Fuel smugglers draining economy
Indonesia’s president-elect, Joko Widodo, is promising to curtail fuel subsidies and their inherent corruption.
It’s Tuesday morning and about three dozen vehicles are waiting for the fuel truck to arrive at a service station on the island of Belitung, Indonesia. Soon, a steady stream of cars will buy all the subsidized diesel and many of the drivers will then siphon their ration into jerry cans to sell at a profit.
The daily ritual is one step in a series of scams that range from car owners earning a few hundred dollars, to organized crime syndicates making millions out of Indonesia’s lopsided fuel distribution system.
The pervasive fraud, which has embroiled people from all walks of life, from provincial officials to the armed forces, takes advantage of subsidies that cost the government more than $20 billion a year and lure hundreds of thousands into breaking the law.
“With the discrepancy between the price of subsidized fuel and market value, smuggling, hoarding and deliberate scarcity are normal,” said Achmad Sukarsono, an associate fellow at the Habibie Center, a research institute in Jakarta.
President-elect Joko Widodo is the latest leader to promise to curtail the subsidies and corruption, a strategy that helped end the three-decade rule of dictator Suharto and has eluded four presidents since.
Among the smallest operators in this nationwide illegal scam is a tall man in a dark blue Daihatsu SUV at a filling station in Belitung. He’s waiting to get his daily quota of 40 litres of diesel at the subsidized rate of 5,500 rupiah (about 50 cents) a litre, less than half the market price. The fuel is then sold for 8,000 rupiah to businesses that aren’t eligible for the subsidy or need more than their quota.
Government staff try to prevent people taking more than their ration, said Hajanudin, an official who like many Indonesians uses one name.
“We take down their plate numbers so that we don’t see any cheating where one vehicle tries to line up again,” said Hajanudin, 49. “There’s no smuggling. Rumours that security officials allow some people to get more than their ration of diesel are wrong.”
The tall man in the Daihatsu says he circumvents the quota by driving to another station to get another 40 litres. After he sells it, he splits the profit with the vehicle owner, who gets 60 per cent.
Basuri Purnama, head of East Belitung Regency, says the racketeering and smuggling are so profitable that it draws people from getting legal jobs.
“Why work?” he said. Anyone can make 200,000 rupiah a day smuggling fuel. “Every day, just do that and then chill out in the coffee house.”
Fuel-price controls have been a bugbear of Indonesia’s economy for decades, fostered by the country’s status as one of the world’s oldest oil producers.
Suharto raised fuel prices by more than 70 per cent in 1998. Mass protests broke out in the capital and within three weeks Suharto resigned.
Efforts by three subsequent leaders to raise fuel prices were also greeted by public protests or strikes, forcing many of the plans to be diluted or rolled back.
“It’s the Achilles heel of the economy,” said Tim Condon, head of Asia research at ING Groep NV. “The best thing the incoming president could do would be to eliminate fuel subsidies. That’s going to take leadership that’s eluded presidents for seemingly forever.”
Brian Leonal and Rieka Rahadiana are reporters for Bloomberg.