Fuel for Change

With the price of wholesale oil down by almost half since the Northern summer, it’s a good time to cut fuel subsidies.  So countries like India, Indonesia and Malaysia are pressing ahead with their long-desired but politically dicey policies to reduce the expense to their treasuries of supporting cheaper fuel. 
Maybe voters won’t notice if oil, gas, petrol prices are coming down anyway.

(Malaysia will have spent $6 billion on fuel subsidies this year.  
Indonesia spends $22 billion - 20% of its budget this way.  India $42 billion)

 

President Joko Widodo of Indonesia only got elected a few months ago - so he figures he’s got a mandate for his changes as a whole.  And he’s seen as closer to the poor than his rivals, so why would he do something that would harm them?

Because the charge quickly made is that the poor will not be able to afford the fuel increases, and be unable to pay to get to work, get their children to school, transport their goods, or run their electricity generators in the workshop or at home.  The economic effects of higher fuel costs are well known too.

But President Widodo is not convinced that it truly is the poor who benefit from subsidised fuel.   

More likely, it’s the guys a little further up the wealth chain who are winning at the fuel pumps. 

Not the families crowded four to a scooter (with a dog in the footwell, helping to drive), but rather the nascent middle classes who are now buying the  4x4s / SUVs / pick-up trucks with air con and zombie-proof tinted glass that are abounding in SE Asia.

In Egypt, they try to make sure that subsidised fuel only goes to bone fide transport, agricultural or other commercial concerns.  But in practice, many others are well-used to getting hold of the cheaper stuff.  And this is true of most situations where subsidies artificially reduce the natural price of something.  

It’s pervasive - it's one of the chief arguments against subsidies - and reminds you of the old Russian mentality summed up in their saying : “If you’re not stealing from the state, you’re stealing from your family”.

Economists will also say that applying subsidies stifles efficiency in those markets...  

If fuel were to find a more natural price based on supply and demand, companies sensing a bigger profit will come into the market.  Maybe that’ll increase competition and lead to a reduction in the real price of energy, without the government having to spend money on driving that price lower.

A quick aside… A couple of meaty Texan twins were aghast at the price of gas when we toured Hollywood with them last year.  Even a glimpse of Bruce Willis outside his home couldn’t stop them gasping wide-eyed like carp.  

“Four dollars!” said one, “That’s a whole dollar more than back home!” said her sister.  I see the price is about a dollar less a gallon than that now - but still seems like a bargain compared to Europe - about half as dear, in fact..

(That's about 80 cents a litre, today, about 50 GB pence)

I wonder if Kadek is going to drop her prices?  I annoyed her by watching as she poured scooter fuel into one litre bottles of rum for sale outside her home in Northern Bali.  It was 42°C, and I was drenched in sweat.  I told her to “be careful” and quite rightly she looked at me as though I was an idiot.  She didn’t spill a drop, and did it quickly so’s the evaporation didn’t steal too much profit.

Annoyingly I’ve lost Kadek’s photo.  
And I’m not sure I'm remembering her name right!  But there’s a good chance that I am.  A large proportion of folk on Bali are given names based on the order of their birth : so Wayan for the first-born and Kadek for the second.  And that goes for boys and girls - they get the same names.

Instead of a snap of Kadek then - here’s a similar scene in Thailand... 

(Fifty Baht is about £1 a litre - about $1.50 US)

Before I finish, I note that Thailand, where I’m writing this now, is the world’s second biggest market for pick-up trucks.  It’s bewildering to see these giants  shouldering alongside scooters and tiny mini-buses crowded with a dozen passengers aboard.  Figures suggest that half of all vehicles bought in Thailand today are trucks.  I wonder if lower prices will encourage that here - and/or whether lower subsidies will force them off the road in Indonesia.