Energy Subsidy Policy and Fossil Fuel Reform

Koh Samui, 18 March 2013

Fiscal Policy Agency - Ministry of Finance

1

12,8 33,3 52,3 43,5 52,8 39,8 39,9 42,530,433,1

83,949,5 57,6 90,4 94,6 80,964,2

83,8

139,1

45,082,4

165,2211,9

193,8

107,4150,2

275,3

138,1

192,7

295,4

346,4317,2

16,1

19,8

27,9

14,7

18,5

22,823,4

18,8

0,0

5,0

10,0

15,0

20,0

25,0

30,0

0,0

100,0

200,0

300,0

400,0

500,0

600,0

2006 2007 2008 2009 2010 2011 2012Real

2013APBN

Trilliun Rp

BBM Listrik Non energi % Subsidi thd Belanja Negara

2

Fuel subsidy in Government Budget

20.9

14.5

18.7 9.8

27.5

0.3 5.5 2.8 15.0

8.1

9.1

18.1

33.4

- 6.9

9.4

2005

Belpeg

Bel barang

Bel Modal

Bunga Utang

Subsidi

2013

Personal Exp

Goods Exp

Capital Exp Debt Interest Subsidy Exp

Subsidy portion is still dominant reducing Govt discretion to expand the support for insfrastructure and other strategic programs.

% subsidy to Govt Exp Non Energy Electricity Fuel

Realization Budget

Oil price has a strong effect on fuel subsidy.

Fuel subsidy in 2013 is expected to be around Rp193.8 trillion. However, taking into account the current development of the ICP, fuel subsidy in 2013 will be higher than initially expected.

3

Fuel Prices Impact on Subsidies

45.0 65.0 94.6 80.9

123.6 137.4

211.9 193.8

90.0 105.0

112.7

100.0

0

30

60

90

120

0

100

200

300

400

Budget Revised Budget Realization Budget

2012 2013

USD/barel Rp Trillion Fuel Subsidy Electricity Subsidy Oil Price (ICP)

Fuel Subsidy, 2012 -2013

2013

Budget Budget Revised Budget

Fuel Subsidy total (billion Rp) 123.599,7 137.379,8 193.805,2

1. Fuel subsidy 89.441,7 91.891,0 146.461,8

a. Gasoline 51.145,8 51.698,3 87.195,1

b. Kerosene 6.184,9 7.882,5 8.035,1

c. Diesel 32.111,0 32.310,3 51.231,7

2. gas 22.921,6 29.126,2 26.452,0

3. LGV - 54,0 100,0

4. VAT 11.236,3 12.101,7 17.291,4

Assumption

1. ICP (US$/barel) 90 105 100

2. Exchange Rate (Rp./US$.1) 8.800 9.000 9.300

3. Parameter Alpha (Rp/liter) 613,9 641,9 642,6

4. Fuel consumtion (Ribu kl) 40.000 40.000 46.010

a. Gasoline 24.411 24.411 29.200

b. Kerosene 1.700 1.700 1.700

c. Diesel 13.889 13.889 15.110

5. gas consumption (million kg) 3.606 3.606 3.859

6. Additional Biofuels subsidy (Rp/liter)

- Bioethanol 3.500 3.500 3.500

- Biodiesel 3.000 3.000 3.000

7. Retail Price (Rp/Liter) Assumption per April

a. Gasoline 4.500 6.000 4.500

b. Kerosene 2.500 2.500 2.500

c. Diesel 4.500 6.000 4.500

2012

Fuel and BioFuels Benchmark Price

Gasoline Diesel Bioethanol Biodiesel

Jan 12 115,9 9.064 6.917 7.686 6.877 8.672

Feb 122,2 8.981 7.386 7.898 6.968 8.782

Mar 128,1 9.119 7.956 8.284 7.378 8.973

Apr 124,6 9.130 8.306 8.479 7.157 9.249

Mei 113,8 9.244 8.220 8.385 7.163 9.188

Jun 99,1 9.404 7.562 7.902 7.013 9.111

Jul 102,9 9.410 6.542 7.123 7.054 8.557

Agust 111,7 9.453 7.116 7.595 7.182 8.550

Sep 111,0 9.518 7.989 8.399 6.598 8.489

Okt 109,9 9.549 7.920 8.500 5.894 8.867

Nop 106,7 9.580 7.832 8.348 5.783 8.066

Des 106,9 9.598 7.603 8.133 7.348

ICP

(US$/barel)

IDR

(Rp/US$)

Benchamark Prices (Rp/ltr) Benchamark Prices (Rp/ltr)

Conversion Program : Fuel into Gas

Local Gas LNG Locas gas LNG

1. Subsidi, billion Rp/year (1.713) (1.260) 168 (762) (7.708) (7.401) (1.891) (6.075)

2. Saving of conversion, billion Rp/year - 453 1.881 951 - 307 5.817 1.633

Taxi/Public Transportation

Gasoline ViGas BBG

Motorbike

Gasoline ViGasBBG

Expected Savings of Conversion:

Assumption : taxi 27 ribu unit, Public transportation 22 ribu unit, and motorbike 9 million unit.

Local Gas LNG Locas gas LNG

1. Convertor, billion Rp. - 735 588 588 - 9.000 13.500 13.500

2. Dispenser, M Rp - - - - - - - -

3. Gas Station, biilion Rp - 540 540 540 - 540 540 540

4. Gas Piping, billion Rp - - 130 130 - - 130 130

Total, billion Rp - 1.275 1.258 1.258 - 9.540 14.170 14.170

BBGViGas ViGas

Taxi/Public Transportation Motorbike

Gasoline GasolineBBG

Coversion Cost Borne by Government

Widen Price Disparity (Economic vs Subsidized price)

7

Wider price gap (economic vs subsidized price) lead to increase fuel consumption.

4,500

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Jan'11 Mar Mei Juli Sept Nov Jan'12 Mar Mei Jul Sep Nop Jan'13

IDR/Ltr

Premium Keekonomian

Solar Keekonomian

Premium dan Solar Bersubsidi

Pertamax

Economic Price (Gasoline)

Economic Price (Diesel)

Subsidized price (Gasoline & Diesel)

Pertamax price

Fuel Consumption

8

10,7 10,9 11,8 12,0 13,0 14,5 13,9 15,6 15,1

10,0 9,9 7,9 4,7 2,3 1,7 1,7 1,2 1,7

16,8 17,9 19,521,2 22,9

25,5 24,428,2 29,2

37,4 38,6 39,2 37,9 38,241,8

40,0

45,0 46,0

0,0

10,0

20,0

30,0

40,0

50,0

2006 2007 2008 2009 2010 2011 2012 APBN-P

Realisasi 2013APBN

Juta KLSolar Minyak Tanah Premium

Fuel consumption : gasoline for 3 years on average increased by 10% and diesel by 9%.

Diesel Gasoline Kerosene

Million KL

Budget Revised

Realization

Budget

-

3.000

6.000

9.000

12.000

15.000

18.000

21.000

Singapura Philipina Thailand China Jepang India Korea Australia Malaysia Vietnam Pakistan Indonesia

PREMIUMRp/ Liter

Sep-12

Nop-12

Jan-13

Fuel Price in Selected Country

Source : Bloomberg

-

3.000

6.000

9.000

12.000

15.000

18.000

21.000

Singapura Philipina Thailand China Jepang India Korea Australia Malaysia Vietnam Pakistan Indonesia

SOLARRp/ Liter

Sep-12

Nop-12

Jan-13

Gasoline

Diesel

Energy Subsidy Policies 2013 Fuel Subsidy :

Controlling subsidised fuel consumption by controlling, supervising, and managing its distribution

Increasing BBM to BBG conversion, particularly for transportation in big cities; Continuing kerosene to LPG (3kg) conversion program, especially in East Part of

Indonesia; Continuing development program of gas for urban households; Expanding the uses of biodiesel to 10 persen. Tax incentives for low cost green car

Electricity Subsidy:

Electricity tariff adjusment by 15% on average, except customer category of 450 VA and 900 VA

Implementing the efficiency of source of energy PT. PLN, follows:

1. Reducing the use of oil in generating the electricity by optimizing the use of gas, coal, geothermal, and other non-oil energy;

2. Reducing the electricity losses;

Increasing the electrification ratio.

Including the use of solar cell for small islands

Strategies for the Efficiency of Subsidized Fuel

The percentage of Priority Exp to GDP

Reallocation for more productive programs

2. Consumption’s restriction

1. Adjusting Tariff

3. Conversion program of fuel to gas

4. Non-oil energy alternatives

5. Environmenally Friendly Vehicles 16

*) free converter kit for public transportation

Consumption’s

restriction

Diversification of

BBM to

BBG

Presidential Act No 64/2012

a. CNG for public transportation *)

b. Implementing the program gradually

Other institutional supports

a. Accelerating the mass transportation development

b. Developing the non-oil vehicles (e.g. hybrid and electricity

vehicles)

DEMAND SIDE

MANAGEMENT

S

T

E

P

S

The Gov’t of Indonesia has implemented the consumption’s restriction of

fuel subsidized …..

Presidential Act No 15/2012

The change of the criteria of subsidized fuel consumer.

Permen 01/2013

Gradually limit the use of fuel by government institution (central

and local government and state owned enterprise), mining sector,

plantation, foresty, non-pioneer cargo shipping

Subsidized Fuel Consumption Control Strategies

In 2012 :

Gradually limit the use of premium by government institution (central and local government and state owned enterprise) in Jabodetabek (Jakarta and suroundings) since 1 June 2012, and from 1 August 2012 for the rest of Java and Bali,

The government also ban the use of subsidized autodiesel for vehicles for plantation and mining activities since 1 September 2012,

The government also continue to carry out the conversion program from kerosene to LPG

In 2013 (MEMR Degree No. 1/2013):

a. Extending to limit the use of premium to other region gradully starting in Kalimantan and Sumatera from 1 February 2013 and Sulawesi from 1 July 2013;

b. Gradually limit the use of autodiesel by government institution (central and local government) in Jabodetabek (Jakarta and suroundings) since 1 February 2013, and from 1 March 2013 for the rest of Java and Bali;

c. Ban the use of subsidized autodiesel for vehicles for plantation and mining activities since 1 September 2012;

d. Ban the use of subsidized autodiesel for vehicles for forestry activities since 1 March 2013;

e. Exceptions for (c) and (d) are given to as following: (a) plantation <25 ha, (b) small scale mining, and (c) small scale forestry; and

f. Ban the use of non-pioneer shipping in using subsidized autodiesel since 1 February 2013.

Electricity Subsidy

14

15

Cash flow subsidy

2005

Targetted Subsidy, Consumer of S-1, S-2, R-1, I-1 and B-1, with capacity <450 VA and used <60 kWh

Extended consumer subsidy

2005 s.d sekarang 2002

s.d 2004

s.d 2001

3.9 4.6 4.1 3.8 2.3 8.9

30.4

33.1

83.9

49.5 57.6

90.4

65.0

80.9

-

20.0

40.0

60.0

80.0

100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 APBN-P

2013 APBN

Rp Triliun

Budget Revised

Electricity Subsidy Policies

Budget

Supply Cost Higher than Regulated Tariff

-

200

400

600

800

1,000

1,200

1,400

2005 2006 2007 2008 2009 2010 2011 APBN-P 2012

2013

BPP (Rp/kWh) 686 925 934 1,271 1,059 1,089 1,351 1,091 1,245

HJTL (Rp/kWh) 592 623 624 654 662 693 738 730 839

686

925 934

1,271

1,059 1,089

1,351

1,091

1,245

592 623 624 654 662 693 738 730

839

Tahun 2005 2006 2007 2008 2009 2010 2011 APBNP-2012 2013

Subsidi Listrik

(Rp/kWh)94 303 310 617 397 396 613 361 406

16

Electricity Subsidy

No Tariff Increase Budget

Assumption:

- ICP (US$/barel) 100 100

- Exchange Rate (Rp/US$) 9.300 9.300

- Growth Sales (%) 9,00 9,00

- Energy sales (TWh) 182,28 182,28

- Looses (%) 8,50 8,50

- Electricity tariff(%) 15 15

- Fuel Mix

- HSD (juta KL) 4,3 4,3

- MFO (juta KL) 1,4 1,4

- Batu Bara (juta ton) 48,8 48,8

- Gas (MBBTU) 0,4 0,4

- Panas Bumi (TWh) 4,2 4,2

- Bio Diesel (juta KL) 0,0 0,0

- Margin (%) 7 7

Eelectric ity Subs idy (bil l ion Rp) 95,83 80,94

JENIS SUBSIDI

2013

Electricity, 2013

2008 2009 2010 2011 2012 2013

BBM 36% 25% 22% 22,95% 13,83% 9,70%

Bio Diesel & EBT Lainnya 0% 0% 0% 0,07% 0,52% 0,52%

Hydro 9% 8% 12% 6,80% 6,29% 6,19%

Panas Bumi 3% 3% 3% 5,13% 4,79% 4,80%

Gas 17% 25% 25% 21,00% 23,18% 22,12%

Batubara 35% 39% 38% 44,06% 51,40% 56,66%

Fuel Mix PT PLN

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Geothermal

Coal

Geothermal Fuel

Feed in Tariff Geothermal (MEMR Decree No. 22 /2012)

High Voltages Low Voltages

1 Sumatera 10,0 11,5

2 Jawa, Bali dan madura 11,0 12,5

3 Sulsel, Sulbar, Sultenggara 12,0 13,5

4 Sulut, Sulteng, dan Gorontalo 13,0 14,5

5 NTB dan NTT 15,0 16,5

6 Maluku and Papua 17,0 18,5

Region

Purchased Price Geothermal (cent US$/kwh

Feed in Tariff Renewable Energy (MEMR Decree No. 4 /2012)

Purchased price of electricity as in Article 1, if it’s from biomass and biogas :

• Rp975/Kwh x F, if connected to middle voltage;

• Rp1.325/Kwh x F, if connected to lower voltage.

F is an insentive factor following regional base:

• Java, Madura, Bali, dan Sumatera, F = 1;

• Sulawesi, Kalimantan, Nusa Tenggara Timur, and Nusa Tenggara Barat, F = 1,2;

• Maluku dan Papua, F = 1,3.

Purchased price of electricity as in Article 1, if it’s urbane waste:

• Rp1.050/Kwh , if connected to middle voltage;

• Rp1.398/Kwh, if connected to lower voltage.

Purchased price of electricity as in Article 1, if it’s urbane waste with sanitary landfill :

• Rp850/Kwh, if connected to middle voltage;

• Rp1.198/Kwh, if connected to middle voltage;

Thank you

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