Regarding current problem of energy shortage, Arianto correctly suggested that we should move from offering superficial solutions to identifying and investigating the sources of the problem. Like all the other problems Indonesia is facing, this problem doesn’t stand alone and trying to fix it correctly means having to deal with some parts of other equally complicated problems. Of course there won’t be a panacea, but it’s always dangerous to depend on a pain reliever for a longer period than necessary. And, looking at the source of pain will hurt and also remind you that the medicine will be bitter, hard to swallow and take a long time to make any difference.

An obvious solution to –higher than supply available– demand of energy is of course price adjustment. Right after the last price hike, fuel consumption decreased by 16%. It doesn’t last long, the consumption climbs back up by some measure as much as 8%. The question is not whether price should be increased even more if we want reduction in consumption. The question is how to target and compensate the price increase for people with lower income. The President just recently mentioned that this has to be done, although he might take some hit politically. I hope he supplements this cure with other treatments for some people who have strong negative reactions (allergy) to the original medicine.

One main cause of the high demand is the relatively high fuel consumption by Indonesian motorists. Motor gasoline consumption in Indonesia is slightly above 50% of the total fuel consumption. While the U.S. transportation sector, with higher number of cars and longer distance travelled per capita, consumed about 44% of total fuel in 2004. Reducing motor fuel consumption can be achieved by reducing the number of cars and the time they spent on the road especially in Jakarta and other big cities. The “3 in 1″ rule tried to do just that. More comprehensive system could be designed based on Vickrey (1996 Nobel Prize for auction and decision theory in general) congestion pricing scheme. Variants of this scheme have been tried successfully in Singapore since 1970s and in London since 2003.

Again, just like the fuel price increase, the revenue raised can be distributed to people who can’t afford the tolls, for example by providing them yet another inexpensive mass transportation system. The ones available are not sufficient in terms of quality and quantity. The newly built systems were either half-hearted attempts, poorly designed, or unfinished due to sudden changes in policy or finances. I’m pretty confident that we have enough brain power to design it properly. As always what we need is the gut to drink up the medicine.