FUEL SUBSIDY POLICY In Indonesia

Transcription

1 Fiscal Policy Office Ministry of Finance Republic of Indonesia FUEL SUBSIDY POLICY In Indonesia IISD Conference Increasing the Momentum of Fossil-Fuel Subsidy Reform : Developments and Opportunities

2 Fuel Subsidy Calculation Formula Fuel Subsidy : = [Reference Price of Fuel - (Retail Fuel Prices - Tax) ] x Fuel Volume Retail fuel price is the retail selling price per liter of fuel in domestic area. Tax is a Value Added Tax (PPN 10%) and Motor Vehicle Fuel Tax (PBBKB 5%). Reference price of fuel is calculated based on the MOPS price plus distribution costs and margins. Reference price of fuel = MOPS + α α is the distribution cost + margin MOPS (Mid Oil Platt s Singapore) is the price on the stock sale and purchase transactions on the Singapore oil IDR/liter Reference price of Fuel VAT & PBBKB MOPS Official Price Retail Price Subsidy 2

3 State Budget And Fuel Subsidy Policy Fuel ICP US$/Barrel 97, ,3 72,3 61,6 80,0 80, ,4 139, ,9 24,6 28,8 37,6 95,6 64,2 83,8 88,9 92, ,4 31,2 30,0 39,0 45, Revised Budget 2011 Budget Plan 0 Policy Implementation: Reducing subsidized fuel in 2005 from 5 to 3 commodities by removing Diesel Oil for industry and Fuel Oil from subsidy. Conversion program (kerosene to LPG) Energy diversification (Gas for Bus and public transportation) Retail fuel price adjustment Improving the subsidized fuel distribution mechanism to enable the subsidy to be more targeted Challenges : Ensuring availability of gas supply for conversion of kerosene to LPG achieved Increased development of gas fuel stations and filling stations and transport of bulk of LPG World oil prices are fluctuating so frequently it s change fuel subsidies estimation Community dependence on fuel is still high, so the use of alternative energies need to be socialized Controlling alternative energy utilization with land clearing to avoid environmental and forestry issues 3

4 Fuel Subsidy Compare to Others Subsidy, Central Government Expenditure, Total Expenditure and GDP Percentage Percentage PSO & Others Fertilizer & Seeds Food Electricity Fuel 30,0 25,0 20,0 15,0 10,0 5,0 0, CGE (Percentage) Total Expenditure (Percentage) GDP (Percentage) 4

5 Commodities and Fuel Domestic Prices, Apr 01-Jun 17-Jan 01-Jan 21-Jan 01-Feb 01-Jan 03-Jan 01-Oct 1Jan-23 Mei 24-May 01-Dec 15-Dec Year Jan-31Des 1Jan-31Des 1Jan-1Oct 1Oct-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des GASOLINE S S S S S S S S S DIESEL S S S S S S S S S KEROSENE S S S S S S S S S DIESEL OIL FOR INDUSTRY S S S NS NS NS NS NS NS FUEL OIL S S S NS NS NS NS NS NS 7,000 6,000 5,000 4,000 3,000 PREMIUM SOLAR MINYAK TANAH 2,000 1,000-5

6 Volume of Subsidized Fuel Consumption, Million KL , Diesel Kerosene Gasoline % Comparation of Subsidy-non Subsidy to Total Consumption % non subsidized fuel to total % subsidized fuel to total

7 Non Subsidized Petroleum Fuel Consumption in 2009 Indonesian Petroleum Fuel and Pipeline Gas Markets 7

8 Volume (bbl/day) FUEL SUPPLY DEMAND, in the long term Fuel Consumption, Production and Import (Gasoline, Kerosene, Diesel Fuel, Diesel Oil, Oil Residue) Deficit Consumption Domestic Production Fuel Supply Bio fuel Note: - Fuel Supply = Domestic Production + Import 8

9 Stock of vehicles is growing quickly, driven by motorcycles Stock of vehicles is growing quickly, in line with strong economic growth and rising incomes, driven by motorcycles whose number could reach an estimated 60 million in 2010 roughly 1 per household up from 42 million in 2007 Motorcycle sales in 2010 have averaged almost 600,000 units per month, which would add 7 million new units if trend maintained Stock of cars, trucks and buses grew even faster between , almost 30% per year, albeit off a lower base Units (millions) Trend Stock of vehicles by type projections Motorcycles Units (millions) Number of cars could reach almost 14 million in 2010, followed by trucks (8 Mn) and buses (3.5 Mn) Cars Trucks Buses Source: Statistics Indonesia for , BPS onwards are WB staff projections based on trends & monthly motorcycle sales. 9

10 Roadmap of Kerosene to LPG Conversion Program Up to 2007 Kerosene used by majority households in Indonesia (9.9 million KL) and subsidized by Government (more than Rp 37 Trillion /year) LPG only used by 10% of households and more expensive than subsidized kerosene Government program : distribute 42 millions of conversion package to targeted households. Removing 2,069 million KL of kerosene and distribution of 19 million conversion package up to Removing 4,1 million KL of kerosene and distribution of 23 million conversion package up to 2009.T 2010 forward LPG will become major energy with estimated volume of 4.1 million tonnes/year. 6 million KL of kerosene will remove and only maintain 2 million KL. 1 Nanggroe Aceh Darussalam Sumatera Barat Sumatera Utara Jambi Riau Kalimantan Barat Kepulauan Riau Bengkulu In 2007, 4 million conversion packages distributed in Java. Bangka Belitung Sulawesi Barat Sumatera Selatan Kalimantan Tengah Lampung Kalimantan Selatan DKI Jakarta Jawa Tengah Sulawesi Selatan Banten Jawa Barat Bali D.I. Yogyakarta Jawa Timur Nusa Tenggara Barat Kalimantan Timur Sulawesi Utara Gorontalo Nusa Tenggara Timur Sulawesi Tengah 2 Sulawesi Tenggara Maluku Utara Maluku 3 Green area converted in 2009 with 23 million conversion packages. Papua Irian Jaya Barat Red area converted in 2007 and 2008 with 19 million conversion packages. 10

11 COVERSION OF KEROSENE TO LPG FOR HOUSEHOLD AND MICRO BUSINESS Completion Program 100% 1,63% 20,90 % 80% 40,80 % 98,37 % Note: In 2010, subsidized kerosene remained in the market used only for household in remote area, small business and house lighting. 60% 40% 79,10% 59,20 % 80,57 % 20% 0% *) 20,40 % LPG (kl eq. to kerosene) 163,182 2,069,536 4,000,000 7,900,000 Kerosene (kl) 9,851,812 7,832,280 5,804,911 2,000,000 *) Unaudit 11

12 Fuel Subsidy Policy, Limiting subsidized fuel users to households, micro businesses, fishery businesses, public transportation and public services Reducing the consumption of fossil fuels by introducing new types of bio-fuel Enhancing the development of alternative energy, Continuing conversion program of kerosene to LPG 3 kg To enhance monitoring of subsidized fuel distribution and law enforcement for misuse Reform in fuel business : Open procurement for Fuel Subsidies distribution Bonded Area for Gasoline Storage Facilities 12

13 Indonesia s Fuel price, and compare to other countries fuel price 8,429 11,560 6,590 8,451 7,367 8,777 7,049 7,759 4,784 5,066 4,500 4,500 IDR/Liter Indonesia s Gasoline & Diesel Prices IDR6,355 IDR5, IDR4, Jan' 09 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Des Jan' 10 Feb Mar Apr Mei Jun Jul Aug Sep* Oct** Gasoline Economical Price Diesel Economical Price Administered Price IDR/Liter 15,000 DIESEL GASOLINE 10,000 5,000 GDP/Capita : 0 SINGAPORE PHILIPINE THAILAND VIETNAM MALAYSIA INDONESIA USD USD USD USD 779 USD USD

14 Allocation of Fuel Subsidy to Public Expenditure, Budget 2010 Others 3% Fuel Subsidy 8% Budget 2011 Others 2% Fuel Subsidy 8% Non-Fuel Subsidy 11% Non-Fuel Subsidy 8% Transfer to Region 33% Transfer to Region 34% Interest Payment 10% Line Ministries Expenditure 35% Interest Payment 11% Line Ministries Expenditure 37% 14

15 percentage Fiscal Space should be improved Mandatory Spending Ratio, Mandatory Spending Ratio to exp To exp to net rev To rev to exp To exp to net rev To rev to exp To exp to net rev to exp to net rev to exp to net rev to exp to net rev To rev To exp To rev To exp To rev To exp To rev Transfer to local gov Subsidy Personnel exp Interest exp Goods exp Other exp Transfer to region Subsidy Personnel Exp Interest Payment Capital Exp Other Exp Fiscal space was limited, : In term of revenue : fiscal space was around 85% - 97% In term of expenditure : fiscal space was around 85% - 91% 15

16 Mid-Term Development Plan Fuel Subsidy Phase-out Strategy Compensating Variance Transform price subsidy to direct subsidy Social Safety Net to shield the vulnerable Reduction of Fuel Subsidy Less Volume of Subsidized Fuels Energy diversification Closed distribution system Fiscal incentive and disincentive Fuel Price Reference Minimizing fuels distribution cost Full cost absorption of fuel provision Effective targeting and costing of fuels subsidy

17 Subsidized Fuel and Target Subsidy Fuel User Stage V Stage VI Stage VII Stage VIII Sep ' 05 Okt ' 05 Apr ' Kerosene Household S S S S S S/Closed 1 S/Closed 2 Small Business S S S S S S/Closed 1 S/Closed 2 Industry NS NS NS NS NS NS NS NS NS NS NS Gasoline Transportation S S S S S S/Closed 1 S/Closed 2 Fishery NS NS S S S S/Closed 1 S/Closed 2 Industry NS NS NS NS NS NS NS NS NS NS NS Diesel Transportation S S S S S S/Closed 1 S/Closed 2 Fishery S S S S S S/Closed 1 S/Closed 2 Industry NS NS NS NS NS NS NS NS NS NS NS Diesel Oil for Sea Freight Industry Sea Freight Industry NS NS NS NS NS NS NS NS NS NS NS Fuel Oil for Sea Freight Industry Sea Freight Industry NS NS NS NS NS NS NS NS NS NS NS S = Subsidy : Still subsidized NS = Non Subsidy : Not subsidized S/closed 1 S/closed 2 : Test arrangement for closed distribution system ( ) : The trial closed distribution system in gradually ( ) 17

18 Mandatory for Bio ethanol Utilization (minimum %) SECTOR Oct Dec 2008 January 2009 January 2010 January 2015** January 2020** January 2025** REMARK Household Not determined PSO Transportation Non PSO Transportation Industry and Commercial 3 % (existing) 5 % (existing) 1 % 3 % 5 % 10 % 15 % 5 % 7 % 10 % 12 % 15 % - 5 % 7 % 10 % 12 % 15 % * Based on Total Needs * Based on Total Needs * Based on Total Needs Power Plant Not determined Mandatory for Pure Plantation Oil Utilization (minimum %) SECTOR Oct Dec 2008 January 2009 January 2010 January 2015** January 2020 ** January 2025 ** REMARK Household Not determined Industry and Transportation (Low and medium speed engine) Industry Marine % 3 % 5 % 10 % % 3 % 5 % 10 % Power Plant - 0,25 % 1 % 5 % 7 % 10 % * Based on Total Needs 18

19 In IDR Trillion Subsidies Policies, Subsidies Policies In IDR Trillion % % Medium Term Expenditure Framework Fuel Subsidy Fuel Subidy % to Total Expenditure Non Energy Subsidy Energy Subsidy % to GDP % to Total Exp - Controlling subsidised fuel consumption by closed distribution and regulation improvement Developing alternatives energies (coal, gas, geothermal) Electricity tariff adjustment 19

20 Energy subsidy Policies will support Fiscal Sustainability in the Medium Term 1 Deficit & Primary Balance, Budget - R 2009 Budget % 45% 47% % 39% Deficit Primary Balance 35% 30% 25% 20% 35% 33% 30% 29% 29% 27% 26% 25% Debt to GDP Ratio Budget deficit is consolidated into 1% in 2014 and primary balance keeps increase Financing Policies: Lowering debt GDP ratio to maintain fiscal sustainability Debt instruments diversification to minimize cost and risk Lowering government debt ratio to GDP consistently Improving transparency and accountability on debt management 20

21 Challenges Inappropriate targeted subsidy Influenced by political policy Impact to inflation, poverty, and unemployment Socialization to the Parliament and Public These roadmap is enacted to limit the utilization of subsidy to be more appropriate and to reduce ineffectiveness of budget subsidy allocation. Recently, the most important things to be conducted by Indonesian Government are to monitor and to supervise the implementation of the roadmap. 21

22 Thank You

23 Outline 1. Background 2. Policy Implementation until Fuel Subsidy Mid-Term Expenditure Framework - Subsidy 5. Challenges 23

24 Regulatory Framework on Fuel Subsidy Law No.22/2001 on Oil and Gas Govt Regulation No.36 /2004 on Downstream Oil and Gas Presidential Decree No.55/2005 on retail domestic fuel prices and preceeding Presidential Decree No.9/2006 Presidential Decree No.71/2005 on Provision and Distribution of Particular Typer of Fuels Fuel subsidy defined as a budgetary allocation given to a company or institution that produces and/or sells the oil fuel and Liquefied Petroleum Gas (LPG), with the purpose of providing access to energy at an affordable price for consumers. Fuel Price is lower than market price by applying administered price policy for Gasoline, Kerosene and Diesel. Allocated directly through State Owned Enterprise/Private Companies Challenges: Volatility of raw fuel price makes domestic fuel price is also volatile Eliminated untargeted subsidies 24

25 Trillion Rupiah Percent Maintance Fiscal Sustainability Primary Balance and Deficit (%) -0,1-0,5 98,5-1 -0,9 84,3-1,3 64-1,3-1,6-1,7 50,8 49,9 46,7 38,7-2,1 30,2 30-2,5 5, ,5-1 -1,5-2 -2,5-3 Primary Balance (Trillion Rupiah) Deficit (%) [ triliun rupiah ] Debt to GDP Ratio (%) [ % ] 120% % % % % % 33% 28% 80% 60% 40% % % Outstanding Utang GDP PDB Debt Rasio to GDP Utang ratio thd. PDB (RHS) 25

26 Policy Framework for Phasing Out Fuel Subsidy Rising fuel consumption Fuel prices increases Bottleneck domestic refineries Restricting domestic fuel stock Insufficient infrastructure and transportation Ineffective fuel subsidy Current Condition Fuel Subsidy Alleviation Decreasing energy intensity Provision of sufficient infrastructure and transport of fuel Alleviating fuel subsidy along with compensating variation Energy diversification Strategy Target Condition Lower volume of subsidized fuels Minimum subsidy on fuels Non-fuel diversified renewable energy sources Strategy of Subsidy Reform The phasing out of inefficient fossil fuel subsidies in Indonesia is to be implemented in a gradual manner in order to minimize the spill-over impact on the poor noting that a large part of the consumption basket of the poor is affected by higher fossil fuel prices. The phasing out strategy is to be sequenced through managing the demand side by adopting measures that will reduce fossil fuel energy consumption and then by gradually narrowing the gap between domestic and international prices. 26