LPG Price Hike Said to Be Election Strategy
State Enterprises Minister Dahlan Iskan. (JG Photo/Safir Makki)
The controversial price increase for the 12-kilogram liquefied petroleum gas cylinders is believed to have been part of a clever political ploy aimed at reviving the reputation of the ruling Democratic Party, an analyst said.
Ray Rangkuti of the Indonesian Civil Circle (Lima) said there were at least two objectives the Democratic Party hoped to achieve with the move: to discredit State-Owned Enterprises Minister Dahlan Iskan, and to improve the reputation of the parties in the ruling coalition.
"[The goal was] to mar [the reputation] of Dahlan Iskan in the public's eyes, especially among the middle class. Why Dahlan? Surely because his name was emerging stronger in various surveys as one of the Democratic Party's potential presidential candidates," Ray said in Jakarta on Tuesday.
"The person who is being promoted [as the party's top candidate] didn't seem to make a positive impression on the public."
Ray said that by making Dahlan look bad, the Democratic Party would have a better chance of nominating the person it wanted in the party's presidential convention.
The second goal is aimed at making the ruling coalition parties look like heroes, Ray said, adding that such scenario was likely prepared in advance, with an agreement that these parties would oppose the price increase once Pertamina made the announcement.
The parties wanted to present the image of siding with the public, to make it look like they sympathize with the people's difficulties and to show that they were sensitive towards people's needs. This way, these parties hoped to increase their popularity and electability, Ray said.
"In this case the Democratic Party and the National Mandate Party (PAN) seemed very dominant in opposing the price increase. Prior to that, these two parties allowed Pertamina to make its own decisions to either increase or lower the price of LPG," Ray said.
"These two political parties immediately turned the opposite way and pulled out their support when the public showed anger over the price increase."
Both parties also slammed Pertamina by calling the state-run energy company insensitive towards the public's burden, Ray said.
Call for clarification
Teguh Juwarno, member of the State Finance and Accountability Body (BAKN) in the House of Representatives, called on the Supreme Audit Agency (BPK) to make a public clarification about its audit recommendation for Pertamina, which stated the state-run energy company experienced losses and thus was forced to raise the price of 12-kg LPG cylinders to overcome the problem.
"Did the BPK really recommend the LPG price increase? According to news reports, the 12-kilogram LPG price increase was made based on BPK's recommendation," Teguh said on Tuesday.
He questioned the BPK's authority to recommend an increase in LPG price because based on its audit Pertamina was suffering losses.
"We should make an issue out of this if it proves to be true," he said.
Teguh said the BPK should not have recommended a price increase that would obviously burden the public.
The BPK should only have audited Pertamina related to its efficiency in managing and distributing LPG.
"Bear in mind that BPK is a state auditor. Let's prevent any suspicions Pertamina paid for the audit result that recommended the price increase," Teguh warned.
He encouraged the BPK to publicly explain its recommendation for raising the LPG price, emphasizing that such a clarification was needed for BAKN to follow up on the results as the House has yet to submit an official report on the issue.
"The House has only received an audit report on the matter. If necessary, the BPK's ethics committee should clarify the matter to BPK members, specifically to the auditors who were responsible for Pertamina's audit of those 12-kg LPG cylinders," Teguh said.
BPK chairman Hadi Poernomo said Pertamina had incurred a loss of Rp 7.73 trillion ($631 million) in 2011-2012 from the sales of 12-kg and 50-kg LPG cylinders.
"The BPK recommended Pertamina's board of directors to increase the price of 12-kg LPG cylinders to meet production costs and reduce losses, taking into consideration the current LPG reference price, the purchasing power of domestic consumers and the sustainability of supply and distribution," Hadi said, adding that the agency also instructed Pertamina to report the price hike to the Energy and Mineral Resources Ministry.
Hadi emphasized that the BPK had not recommended an exact value for the price hike to Pertamina.
Dahlan in dilemma
Dahlan professed that he was in a dilemma over the plan to increase the price of the non-subsidized 12-kg LPG cylinders, saying that he wanted to make Pertamina a world-class company, but he was also aware that the company was facing difficulties that would directly impact the general public.
"I am facing an extraordinary dilemma," Dahlan said during "Meet the Pres 2014" which was held by the Democratic Party's presidential candidate convention committee in Jakarta on Monday.
Dahlan praised Pertamina president director Karen Agustiawan, who he said vies to elevate Pertamina's status in the eyes of the world while, at the same time, faces the dilemma of raising the price of gas, which has not been adjusted in four years.
Dahlan said it has always been difficult to find the right time to increase gas prices, because each plan — whether it was proposed in the beginning, middle, or end of the year — would always be met with widespread rejection.
"A price increase would always be questioned. This [recent public outcry] would not have happened if the price was increased gradually; the public was shocked," he lamented.
Dahlan said he believed a price-increase strategy was needed to prevent a similar situation in future.
"But let's put all of this behind us now because we can still make compromises. I have already said the increase should not reach Rp 3,500 per kilogram; Rp 1,000 per kilogram should be enough," Dahlan said on Monday.
He added that Pertamina would only increase the price of 12-kg LPG cylinders by 17 percent after a backlash against the proposed 68 percent hike.
"Following consultations with BPK, the price increase falls within the authority of Pertamina," Dahlan said.
"The shareholders today decided that an increase of Rp 3,500 [per kilogram] was too high. The increase will therefore be only Rp 1,000."
Pertamina announced on Jan. 1 that, with immediate effect, it had increased the price of 12-kg cylinders by Rp 9,809 per kilogram, or 67.7 percent. The increase brought the price of a cylinder to Rp 117,708, from Rp 70,200.
Dahlan said the new, revised Rp 12,000 increase would be effective from Tuesday.
Coordinating Minister for the Economy Hatta Rajasa said Pertamina should have sought approval from the House, as well as the government — the company's majority shareholder — as it would have affected the allocated subsidy in the state budget. Pertamina is not, however, legally bound to seek approval from the House.
The readjustment of the price increase comes a day after President Susilo Bambang Yudhoyono intervened and instructed the state energy company to review the price hike within 24 hours.
"Although this decision is fully under Pertamina's authority and is not something that had to be reported to the president, I think the government will have to handle the issue because it concerns the general public," the president commented on his Twitter account early on Sunday.
Gasoline prices
Pertamina's decision brought a predictable backlash from certain sections of the public and some lawmakers.
For many, the supply of subsidized fuel has been a populist staple despite the fact that the total value of fuel subsidies eclipses the combined budgets available to the ministries of health and education.
The price of subsidized gasoline was eventually increased by 44 percent, to Rp 6,500, in June last year amid protests and political infighting.
Officials had also expressed concern that consumers and small businesses would simply switch from buying 12-kg cylinders to 3-kg cylinders, whose prices remain unchanged.
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