Energy Subsidy Reform is Needed

KOMPAS/PRIYOMBODO

An officer fills Pertalite type of fuel oil (BBM) into an online motorcycle taxi driver's vehicle at a gas station in the Kembangan area, West Jakarta, on Monday (18/7/2022).

JAKARTA, KOMPAS — The government admitted that the provision of energy subsidies, such as for diesel and LPG, has not been effective in targeting the lower class. In this regard, it is necessary to immediately reform subsidies that are right on-target.

In a working committee (panja) meeting to discuss the 2023 State Budget Bill (RAPBN) in Jakarta, on Monday (12/9/2022), the head of the Fiscal Policy Agency (BKF) of the Finance Ministry, Febrio N Kacaribu, explained that until now, subsidies available for household groups that are relatively well-targeted and are enjoyed by the poor and vulnerable groups are only for electricity. Meanwhile, subsidies for fuel oil (BBM) and 3-kilogram LPG cylinders are still predominately enjoyed by the wealthy.

Meanwhile, 1.69 million kl of biodiesel distribution flow to affluent groups from 5 to 10 deciles.

Based on data compiled by the Finance Ministry, of the 1.79 million kiloliters of biodiesel distributed to households, the poor and vulnerable groups from expenditure deciles 1 to 4 only get 100,000 kl. Meanwhile, 1.69 million kl of biodiesel distribution flow to affluent groups from 5 to 10 deciles.

Meanwhile, from 7.46 million kl of the distribution of 3 kg LPG cylinders, 5.07 million kl or 68 percent are enjoyed by well-to-do households from 5 to 10 expenditure deciles. The remaining 2.39 million kl or only 32 percent are enjoyed by poor households from expenditure deciles 1 to 4.

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"We need to continue to push for more targeted and equitable subsidies. These efforts need to be aligned with the trend of economic recovery and people's purchasing power. Transformation of energy subsidies that are more targeted, directly to the beneficiaries, can be helped by using digital applications," said Febrio.

KOMPAS/MEGANDIKA WICAKSONO

Residents carry subsidized 3 kilograms of LPG with tricycles to exchange them for non-subsidized 5.5 kilograms of LPG in Maos, Cilacap, Central Java, on Thursday (28/3/2019).

In this working-committee meeting, the government has agreed to change the energy-subsidy budget in the 2023 RAPBN from the previous financial memorandum, which was set at Rp 210.6 trillion (US$14,170) to Rp 211.9 trillion. The increase of Rp 1 trillion was due to the change in the exchange rate from the initial assumption of Rp 14,750 per US dollar to Rp 14,800 next year.

Meanwhile, the average benchmark for Indonesian crude oil (Indonesian Crude Price/ICP) has not changed from what has been set in the basic macroeconomic assumptions of 2023, namely US$90 per barrel.

What is certain is that energy-subsidy reform is urgently needed.

“Currently, what has been calculated is only the budget for energy subsidies. For the estimation of energy compensation related to Pertalite, it will be presented on the next occasion. What is certain is that energy-subsidy reform is urgently needed,” said Febrio.

Febrio said there are a number of major challenges in efforts to reform energy subsidies, including high commodity prices, which cause the value of subsidies to be large; diesel and LPG are still distributed

openly; validation of incomplete subsidy-recipient data needs to be done; and budget needs are increasing in line with efforts to support new and renewable energy (EBT).

KOMPAS/ZULKARNAINI

Fishermen in Krueng Raya, Besar District, Aceh prepare to go to sea. They often experience a shortage of subsidized diesel as a result they have to incur additional costs to buy non-subsidized diesel

He emphasized that the government and the House of Representatives (DPR) must jointly formulate policies that are more targeted at the community. "These subsidies need to be evaluated continuously so that there is a transfer of value given to people who are entitled to it, especially for people in deciles 1, 2, 3 and 4," said Febrio.

Separately, an economist at the Institute for Development of Economics and Finance (Indef), Aviliani, said that in many countries, subsidies for goods such as fuel tend to be misused because they require extra-strict supervision. Therefore, the orientation of the distribution of subsidies needs to be immediately changed from one that was based on goods to one based on people.

Aviliani added that the polemic on the management of energy subsidies could be a trigger for the government in its efforts to develop renewable-energy sources.

Oil prices

In a working meeting with House of Representatives Commission VII on Monday, Energy and Mineral Resources Minister Arifin Tasrif explained that the dynamics at the global level currently make a number of projections related to energy, including the average price of Indonesian crude oil, difficult to predict.

The government and the DPR have agreed on the details of assumptions in the energy sector for 2023, namely ICP of US$90 per barrel, oil lifting of 660,000 barrels per day, natural gas lifting of 1.1 million barrels of oil equivalent per day and cost recovery of US$8.25 billion.

After that, the price declined, but was still above US$100 per barrel until mid-July 2022.

This year, international crude oil prices fluctuated greatly. Trading Economics notes for Brent crude oil, for example, the price touched US$119 per barrel in March 2022. After that, the price declined, but was still above US$100 per barrel until mid-July 2022.

Entering September 2022, there was a downward trend until the price was at $82 per barrel, but then rose again. As of 9 September 2022, the price was recorded at US$86 per barrel.By the end of the third quarter of 2022, the price is estimated to amount to US$89.63 per barrel.

Fishermen

The Maritime Affairs and Fisheries Ministry revealed that fishermen's access to subsidized fuel is still very limited. Of the approximately 11,000 fishing villages, the availability of refueling stations is only 388 units or 3.52 percent.

HUMAS KKP

Maritime Affairs and Fisheries Minister Sakti Wahyu Trenggono

Commission IV of the DPR asked the government to immediately take concrete steps to overcome the problem of subsidized fuel for fishermen. The increase in fuel prices and the difficulty of obtaining subsidized diesel have the potential to exacerbate fishermen's poverty.

Maritime Affairs and Fisheries Minister Sakti Wahyu Trenggono said his party continues to coordinate with Pertamina and Downstream Oil and Gas Regulatory Agency (BPH Migas) regarding the regulation and distribution of subsidized fuel for fishermen. In addition, it also records the locations of fishermen who lack subsidized fuel and coordinates with the Cooperatives and Small and Medium Enterprises Ministry. (DIM/DIT/LKT)

(This article was translated by Hyginus Hardoyo)