Our long wait for firm and concrete measures to stop the huge waste of taxpayers money on fuel and electricity subsidies has turned out to be futile as what Indonesian President Susilo Bambang Yudhoyono announced through a live television broadcast on Tuesday evening was nothing more than a weak appeal for energy conservation.

Utterly inadequate institutional capacity will be the biggest barrier to the implementation of the five measures scheduled to start Friday.

The half-baked measures include greater control of the sales of subsidized fuel at gas stations through the electronic recording and monitoring of motorists to prevent excessive use by motorists; banning vehicles owned and operated by government offices, state companies and plantation and mining companies from using subsidized fuel and the promotion of natural gas-based fuel and electricity conservation at government offices.

We wonder how special stickers, attached to vehicles that are prohibited from using subsidized fuel, will be effective in controlling fuel sales.

But Energy and Mineral Resource Minister Jero Wacik was confident that those measures, if fully implemented, would still be able to save 5 trillion rupiah ($530 million) in fuel and electricity subsidies, a tiny fraction of the nearly $28 billion allocated for subsidies this year.

Even if these measures could reduce fuel subsidies, as Minister Wacik claimed, they would not stimulate the diversification of energy sources away from fossil-based fuel into renewable energy sources.

Missing from the energy conservation measures are an incentive-disincentive mechanism. Such a market mechanism should have been integrated into a comprehensive energy development program to force industrial users to conserve energy and encourage investment in alternative, renewable energy.

The government should have enforced the 2007 Energy Law by obliging industrial companies to conduct active in-house management of energy efficiency through maintenance and housekeeping measures and the replacement of selected equipment. However, such measures should be supported with fiscal policies and financial incentives.

We still believe, as we have previously asserted in this column, that an appropriate pricing policy based on the economic costs of energy is the most effective way to promote energy efficiency and conservation.

Market prices are a powerful and fundamental force in encouraging energy efficiency and for promoting a change in consumer behavior in favor of energy conservation.

Subsidies that depress fuel prices to as low as 50 percent of their economic costs, as they are now, discourage investments in fuel efficiency and conservation.

To put it briefly, any energy reform measure that does not bring domestic fuel prices closer to international levels or their economic costs will not be effective in overcoming our addiction to fossil fuels once and for all and stimulate the development and production of renewable energy.

And given our vast, porous coastal areas, the wide differences in fuel prices with neighboring countries such as Singapore and Malaysia, which are only 30 minutes away by boat, are highly vulnerable to abuse by smugglers.

(The Jakarta Post)

(Asia News Network)