Fuel Price Reforms in Indonesia: Some Lessons
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Fuel Price Reforms in Indonesia: Some Lessons Teguh Dartanto Head of Poverty and Social Protec2on Research Group, LPEM FEB UI Director of Undergraduate Program in Economics University of Indonesia
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Transcript of Fuel Price Reforms in Indonesia: Some Lessons
Fuel Price Reforms in Indonesia: Some Lessons
Teguh Dartanto
Head of Poverty and Social Protec2on Research Group, LPEM FEB UI Director of Undergraduate Program in Economics
University of Indonesia
Reasons for Reforms
2
Sources: Ministry Energy and Mineral Resources and Ministry of Finance
Energy Subsidy in Indonesia: Burden to the Budget
3
25.3
9.0
16.7
21.2
4.0
4.4
1.9
1.7
3.1
3.8
2.8 3.0
4.5
1.7
3.4
3.7
3.4
3.9
0
0.5
1
1.5
2
2.5
3
3.5
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0.0
5.0
10.0
15.0
20.0
25.0
30.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Energy Subsidy: Burden to the Budget, 2000-‐2014
% of central government spending % of GDP (secondary axis)
Monthly Adjustment Fuel price 2002-‐2003
March 2005-‐ 30% fuel price Adjustment October 2005 – 67 % fuel price adjustment
October 2008 – 30 % fuel price adjustment February 2009 – back to October 2009 price regime
June 2013, 44 % fuel price adjustment
Sources: Ikhsan, 2014
550 600 900
16502100
5500
4500
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000Ja
n-00
Jan-
01
Jan-
02
Jan-
03
Jan-
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Jan-
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Jan-
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Jan-
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Jan-
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Jan-
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Jan-
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Die
sel p
rices
(Nom
inal
Rp
per l
iter)
.
Retail price Industry Price MOPS Gasoil
Same price for all (75%
of MOPS) with
ceilings
Same (fixed) price for all
Retail: fixed at ceiling
Industry: MOPS + 5% with ceiling
Retail: fixed
Industry: MOPS + 15%
Retail: rule-‐based (increase allowed if 6-‐month average of ICP
rises 15% above budget assump2on of
$105/bbl)
Retail: fixed
Industry 50% of MOPS
Indonesia has tried many types of pass-‐through Rule-‐based (with trigger) for retail; full pass-‐through for industry
Sources: Ikhsan, 2014
The New Reform: Formula of Fuel Prices • The Ministry of Energy and Natural Resources through the regula2on No.
0219 K/12/MEM/2010 and No. 3784 K/12/MEM/2014 regulates the formula of HIP.
• Where HP is benchmark price; HIP is market price index; and αi is profit
margin and transporta2on costs; i is the average of previous month price. HIP follows the price of MOPS (Mean of Plafs Singapore).
• Adjustment for every two weeks at early stage, but now becoming every six months (too long).
• In order to speed up the reform in the oil and gas sector, the Government of Indonesia had formed a special taskforce namely Oil and Gas Reform Team (December 2014-‐May 2015).
11/4/15 5
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!"#!"#$%&'( = 0.9842!!"#$!"#$%!"
!"#!"#$#%!!"# = 0.9967!!"#$!"#$%&!!.!"%!!"#$!!"
!"#!"#$%"&" = !"#$!"#!!"#$%"&"
Current Fuel Reforms: Gasoline
11/4/15 6
Current Fuel Reforms: Diesel Fuel
11/4/15 7
Fiscal Impacts of Fuel Subsidy Reforms
11/4/15 8
subsidies
Fuel Subsidy Reform and Economic and Environmental Impacts (Input-‐Output Approach)
11/4/15 9
1. S1a: 50% fuel subsidy removal, redistributed to u2lity sector (gas sector); 2. S1b: 100% fuel subsidy removal, redistributed to u2lity sector (gas sector); 3. S2a: 50% fuel subsidy removal, redirected to the poor (direct cash transfer) 4. S2b: 100% fuel subsidy removal, redirected to the poor (direct cash transfer); 5. S3: 50% fuel subsidy removal, equally reallocated to gas sector and poor households (a
mix of scenario 1 and 2); 6. S4: 50% fuel subsidy removal, realloca2on to several key sectors (i.e. ’Agriculture, Hun2ng,
Forestry and Fishing’, ’food, beverages, and tobacco’, and ’government, defense, and educa2on’)
Fuel Subsidy Reform and Environmental Impacts
11/4/15 10
Source: Author’s esBmaBon based on Dartanto (2013) and Fathurrahman et al. (forthcoming)
Socio Economic Impacts of Reforms
11/4/15 11
-‐0.20% -‐0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90%
Simula2on #1 Simula2on #2
SimulaQon #1: The cost of UHC is around IDR 18.07T (2008 value): financed by 15% cujng fuel subsidies. The alloca2ons of saved money are: 3.3% (construc2on); 30.2% (government services); 4.7% (educa2on services), 46.6% (BPJS health sector), 14.6% (public health services). SimulaQon #2: The cost of UHC is around IDR 18.07T (2008 value): financed by 7.5% cujng fuel subsidies and voluntary contribu2on of society. The alloca2ons are as same as SimulaQon #1.
Source: LPEM FEB UI’s esBmate
