fiscal policy related to fuel subsidy and climate change program in indonesia
TRANSCRIPT
Fiscal Policy related to Fuel Subsidy
and Climate Change Program In
Indonesia
Fiscal Policy Office – Ministry of Finance
Republic of Indonesia
Expert Workshop on Estimating Support to Fossil Fuels, in OECD, Paris
18 - 19 November 2010
by Askolani
Indonesia : Fuel Subsidy Formula
• Retail fuel price is the retail selling price per liter of fuel in domestic area.
• Tax is a Value Added Tax (10%) and Motor Vehicle Fuel Tax (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
Fuel Subsidy :
= [Reference Price of Fuel - (Retail Fuel Prices - Tax) ] x Fuel Volume
0
1000
2000
3000
4000
5000
6000
7000
8000
MOPS Official Price Retail Price
IDR/liter
VAT & PBBKB
Subsidy
Reference price of Fuel
2
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
The vulnerable of oil price
Community dependence on fossil fuel
subsidies is still high
Targeted fuel subsidies 3
State Budget And Fuel Subsidy Policy
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
68,4 31,2 30,0 39,0
95,6
64,2
83,8
139,1
45,0
88,9 92,8
23,9 24,6
28,8 37,6
53,4
64,3
72,3
97,0
61,6
80,0 80,0
0
20
40
60
80
100
120
0
20
40
60
80
100
120
140
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revised Budget
2011 Budget
Plan
Fuel Subsidy ICP
US$/Barrel IDR Trillion
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Pe
rce
nta
ge
CGE (Percentage) Total Expenditure (Percentage) GDP (Percentage)
Fuel Subsidy Compare to Other Subsidies, Central Government Expenditure, Total Expenditure, and GDP
4
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PSO & Others Fertilizer & Seeds Food Electricity Fuel
Per
cen
tage
Share of Fuel Subsidy to the Total Subsidies
Share of Fuel Subsidy (%)
CGE = Central Government Expenditure
GROWTH OF SHARE AND FOSSIL FUEL SUBSIDY, 2000 – 2009
42,99 %
34,47 %
18,48 %
4,07%
Average increase in last
10 years:
1.Oil : 0,52 %/year
2.Coal : 13,70 %/year
3.Gas : 1,81 %/year
4.Total : 4,33 %/year
A. Increase of Total Share (in million BOE)
B. Increase of Fossil Fuel Subsidy (in billion IDR)
727 772
800 859 873 896 897
956
1065 NRE
Coal
Gas
Oil
1014
*)
*) = 2+3+4 Source : Ministry of Energy and Mineral Resources 5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1. Electricity 3.93 4.30 4.10 3.36 3.31 10.65 33.90 37.48 78.58 53.72
2. Electricity using Fossil
Fuel3.30 3.55 3.49 2.92 2.86 9.20 29.75 32.63 68.16 46.14
3. Fossil Fuel Subsidy 55.64 63.26 31.75 30.04 59.18 103.35 64.21 83.79 139.03 45.04
4. LPG Subsidy 0 0 0 0 0 0 0 0.15 3.84 7.78
Total Fossil Subsidy 58.94 66.81 35.24 32.96 62.04 112.55 93.96 116.57 211.03 98.96
Commodities and Fuel Domestic Prices, 2003-2010
6
-
1.000
2.000
3.000
4.000
5.000
6.000
7.000
01-A
pr
01-J
un
17-J
an
01-J
an
21-J
an
01-F
eb
01-J
an
03-J
an
01-O
ct
1Jan
-23
May
24-M
ay
01-D
ec
15-D
ec
2001 2002 2003 2004 2005 2006 2007 2008 2008 2009
IDR
GASOLINE
DIESEL
KEROSENE
Year 2003 2004 2006 2007 2008 2009 2010
1Jan-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
INDUSTRYS S S NS NS NS NS NS NS
FUEL OIL S S S NS NS NS NS NS NS
2005
Note : S = Subsidy, NS = Non Subsidy
Fuel Price Adjustment (IDR/ liter)
Nanggroe Aceh Darussalam
Sumatera Utara
Sumatera Barat
Riau
Jambi
BengkuluLampung
Sumatera Selatan
Bangka Belitung
Kepulauan Riau
BantenJawa Barat
Jawa TengahDKI Jakarta
D.I. Yogyakarta Jawa Timur
Bali
Kalimantan Barat
Kalimantan TengahKalimantan Selatan
Kalimantan Timur
Nusa Tenggara Barat
SulawesiBarat
Sulawesi Tenggara
Nusa Tenggara Timur
Sulawesi Tengah
Gorontalo
Sulawesi UtaraMaluku Utara
Maluku
Papua Irian Jaya Barat
Sulawesi Selatan
Roadmap of Kerosene to LPG Conversion Program
Red area converted in 2007 and
2008 with 19 million conversion
packages.
In 2007, 4 million conversion
packages distributed in Java.
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.
2007 - 2009
• 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 2008.
• 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.
Green area converted in 2009
with 23 million conversion
packages.
1 2
3
7
Achievement of Kerosene to LPG Conversion Program
8
9
Volume of Fuel Subsidies, 2006 - 2011
37,5 38,6 39,2 37,7 38,2 38,6
-
10,0
20,0
30,0
40,0
50,0
2006 2007 2008 2009 2010* 2011*
Million KL
Diesel Kerosene Gasoline
Volume of Fuel Subsidies
7.2 7.3 7.1 8.1
92.8 92.7 92.9 91.9
-
20.0
40.0
60.0
80.0
100.0
120.0
2006 2007 2008 2009
%Fuel Subsidies vs Non Fuel Subsidies
% BBM Bersubsidi thd Total Konsumsi % BBM Non Subsidi thd Total Konsumsi
%
% non subsidized fuel to total% subsidized fuel to total
Challenge : 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
Source: Statistics Indonesia for 2005-2007, BPS. 2008 onwards are
WB staff projections based on trends & monthly motorcycle sales.
Stock of vehicles by type
Stock of cars, trucks and buses
grew even faster between 2005-
2007, almost 30% per year, albeit
off a lower base
Number of cars could reach
almost 14 million in 2010,
followed by trucks (8 Mn) and
buses (3.5 Mn)
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2005 2006 2007 2008 2009 2010
Units (millions) Units (millions)
Motorcycles
Cars
Motorcycles
Cars
Trucks
Buses
Trend projections
10 Source : World Bank study
FUEL SUPPLY – DEMAND, in the long term
Source : Ministry of Energy and Mineral Resources 11
Fuel Subsidy Policy, 2010-2011
• 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
12
Indonesian Fuel Price : Compare to Other Countries’ Fuel Price
13
IDR5,871
IDR6,355
2 . 000
4 . 500
7 . 000
Jan' 09 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Des Jan' 10 Feb Mar Apr Mei Jun Jul Aug Sep* Oct**
IDR/Liter Indonesia’s Gasoline & Diesel Prices
IDR4,500
Gasoline Economical Price Diesel Economical Price Administered Price
0
5,000
10,000
15,000
SINGAPORE PHILIPINE THAILAND VIETNAM MALAYSIA INDONESIA
8,42
9
6,59
0
7,36
7
7,04
9
4,78
4
4,50
0
11,5
60
8,45
1
8,77
7
7,75
9
5,06
6
4,50
0
IDR/Liter
GDP/Capita :
DIESEL GASOLINE
USD 33.714 USD 1.582 USD 3.470 USD 779 USD 6.648 USD 1.748
Challenge : phasing out fuel subsidy will be a tool to improve Fiscal Space ?
Fiscal space was limited, 2005-2010 :
• In term of revenue : fiscal space was around 85% - 97%
• In term of expenditure : fiscal space was around 85% - 91% 14
to
exp
to net
rev to
exp
to
exp
to
exp to
exp
to
exp
to net
rev
to net
rev to net
rev to net
rev
to net
rev
Transfer to local gov Subsidy Personnel exp Interest exp Goods exp Other exp
0
20
40
60
80
100
To exp To net rev
2005 2006 2007 2008 2009 2010
90 91 85
89 85
92 87 88 85
93
85
97
pe
rce
nta
ge
Mandatory Spending Ratio 2005 - 2010
Transfer to region Subsidy Personnel Exp Interest Payment Capital Exp Other Exp
To exp To exp
To exp To exp To exp
To net rev
To net rev
To net rev
To net rev
To net rev
• Transform price subsidy to direct
subsidy
• Social Safety Net to shield the
vulnerable
• Energy diversification
• Closed distribution system
• Fiscal incentive and
disincentive
• Minimizing fuels distribution cost
• Full cost absorption of fuel provision
• Effective targeting and costing of
fuels subsidy
Reduction
of Fuel
Subsidy
Compensating
Variance
Less Volume
of Subsidized
Fuels
Fuel Price
Reference
Mid-Term Development Plan Fuel Subsidy Phase-out Strategy
15
Road map of Fuel Subsidy Targeted
16
S = Subsidy S/closed 1 : Test arrangement for closed distribution system (2009-2010)
NS = Non Subsidy S/closed 2 : The trial closed distribution system in gradually (2011-2014)
Source : Ministry of Energy and Mineral Resources
Sep ' 05 Okt ' 05 Apr ' 06 2007 2008 2009 2010 2011 2012 2013 2014
Household S S S S S
Small Business S S S S S
Industry NS NS NS NS NS NS NS NS NS NS NS
Transportation S S S S S
Fishery NS NS S S S
Industry NS NS NS NS NS NS NS NS NS NS NS
Transportation S S S S S
Fishery S S S S S
Industry NS NS NS NS NS NS NS NS NS NS NS
Sea Freight Industry NS NS NS NS NS NS NS NS NS NS NS
Sea Freight Industry NS NS NS NS NS NS NS NS NS NS NS
Fuel UserStage VII Stage VIII
S/Closed 2
S/Closed 1
Fuel Oil for Sea Freight Industry
Diesel Oil for Sea Freight Industry
S/Closed 1
S/Closed 1
S/Closed 1
Stage V Stage VI
Gasoline
Kerosene
S/Closed 2
S/Closed 2
S/Closed 2
S/Closed 2
S/Closed 1
S/Closed 1
Diesel
S/Closed 2
Mandatory for Bio ethanol Utilization (minimum %)
Mandatory for Pure Plantation Oil Utilization (minimum %)
17
MANDATORY for BIODIESEL UTILIZATION (minimum %)
Source : Ministry of Energy and Mineral Resources
SECTOROct - Dec
2008
January
2009
January
2010
January
2015**
January
2020**
January
2025**REMARK
PSO Transportation1 %
(existing)1 % 2,5 % 5 % 10 % 20 % * Based on Needs
Non PSO
Transportation- 1 % 3 % 7 % 10 % 20 %
Industry and
Commercial2,5 % 2,5 % 5 % 10 % 15 % 20 % * Based on Needs
Power Plant 0,1 % 0,25 % 1 % 10 % 15 % 20 % * Based on Needs
SECTOROct - Dec
2008
January
2009January 2010
January
2015**
January
2020**
January
2025**REMARK
PSO
Transportation
3 %
(existing)1 % 3 % 5 % 10 % 15 %
* Based on Needs
Non PSO
Transportation
5 %
(existing)5 % 7 % 10 % 12 % 15 %
* Based on Needs
Industry and
Commercial- 5 % 7 % 10 % 12 % 15 %
* Based on Needs
SECTOROct - Dec
2008
January
2009
January
2010
January
2015**
January
2020 **
January
2025 **REMARK
Industry andTransportation
(Low & medium
speed engine)
Industry - - 1 % 3 % 5 % 10 %
Marine- - 1 % 3 % 5 % 10 %
Power Plant - 0,25 % 1 % 5 % 7 % 10 % * Based on Needs
• Controlling subsidised fuel consumption by closed distribution and regulation improvement
• Developing alternatives energies (coal, gas, geothermal) • Electricity tariff adjustment
Subsidies Policies, 2009-2014 Subsidies Policies 2009-2014
18
-
5.0
10.0
15.0
20.0
-
50.0
100.0
150.0
200.0
250.0
2010 2011 2012 2013 2014
%
In ID
R T
rilli
on
Non Energy Subsidy Energy Subsidy % to GDP % to Total Exp
88.9 92.8
56.051.1
44.3
-
3.0
6.0
9.0
-
30.0
60.0
90.0
120.0
2010 2011 2012 2013 2014
%
In ID
R T
rilli
on
Fuel Subidy % to Total Expenditure
Medium Term Expenditure Framework Fuel Subsidy
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
Energy Subsidy Policies will Support Fiscal Sustainability in the Medium Term
- 3
- 2.5
- 2
- 1.5
- 1
- 0.5
0
0.5
1
Budget - R 2009 Budget2010 2011 2012 2013 2014
Deficit & Primary Balance, 2009 - 2014
Deficit Primary Balance
47%
39%
35%
33%
30% 29% 29%
27% 26%
25%
20%
25%
30%
35%
40%
45%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Debt to GDP Ratio
19
Challenges Phase out fuel Subsidy will have a broad impact, such as :
Inflation
Poverty and Unemployment
Competitiveness of Industry
Economic growth
Fiscal sustainability
Energy sustainability
How to design a comprehensive of phase out fuel subsidy, include its broad impact
Followed up by compensation policies to society and industry to minimize its negative impact
In developing countries (i.e. Indonesia, Malaysia, India), implementation of phase out fuel subsidy policy will be affected by political decision.
20
Fiscal Incentive for Climate Change
1. Minister of Finance (MoF) Regulation on Taxation and Customs Facility
for Renewable Energy Sources Utilization Activities;
2. MoF Regulation on VAT burden by the Government on the Import of
Goods for Geothermal Activities
4. MoF Regulation on VAT burden by the Government for Bio Fuel
5. Price subsidy for Bio Fuel
6. MoF Regulation on VAT burden by the Government for mitigation and
adaptation climate change
7. Revolving fund for geothermal exploration (IDR1 trillion in 2011)
21
(Billion IDR)
Revised
BudgetReal.
Revised
BudgetReal. Budget
Revised
Budget
Proposed
Budget
a. Income Tax on geothermal energy commodities 500,0 500,0 800,0 800,0 624,3 624,3 1.000,0
b. VAT for adaptation and mitigation climate change - - - - - 900,0 500,0
500,0 500,0 800,0 800,0 624,3 1.524,3 1.500,0
2011
Tax Subsidies
Total
2008 2009 2010
DAK Environment
Support the national priority targets of pollution loads reduction and alleviation of 50 percent
pollution level by the implementation of water pollution control, air and solid waste in the
region and to strengthen the implementation of regional environmental field of Minimum
Service Standard (SPM).
Transfer to Region for Climate Change Programs
To support climate change-adaptation and mitigation in the region, the Government attempt to fund activities related to climate change trough the Special Allocation Fund (DAK). There are two sectors related to climate change activities that are DAK Forestry and DAK Environment
Climate Change Financing for Regions
22
DAK Forestry
Improve watershed function, in order to maintain and increase the carrying capacity of forest
resources, land and water, and to support climate change mitigation. The policy is sated by
preventing more damage of forest resources, soil water that is in the watershed trough
implementing land rehabilitation, forest management in the scope of the district / city /
province affairs, including the development of village nurseries and peat land conservation.
(Billion IDR)
Sector/Year 2006 2007 2008 2009 2010
Environment 217.5 351.6 351.6 351.6 351.6
Forestry 100.0 100.0 100.0
Thank You