Alternative Funding Sources for Fuel Subsidies
When the government decides not to raise fuel prices, much of the public may welcome it with joy. However, for the state, the implications of this decision are actually very burdensome. Pressure on the state budget (APBN) is certain to increase dramatically along with the potential swelling of the energy subsidy budget—which is predicted to reach hundreds of trillions of rupiah. The question is, in a situation where fiscal space is limited, where then can alternative funding sources come from to stem the surge in subsidies needed by the state?
Relying solely on the expansion of fuel subsidies through the strength of the APBN is certainly not easy. Amid limited APBN funds, one possible opportunity is to rely on drawing new debt. However, the risks are undoubtedly very heavy if the APBN’s strength is only supported through additional new debt. For the short term, foreign debt does become an instant solution to patch the funding needs in the APBN. But in a situation where foreign debt is already so large, additional new debt will certainly make the APBN position even more difficult.
Alternatives
To prevent the APBN from becoming even more burdened, what is actually needed now is fiscal creativity and shifts in sustainable funding sources—without risking adding a heavy burden to our APBN. In broad terms, there are several interesting alternative funding sources that warrant further elaboration.
First, the most logical alternative is to utilise the surge in oil prices itself as an additional funding source for the APBN. When global oil prices rise, state revenues from the upstream oil and gas sector (Non-Tax State Revenue/PNBP) should also increase. Although not too substantial, Indonesia is also a country with quite potential oil and gas resources, so to some extent Indonesia benefits from the domino effect of rising global oil prices.
The government in this case could lock in the excess PNBP from oil and gas to finance the additional fuel subsidy needs. This is a “cross-subsidy” mechanism from the fiscal side. In addition, fuel compensation funds that the government has been paying to Pertamina can be optimised by tightening efficiency in governance from upstream to downstream. By cutting bureaucracy and distribution leakages, the saved costs can be redirected to hold back retail fuel price increases.
Second, how to ensure that subsidies provided to the public from APBN funds are truly on target. Whether acknowledged or not, it has long been suspected that there is still much bias and inaccuracy in subsidies, because the beneficiaries are not always those who truly need them.
Learning from experience, the main problem triggering subsidy swelling is not merely high oil prices, but rather misdirected subsidy distribution. To date, it is suspected that most subsidies are actually enjoyed more by the affluent segment of society who use non-subsidised fuels. It is common at various petrol stations that vehicles filling up with Pertalite-class fuel are not always poor people. Many mid-range cars and official vehicles freely fill up with subsidised fuel. This is what causes deviations or bias in fuel subsidy allocation.
Third, the most urgent alternative APBN funding can be obtained from accelerating the digitalisation of energy distribution, such as using applications or special cards for purchasing subsidised fuel. The funds saved from this new distribution model—which could be worth tens of trillions of rupiah—can be directly redirected as Energy Direct Cash Assistance (BLT) to poor and vulnerable families. This approach is fairer, more measurable, and does not burden the APBN recklessly. Although subsidies are part of populist programmes not oriented towards empowerment, by ensuring no bias in their distribution, they will undoubtedly be more beneficial.
Fourth, amid high dependence on oil, one possibility for seeking alternative funding sources is to find other energy sources. We realise that amid the pressure of rising fossil fuel prices, this moment must be used as momentum to accelerate the energy transition. An innovative funding alternative that can be taken is issuing Green Bonds or Sustainability-Linked Bonds.
Seeking alternative funding sources is indeed not easy. Therefore, if alternative funding sources can be obtained, it must be ensured that the incoming funds are not used for fuel subsidies, but rather to finance the development of renewable energy infrastructure—such as PLTS (Solar Power Plants) or electric vehicle (EV) infrastructure. By drastically reducing dependence on oil natural resources in the long term, fiscal pressure due to fluctuations in crude oil prices in the future will decrease.
Energy Independence
The rise in global oil prices is an unavoidable external factor. This is a loud alarm that truly impacts Indonesia’s fiscal condition. It forces us to realise that fossil fuels are limited resources whose prices tend to be sensitive to geopolitical conflicts.
Maintaining people’s purchasing power amid rising global oil prices is indeed a top priority. However, financing subsidies in a conventional way, namely relying solely on the strength of the APBN, is actually just “postponing the crisis”. This is an action that does not solve the root problem.
Alternative funding outside the APBN—from optimising PNBP, reforming targeted subsidies, Green Bonds, to other alternative funding sources—is the combination needed. The policy needed now is not courage to raise or maintain prices through subsidies.
For Indonesia