Indonesia Law Report (ILR)

The House of Representative recently passed the new electricity bill. The bill is perceived by the media as a real attempt to liberalize the electricity sector in Indonesia. But is it true that the law is an attempt to liberalize the sector? How does the law protect investor?

Under the new law, electricity provision are segregated into generation, transmission, distribution and retail and the private sector is allowed to participate. The question is of course, in which segment can the private sector participate and what are the incentives, rights and obligation?

I will return with the discussion later. In the mean time, you can have a look at the new law here (in Bahasa).

Pramudya has been very kind in providing us a commentary on the recent Constitutional Court Decision on Cigarette Advertisement in his post. I agree with him that the negative externalities arising out of cigarette must be borne by the consumer and that -- given the explicit contribution to income -- dealing with tobacco industry in Indonesia would not be easy.

A research by Achadi et.al. quoting WHO suggests that around 10% of mortality in Indonesia annually (200,000 deaths) are caused by tobacco. 61% of other deaths are caused by non communicable diseases which may be related to active or passive cigarette consumption. Another shocking discovery quoted by Achadi's research is that more than one in two household in Indonesia has at least one smoker, and 98% of them smokes at home. What this means is that they pollute the air in their home and affects their children.

What are the health cost to children who are passive smoker? A research in the UK shows that at a worst case scenario where everybody smokes at home, the health cost per child would be 16.000 GBP per year. If broken down into the number of cigarettes (20 per day and remember that british cigarettes contained filters, non-cloved and are typically milder than Indonesian), the cost would be around 62 to 92 GBP per cigarette. What it means is that in order to offset the negative adverse effect of a cigarette to children, each will have to be priced around 62 Pounds (or at a current rate, around IDR 1.000.000,00). I think this figure still does not include the opportunity cost for getting sick.

The cost of a Dji Sam Soe cigar is around IDR 750. But that's not the true cost. It will raise health insurance premium, dental care, house insurance premium (cigarette butt is a little friend for the big fire), car insurance, cleaning costs, retirement fund and many other items I cannot list down since I am not an economist. And remember, smoking near babies may cost another 62-92 pounds per cigarette (excluding opportunity costs).

If smokers are unable to pay these costs, this will go to the state's expenditure. Which means, in the end of the day, non smokers will be paying for the true cost of every cigarette through their tax.

I don't smoke but occasionally I bring cigarettes as souvenirs. Makes me feel guilty :(
Okay, from now on, no more cigarette for souvenirs.

We, humans, should be ashamed of this fact. Monkey market can be very efficient even without a contract. Look at how their 'informal institution' can streamline transaction cost. No need for complicated regulations, monkeys can agree to reach amicable settlement that would bring welfare to their kind. If this were human, they would have to conclude a contract which will take sleepless nights no negotiate, pay a lot of money to the lawyers, file a claim to the court, bribe the judges, and in the end of the day, no one gets the apple.