Burning the candle at both ends seems to reflect the current Indonesian oil industry, as shown by the following excerpts;

  • The national Financial Statement for 2014 (Jakarta Post 2 Oct, 2015) shows realized natural resources revenues at Rp 240,848,282.407,860 with outgoings of natural resource revenue sharing fund at Rp 62,001,317,675,508 while expenditures for subsidies is Rp 391,962,514,288,102 (which I may assume much of the subsidies is for oil, gas & electricity). Clearly the income is less than expenditure / subsidies in the energy & mineral sector.
  • A press release (6 Oct 2015) from the National Committee for Exploration indicate there are exploration targets for 16.6 billion barrels of oil equivalent in 120 structures, including 5.2 billion barrels of oil equivalent that has not been upgraded to national reserve status. Exploration is to be encouraged through smoother government regulations,
  • The ESDM warning note on improving energy and mineral resources (26 Sep 2015) that Indonesia’s oil production decline is at around 3% per year, and the replacement ratio of reserves is around 50%, whereas it should be 100%. Exploration is to be encouragedthrough smoother government regulations.
  • The government has just announced (Jakarta Post 8 October) energy price cuts to the Indonesian consumer, lowering the price of various fuels and gas, to stimulate the economy. Clearly this may discourage personal fuel conservation.
  • The Minister admitted the Masela gas project would be delayed due to a government initiated further review process. At the same time the new trend is to use Gojek to send out for simple meals (more fuel for motorbikes) rather than walking down to the local café.

Other countries tax fuel (encouraging reduced wastage) and then redistribute the moneys to the needy through various social programs. Most people in Indonesia feel they get little visible benefit from the government, even if they don’t pay income tax. Many people feel that whatever tax is paid, so much of it is side tracked to the politicians or their friends’ pockets. Having subsidized fuel & gas is seen as the only tangible benefit the “people” get from the government. This subsidized fuel is a system of wealth redistribution that lessens the involvement of the Government, ie peoples welfare is improved by excluding the governmentfrom first taxing then later redistributing to the needy.

Some people think that giving more control and responsibility to the government equates to “greater welfare of the people”. This may be more of an emotional link rather than an actual link, as there are several historical cases where more government control has lead to less welfare of the people. This is where Jokowi’s plan to revitalize the public service is so important.

One rational is that profits from private business could be sent directly to the government if they were SOE’s, however this concept unjustifiably assumes the same levels of efficiency, business innovation etc, and neglects to account for the risk of so many businesses failing. We see this argument brought out with the intention for Pertamina to take over the Mahakam block – the risk of further capital verses the practical ability to manage the complex block.

An alternative to providing “the greatest welfare of the people” may be to reduce the governments roll to that of setting the rules of business, monitoring compliance and encouraging free enterprise. Just as the post Suharto era saw the military withdraw from the business sector, perhaps it is time for the Government to sell off some of their SOE’s !!!