Letter: Should we reduce oil prices?

Sat, 11/01/2008 10:35 AM  |  Reader's Forum

The news that the government will consider reducing the current retail price in "Govt open to cutting fuel prices" from Oct. 27 will gladden the hearts of car owners and public transport operators.

But is this the way to go?

Indonesia's vehicle fuel prices remain among the lowest in the world despite a rise of 230 percent since 2004. The fears of many that there would be riots on the streets back in 2004 should smaller increases than this be imposed have proved unfounded; rather there has been continued increase in private vehicle ownership, particularly motorcycles: the wheels of the masses.

Might the time be ripe to consider eliminating the subsidy and do away with government-fixed fuel prices? Increased vehicle ownership has contributed to rapid deterioration of the nation's roads because maintenance funding has failed to keep pace.

Rather than reduce the price of fuel, why not divert some of the profits of the fuel suppliers into a Road Maintenance Fund? By imposing a fixed, per liter, supplement to vehicle fuel sales, equivalent to some of these profits, such a fund would generate revenue easily earmarked for road maintenance.

These funds would be largely predictable and rise steadily as road traffic and the need for maintenance rises. By not controlling prices, the government would be able to pass on the blame for future price increases to where it rightfully belongs, on the oil producers and distributors.

The government's forecasts of the amounts of annual subsidy have been very different from the actual subsidies required because of the recent volatility of world oil prices. With the present subsidy arrangement, the government cannot control large part of its own budget and is hostage to the fortunes of the oil market.

A Road Maintenance Fund, controlled by road-user representatives empowered to determine the level of fuel levies, would ensure that such levies are acceptable to vehicle owners while better ensuring that road users get maximum value for money in the way the money is spent.

The experience in other countries, both developed and developing, where such funds have been set up is that, despite the additional fuel cost, overall costs for road users fall as a result of improved road maintenance funding.

S. PETER GOODWIN
Jakarta

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