$100 (Bt2,936) a barrel in the 2012 Budget - and again this year - tells what has become a familiar story of smoke and mirrors trumping common sense. Last year's average price was $112. For the first two months of this year it was $111. The last time the price was below $100 was last June - at $99.
The oil and gas deficit last year was a worrying $5.6 billion, with domestic oil production continuing to slump to 860,000 barrels per day, down from a target of 930,000 barrels per day.
Even then, this year's target is a wishful 900,000 barrels per day. As a result, from a historically high surplus in 2006, Indonesia's balance of trade finished $1.63 billion in the red last year, the country's first trade deficit since 1961.
It wasn't only oil and gas. Last year's non-oil trade surplus plummeted to $3.97 billion, from $20 billion in 2011, mostly because of a dramatic fall in palm oil, coal and other commodity prices.
Last year's current account deficit was $24.1 billion, or 2.7 per cent of GDP, compared with a $1.7 billion surplus in 2011. But in the final quarter alone it topped off at $7.6 billion (3.6 per cent), a trend that appeared to be continuing into the new year. The balance of payments in 2012 came out ahead by $165 million, down from $11.9 billion the previous year and only saved in the final quarter by a $3.2 billion surplus.
As his inner circle and everyone else have known for years, the President now recognises that 70 per cent of the fuel subsidy benefits private car owners and only an insignificant number of low-income earners. Once a net oil exporter, Indonesia has experienced an annual 4-per cent decline in crude and condensate production since 1998, eventually losing its membership in the Organisation of the Petroleum Exporting Countries (Opec) in 2008. Exxon Mobil's onshore Cepu block in East Java, with an eventual 165,000 barrels a day, could bring the country back close to the million-barrel mark when it finally comes on stream in September next year.
Officials only mumble apologetically when they are asked the reason for the years-long delay, especially when partner Pertamina was expected to smooth over land acquisition issues.
While Cepu may slow the decline in oil production, the long-term outlook isn't good, with new exploration now at a crisis point. Foreign oil companies have spent $2 billion in the past three years with only dry holes to show for it and little incentive to keep on looking.
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