To subsidize or not to subsidize... that's NOT the question!

Photo (c) 2012 Tempo.co

So, again we are on the verge of a Gas Price Hike. Rumor has it that "non-subsidized fuel" will see a price increase of almost 150%. As usual, opinions for and against the plan are already flooding the news channels. Those supporting the plan cite increasing state budget burdens and claims of mis-allocated subsidy (that is, the subsidy actually benefits the "haves" (defined by them as those owning a private car) and not the "have nots") as the reason for the price hike. Those against the plan point out that although only "the haves" are supposedly obliged to buy gas at an increased price, the price hike will drive inflation that will affect the "have nots" particularly badly.

Those claims and counter claims (and counter-counter-claims, and so forth...) are to be expected. Those are not something new. What is new is the government's plan to sell the same types of fuel at different prices. If the plans go through, then beginning in May we will see "subsidized fuel" sold at the current price for public transportation vehicles and motorcycles, but we will also see the exact same fuel sold at the new price for private cars. The plan also calls for four types of gas stations: those who sell only fuel at the old price, those who sell only fuel at the new price, those who sell gasoline at the new price but diesel fuel at the old price and finally those who sell diesel fuel at the new price but gasoline at the old price.

If you think that these will lead to chaos in the field, then you are not the only one. People already see several possible scenarios abusing this new system. One scenario has it that owners of public transportation vehicles will stop operating as such. They will only fill up their tanks, park somewhere and sell the fuel to private car owner at a price slightly lower than the new price. Some more enterprising individuals might even modify their vehicles so that they can carry extra fuel tanks, kind of modifying a DC-10 airliner into a KC-10 Extender tanker! The public transportation sector has always complained of minimal profit margins, so this scenario is not that far-fetched. Other scenario is that private car owners will still buy fuel at the old price, after giving a "token of gratitude" to (or "forcefully persuading") the fuel station operator. What will the government do to curb these practices? One possibility already floating around is to use a new RFID-based vehicle identification. Technically it might work, I think. But I doubt it will really work in practice. And the project to implement this system opens the possibilty of some ugly scandals later.

Based on these projections, some people suggest that it would be better that the government ditch "fuel subsidy" altogether. Get rid of the budgetary problems, without introducing new problems. The money that the government can save by ditching fuel subsidy can then be channeled into more productive projects like public transportation infrastructure, health infrastructure, etc. The problem is, in my opinion, that those suggestion is too optimistic and perhaps a bit naive. It is based on the assumption that the money will be well-managed and not abused. This is an assumption that many people are still wary to make. I think the problem is not in whether or not to keep the subsidy, but how to manage the country a bit better. If the country is managed better, then I think subsidizing (or not subsidizing) fuel will not be such a big problem. When all people see and feel that the money saved is indeed being used for their best interest, then they will not oppose the plan too much. Perhaps, if the state is managed better, fuel subsidy will not become such a big burden to the otherwise well-managed state budget.

So, I think to subsidize or not to subsidize is not the question. The question is good or bad management. Innit?