Ministry to spend Rp 20b on logistics subsidy to reduce price disparity – Business

Ministry to spend Rp 20b on logistics subsidy to reduce price disparity – Business

The Transportation Ministry has allocated Rp 20 billion (US$1.36 million) to fund a subsidized land transport program focused on the outermost regions of Riau Islands and Papua to push down the price disparity in staple goods.

The logistics service, which is ongoing as a pilot project, will cover the cost of goods’ delivery between seaports to warehouses and markets, as prices of goods in remote regions are still high due to the absence of land freight services, the ministry’s land transportation director general, Budi Setiyadi, said on Monday.

“We have prepared several vehicles and allocated Rp 20 billion to deliver goods at a subsidized rate,” Budi said during an online webinar held by marketing firm Markplus.

As of Monday, the ministry has spent Rp 5.5 billion from the total subsidy budget. It has deployed 31 vehicles operating seven different routes across Timika and Merauke regency in Papua, as well as Riau Island’s Natuna regency.

“We started the program in July at Natuna and expanded to Timika and Merauke in September,” Budi said.

The government has long made efforts to reduce the stubbornly high logistic costs in the country and reduce price disparities among the country’s many islands. The country’s logistic costs stand at 23.5 percent of the country’s gross domestic product (GDP), Finance Minister Sri Mulyani Indrawati revealed earlier in September.

Indonesia’s ranking on the World Bank’s Logistics Performance Index (LPI) 2018 rose 17 places to 46th out of 160 countries surveyed. It remained below its neighboring middle-income countries of Thailand (32nd), Vietnam (39th) and Malaysia (41st).

Budi added that the subsidized land freight service would also serve as an extension of the Transportation Ministry’s maritime highway program.

The maritime highway, which has run since 2015, is a subsidized cargo program to distribute staple goods and major consumer items, including rice, sugar, flour, cooking oil and eggs, as well as steel and cement to remote regions of the archipelago.

The ministry has allocated Rp 436 billion from the state budget to subsidize the maritime highway program this year, up by around 45 percent from last year’s allocation. The budget has so far been used to add seven additional routes for the shipping program, bringing its total routes to 26.

As of mid-September, the ministry has spent 40 percent of the allocated budget.

According to data from the ministry’s sea transportation directorate general, the program has proven successful in pushing down basic goods prices by 20 percent in Anambas Island regency, Riau Islands, and by 10 percent in Fakfak regency, Papua.

However, despite the claimed success, staple food prices are still higher in outer provinces such as Riau Islands and Papua.

According to the Information Center for Strategic Food Prices (PIHPS), a kilogram of sugar cost around Rp 17,400 in Papua on Monday, 27.4 percent higher than West Java’s price of Rp 13,650 per kg. Rice also remains more expensive in Riau Islands province at Rp 13,550 per kg, while it costs Rp 11,600 per kg in Bali.

Transportation Minister Budi Karya Sumadi said during the webinar that the government would focus its resources on providing services and spur development in the country’s outermost regions while using private capital to fund commercial projects through public-private partnership (PPP) schemes.

“It’s important for us to work together with the private sector so the government could use its budget for the development of outermost regions, where they don’t have sufficient [infrastructure] capacity,” Budi said.

According to the National Development Planning Agency (Bappenas), Indonesia will need $429.7 billion in infrastructure investments, equal to 6.1 percent of GDP, between 2020 and 2024. However, the government might only be able to finance 30 percent of the projects using the state budget

The government has seen a budget drop for infrastructure development in the 2021 state budget to Rp 413.8 trillion from Rp 423.3 trillion in 2020.

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