Indonesia needs to endorse fuel subsidy reform (opinion)

Indonesia needs to endorse fuel subsidy reform (opinion)

Indonesia has enjoyed impressive economic growth for over a decade,
averaging 6 percent per annum. That growth has been matched by commendable
efforts to lift millions of Indonesians out of poverty, while curbing
pollution and safeguarding the environment.

A critical aspect of Indonesia's green growth strategy is to lessen
dependence on fossil energy. For more than 40 years, nevertheless, fossil
fuel subsidies have been an integral part of Indonesia's energy policies.
Fossil fuel subsidies are essentially any government action that lowers the
cost of fossil fuels.

Subsidies, however, never reduce the true cost of energy; they just move it
onto the population in a
different way, whether through taxes, foregone revenue or foregone
expenditure. Ultimately, someone still pays!

In Indonesia, fossil fuel subsidies have taken the form of reductions in the
price of gasoline and diesel for the consumer. Here, as elsewhere, fuel
subsidies were put in place for noble reasons, primarily around improving
social welfare. Unfortunately, subsidies are not performing well as a social
policy, benefitting mostly middle and upper income classes who consume more
energy.

Reports indicate that in 2014 over 50 percent of subsidized fuel was bought
by the richest 20 percent of the Indonesian population. Nevertheless, reform
needs to be carefully planned to avoid unintended consequences for
vulnerable households.

In early 2015, the Jokowi administration followed through on commitments
made during the presidential campaign and removed significant subsidies to
gasoline and diesel. It has also signaled its intent to reform subsidies to
electricity and liquefied petroleum gas.

These are major achievements with global significance: Fossil fuel subsidies
encourage wasteful consumption, disadvantage renewable energy, and depress
investment in energy efficiency.

Removing fossil fuel subsidies therefore contributes to reducing global
greenhouse gas emissions. Looking towards the next major climate change
summit, COP22 in Marrakech next month, Indonesia's achievements should stand
as a model of global leadership on fossil fuel subsidy reform.

One key opportunity for this could be for Indonesia to endorse the
international Communiqué on Fossil Fuel Subsidy Reform.

The Communiqué encourages the international community to advance reform
through three principles: transparency; ambition; and targeted support for
the poorest. In all three areas, Indonesia has made significant progress,
which should be showcased at COP22 through the Communiqué.

First, subsidies in Indonesia are transparent as they are made public every
year through the state budget. In addition, as part of the Group of 20 ( G20
), Indonesia has volunteered to have its subsidies evaluated by an
independent peer review panel.

This is a huge statement from the government and makes Indonesia among the
leading countries within the G20. So far only the US and China have
conducted peer reviews.

Second, Indonesia's approach to subsidy reform has been very ambitious.
Gasoline and diesel reforms freed up Rp 211 trillion (US$15 billion) from
the state budget, resources that are now spent on other and more important
development priorities. For example, from the subsidy removal there were
increases of Rp 6.5 trillion for the education budget and Rp 6.5 trillion
for the health budget, which are direct investments in people's futures.

In addition, around Rp 60 trillion was dedicated to infrastructure
investments. These numbers are not trivial by any standards, and more
reforms are planned for 2017.

Third, on targeted support, Indonesia has actively used its social welfare
programs to protect the poorest when energy prices increase. Recently, the
government has developed a single registry of households for targeting its
major social assistance policies, known as the Unified Database.

Electricity subsidy reform is expected to rely on this database to target
subsidies to poor households only.

In preparation for COP22, Morocco's Environment Minister, Hakima El Haité,
recently called on countries to arrive in Marrakech with subsidy reform
"foremost in their minds".

Should Indonesia choose to endorse the Communiqué ahead of COP22, it would
send a very strong signal to the world that subsidy policies can indeed be
reformed to the benefit of people and societies alike.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Ref:
http://www.thejakartapost.com/news/2016/10/31/ri-needs-endorse-fuel-subsidy-
reform.html

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com