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Reforms Fossil Fuel Subsidies in Indonesia: From Public to Directional

6 Mei 2016   22:21 Diperbarui: 6 Mei 2016   22:25 51
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Subsidies fossil fuel given by a number of countries have seen encouraging wasteful consumption, reduce energy security, impede investment in energy sources that are environmentally friendly and hamper efforts to tackle climate change. Because of these considerations, in the G20 summit in Pittsburgh in September 2009 G20 leaders agreed to limit and rationalize inefficient fuel subsidies in the medium term and at the same time provide assistance to the. 

At the next summit in Toronto in June 2010, in Seoul November 2010 states reaffirm that commitment by reporting conditions inefficient fuel subsidies. Restrictions on subsidies also seen as an important step towards sustainable development and green economy (green economy). As a member of the G-20, Indonesia together with other member countries are committed to rationalizing fuel subsidies and improve energy efficiency. This commitment not only aims to improve energy efficiency, but also deals with the role of Indonesia in climate change. Commitment in climate change mitigation is confirmed Indonesia in the G-20 summit in 2010 in Seoul, where Indonesia plans to remove fuel subsidies gradually and conduct demand-side management.

Energy sector policies in Indonesia

Energy policy in Indonesia has been formulated since 1976 when the government established the National Energy Coordinating Agency (BAKOREN), a ministry-level agency, which is authorized to formulate energy policy and coordination in the implementation. In 1981, BAKOREN Public Policy issued in 1987 and 1991, focusing on three things: intensification, diversification and conservation of energy. Step intensification is done by increasing the activity of survey and exploration of energy resources to determine its economic potential. 

Energy diversification is done by reducing dependence on petroleum and divert it to the other energy sources (for power plants and cement factories are set coal as its main energy source). Energy conservation is achieved by increasing energy efficiency. KUBE subsequently compiled in 1998 added two points in the direction of Indonesia's energy policy, namely: set the price of energy is gradually directed to follow the market mechanism and the environment in mind. National Energy Policy (KEN) in 2003 by the Department of Energy and Mineral Resources, a policy document in the field of energy that replaces hereinafter KUBE 1998. KEN 2003, which became the basis of Law No. 30 of 2007 on Energy, has a major passion similar to the previous energy policies.

KEN 2003 is described in more detail into the Presidential Decree No. 5 of 2006 on National Energy Management Blueprint 2005-2025, with the main target of the policy is to achieve Energy elasticity under one in 2025 and the establishment of primary energy mix, which is dominated by the energy source non-fossil fuel (70%) in 2025, with details: natural gas (30%), coal (33%), biofuels (5%), geothermal (5%), liquid coal (2%) and others (including biomass, solar, wind, micro-hydro and nuclear) ( 5%).

 Contributions fuel as an energy source which is currently at 49.5% (EMR 2012), is expected to fall to 33% in 2025. The next national energy policy is Law No. 30 of 2007 on Energy. In general, the management of energy in Indonesia according to Law No. 30 of 2007 is to achieve energy independence with a guaranteed supply of energy, increasing energy efficiency, improving people's access to energy (especially for low income groups), and ensuring environmental sustainability. Concerning energy prices, Law No. 30 of 2007 states that energy prices are determined on the economic value and the subsidies given to the poor.

Fossil Fuel Subsidies in Indonesia

Indonesia provides subsidized energy to its citizens as a public service obligation. The rationale is that citizens should benefit from domestic production of oil, coal, and other energy sources through their cheap prices. State-owned enterprises perform this function and the government reimburses them for the resulting losses. 

Fuel subsidies were more manageable when Indonesia was a net exporter of petroleum products and low domestic prices represented only an opportunity cost do the government rather than explicit fiscal expenditure. But because declining production and Browning energy demands have necessitated imports, the subsidy burden has transferred to the budget. Rising oil prices since the mid-2000s have added to the extreme budgetary pressure from fuel subsidies, which at times have risen to over 20% of total government expenditure in Indonesia (World Bank 2007). In 2013, the revised national budget allocated 17% of total government expenditure to fuel and electricity subsidies (Lontoh, Clarke, and Beaton 2014). Electricity prices are also capped, 

leading to major costs for the government and losses for state-owned electricity companies. In the months prior to the publication of this report, Indonesia has seen dramatic changes in its subsidy policy. Gasoline and diesel prices were increased by nearly 40% in November 2014, and as of January 2015, the government announced it would fully remove the subsidy on gasoline and introduce a “fixed” subsidy on diesel. Here, domestic diesel prices are allowed to fluctuate, with a fixed gap from international prices of 1,000 rupiah (Rp).

These policy changes are a tremendous step forward for Indonesia, eliminating and drastically reducing the two largest fossil fuel subsidies. But they do not necessarily spell the end of a subsidy problem Thar the country has been grappling with for over a decade. In recent subsidy reform, the government tohok advantage of a window of opportunity following elections in 2014 and world oil prices falling to their lowest level since 2009 to remove the subsidy on gasoline, and this actually resulted in lower domestic gasoline prices. In 2015, the revised February budget indicated total subsidy costs of under $8 billion. For 2016

, energy subsidies included in the budget are less than $4 billion. The challenge for the future will be sustaining these reforms once political and market conditions change. Moreover, Indonesia still has significant subsidies for electricity and other petroleum fuels in place. Fossil fuel subsidies are, of course, a prominent feature of many Asian economies and not just Indonesia. These can be categorized either as consumer subsidies, benefiting users such as transport and manufacturing industries and electricity generation; and producer subsidies to lower costs for producers involved in the exploration, extraction, or processing of energy products.

 The subsidies contribute to fiscal imbalances in many countries and increased operating losses for utilities. Fossil fuel subsidies have other unintended negative consequences. They restrict public expenditure on development priorities such as education, health, and infrastructure; are an expensive means of supporting low-income households; and encourage excessive consumption through low energy prices which increases air pollution and greenhouse gas emissions. The need to reform fossil fuel subsidies is increasingly recognized, with international and national commitments to phase out inefficient subsidies with directional subsidies.

Public subsidies to directional subsidies

Implementation of directional subsidies starting with price adjustment, is the first step into rationalizing the prices in real. The price of real equilibrium, what is meant is the point a meeting between supply and demand. To withdraw gradually, fuel subsidy will appear goods prices rising commodity speculation. But as compensation the price increase, the government allocates funds results from the price increase that the public cannot afford through cash assistance.

 While for remote areas using patterns of universal service obligation (USO) Alt prioritize renewable energy, consisting of 3 phases of processing. 1) First phase, people in the region of USO in a drive to make use of renewable energy that is available in its territory for operation or of daily use. 2) Both phases, people use of renewable energy to add value of their activity, their expected will find innovative business model supported resources local existing. 3) Lastly, the community already will contribute towards the country. This pattern of USO has even successfully applied in the telecommunications sector to provide telecommunications services in remote areas.

References

Asian Development Bank. 2016. “Fossil fuel subsidies in Asia: Trends, Impacys and reforms – Integration report”.Mandaluyong City, Philippines: Asian Development.

Widiayanto, Bambang. 2013. “Beralih dari Subsidi Umum menjadi Subsidi Terarah: Pengalaman Indonesia dalam Bidang Subsidi BBM dan Perlindungan Sosial”.Forum Kebijakan Publik Asia. Jakarta.

ISSD. 2014. “Tinjauan Subsidi Energi di Indonesia”.Edisi 1 Vol. 1 . Jakarta.

Nugraheni, Siwi; Hermawan, Yulius; Rakhmindyarto. 2013. “Komitmen Indonesia untuk Pembatasan Subsidi Bahan Bakar Fossil dan Peningkatan Efesiensi Energi di G20”. Jakarta.

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