It is said that experience is the best teacher. From experience, we\ncan learn to improve ourselves. We have repeatedly faced the negative\nimpacts of oil shocks. Less than five years later, we are experiencing\nit again. When Russia and Ukraine went to war in February 2022, global\noil prices surged in March 2022. Global oil prices remained above 100\nUSD per barrel for a long time before gradually declining in the second\nhalf of 2022.<\/p>\n
The pressures from oil prices and exchange rates in 2022 and 2026 are\nworth examining. There are differences in policy adjustments and\nsupporting variables. In 2022, energy subsidies and compensation\nincreased from Rp152.5 trillion to Rp502.4 trillion. However, the\nrealisation still exceeded the ceiling, reaching Rp551.2 trillion. Why\ndid the DPR Budget Agency and the government agree on this policy? Why\npour out such massive fiscal ammunition?<\/p>\n
In 2022, Indonesia was still in the phase of national economic\nrecovery post the COVID-19 pandemic that struck in 2020 and peaked in\n2021. If energy subsidies and compensation were not increased, the\npublic would face much heavier economic pressures. In addition, the boom\nin coal and CPO in 2022 drove a surge in state revenues. This windfall\nprofit became ammunition to dampen the volatility in oil prices and\nexchange rates.<\/p>\n
The situation is slightly different this year. We are facing two\npressures at once: rising oil prices and exchange rates, without support\nfrom windfall profits from CPO and coal. The ceiling for energy\nsubsidies and compensation in the 2026 State Budget is Rp381.3 trillion,\nassuming an oil price of 70 USD per barrel and an exchange rate of\nRp16,500 per USD. The risk is that every rise in oil prices and\nweakening exchange rate will add to the burden of energy subsidies and\ncompensation.<\/p>\n
The government has affirmed that fuel and LPG prices will not change.\nIn the 2026 State Budget, the government has ammunition from the Budget\nSurplus Balance of Rp420 trillion, as well as a burden-sharing scheme\nwith Pertamina to hold prices steady. This step is commendable, because\namid weakening public purchasing power, a rise in fuel prices would\nfurther burden the people.<\/p>\n
However, this step must be followed by subsidy policy reforms.\nDiscussions and designs for reform have long been deliberated between\nthe DPR Budget Agency and the government, even since the era of\nPresident Joko Widodo, but have not been implemented optimally.<\/p>\n
Mis-Targeted Subsidies<\/p>\n
Susenas data shows that diesel and LPG subsidies have so far been\nmis-targeted. In 2022, subsidies were intended for poor households, but\nin practice, they were enjoyed by capable households.<\/p>\n
BPS and the Ministry of Social Affairs divide households into 10\ndeciles. The higher the decile, the higher the welfare level. In fact,\ndiesel subsidy recipients from deciles 6-10 reached 72%. The higher the\ndecile, the greater the diesel consumption. Conversely, households in\ndeciles 1-5 only enjoyed 28%.<\/p>\n
A similar thing happened with Pertalite. As much as 79% of the\nsubsidies were enjoyed by deciles 6-10, while the poor group only got\n21%. This occurs because the upper group has more vehicles and higher\nfuel consumption. Meanwhile, the poor group generally has limited\nvehicles, or none at all.<\/p>\n
For LPG subsidies, the deciles 6-10 group enjoyed 69%, while deciles\n1-5 only 31%. This inaccuracy occurs because 3 kg LPG is traded freely,\nso all levels can buy it, including the capable group with higher\nconsumption.<\/p>\n
Unlike fuel and LPG, electricity subsidies are relatively more\ntargeted because they are aimed at customers with 900 VA capacity and\nbelow. Households in deciles 1-5 enjoy 60% of electricity subsidies,\nalthough there is still leakage of around 40% to the capable group that\nneeds correction.<\/p>\n
However, there are still issues, such as households that have risen\nin decile but still use 900 VA capacity, so they still enjoy subsidies.\nIn addition, electricity theft practices still occur in various\nregions.<\/p>\n
Changing Subsidy Targets<\/p>\n
The government needs to immediately change energy subsidy policies.\nLPG subsidies should be directed to the 40% of the population with low\nincomes or up to decile 6. This group generally consists of\nmicro-business actors, small fishermen, farm labourers, and small\nfarmers. To reach 40% of those households, there are several options.\nFirst, ensuring accurate recipient data. Second, using biometric systems\nfor beneficiaries.<\/p>\n
India has implemented the Aadhaar system, a biometric identity linked\nto the bank accounts of subsidy recipients. This system is hard to\nmanipulate because subsidies are not given in cash, but through\nbiometric-based LPG purchase transactions.<\/p>\n
Although it requires significant initial effort, this system will\nfacilitate the government in the future, while also providing a digital\ndatabase on subsidy distribution. If India can implement it, Indonesia\nshould be able to as well.<\/p>\n
With a closed (targeted) LPG subsidy scheme, the 3 kg LPG price in\nthe market can be adjusted to economic prices, not subsidised prices\nanymore. This will reduce the government\u2019s subsidy burden. For diesel\nand Pertalite subsidies, data collection based on barcodes via the\nMyPertamina application needs to be revalidated. Pertamina must\ncross-check with vehicle ownership data (STNK) at the police.<\/p>\n
Fuel subsidies should be prioritised for small fishing boats, small\nfarmers\u2019 agricultural equipment, and motorcycles of UMKM actors.\nFour-wheeled vehicles should be prohibited from using subsidised diesel\nand Pertalite, except for yellow-plated commercial vehicles used for\ngoods distribution, especially food, to maintain inflation\nstability.<\/p>\n
Electricity subsidies also need to be revalidated by PLN through\nintegration of Susenas data. Households that have improved their welfare\nneed to exit the recipient group, while those experiencing decline\nshould be able to enter.<\/p>\n
Along with that, PLN can develop an electric stove programme for poor\nhouseholds gradually. Thus, they have an alternative besides subsidised\nLPG. Meanwhile, the<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/restructuring-energy-subsidy-policies-1775602301", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }