The Status of Electricity Subsidy Reform in Indonesia

The Status of Electricity Subsidy Reform in Indonesia

As the most populated country in ASEAN, Indonesia consumed 41% of total
energy consumption in the region or equal to 161 Mtoe in 2014 considering
the significant economic development and population growth. While at that
time the global economic was not in its best period, Indonesia's energy
consumption remained increasing to 164 Mtoe in 2015, from 160 Mtoe in 2014.
In 2014-2015, almost all sectors were showing the upward trends.
Nonetheless, only the transport sector fell as much as 1.4% from 46.8 Mtoe
in 2014 to 46.1 Mtoe in 2015. Energy consumption in industrial sector was up
to 6.0%, reaching 42.6 Mtoe in 2015, while at the same time residential
sector recorded a rise of 1.1% from 51.8 Mtoe to 52.3 Mtoe. This is followed
by commercial sector, which is only higher by 0.2% from 5.3 Mtoe in 2014.
For the other sectors, Indonesia consumed 17.3 Mtoe in 2015, 3.3% higher
from 16.7 Mtoe in 2014.

In the power sector, Indonesia led the regional market in term of power
generation and electricity consumption. It generated 232 TWh and consumed
about 201 TWh in 2015 with growth of 6.9% in the period of 2011-2016.
Throughout the period, household/residential remained a major power consumer
which recorded a consumption nearly half of the total. In 2015, the
household sector consumed 88 TWh, followed by industry which amounted to 64
TWh, by the business sector at 36 TWh, and the public sector as remainder
(Table 1). In this period, household sector was standing over the other
sectors with its 8.1% annual growth, followed by industry and public sectors
with similar growth of 7.5%. In 2016, up to November, total electricity
consumption in Indonesia was at the level of 218 TWh, while household
increased up to 95 Mtoe, business reached 40 Mtoe, industry at 69 Mtoe and
the public sector had a 1 Mtoe increase from the previous year.

Under the RUPTL 2016-2027, the Government of Indonesia (GoI) has calculated
its future consumption up to 2026 by using their forecasted gross domestic
product (GDP) and population. The electricity consumption in Indonesia will
grow significantly by 8.3% per annum, reaching 483 TWh in 2026. In the same
period, business sector will raise by 9.5% annually, reaching 98 TWh in 2026
from only 39 TWh in 2016. Next, industry will follow by the pace of 9.4%
annual growth, with electricity consumption expected to triple in 2026, from
that in 2011, or equal to 167 TWh. It will then be followed by the public
sector (consists of government offices, social sector and public lamps)
amounted to 29 TWh in 2026, with the annual growth of 7.7% over the period.
As a laggard in terms of growth, household is expected to double from just
95 TWh in 2016 to 189 TWh in 2026 as the major electricity consumption in
this archipelago.

Despite the huge electricity demand, GoI still allocates subsidies in this
sector up until today. In the last half of the decade, the GoI's subsidy for
electricity fell from IDR 103.33 trillion in 2012 to only IDR 59.23 trillion
in 2016, with the steepest drop between 2014 and 2015. The new national
budget arrangement (APBN 2017) also indicates that new subsidy for
electricity sold will be only allocated for IDR 44.98 trillion, which is
lower than last year. In the period of 2012-2017, subsidy weight, the ratio
between amount of subsidy and electricity sold to target of subsidy, reduced
from IDR 600.13/kWh to IDR 271.92/kWh. It may drop to IDR 191.59/kWh, as per
the APBN 2017 (Table 3).

A reduction for electricity subsidy was undertaken by government in 2015 at
the same time with the plummet of global crude oil price (see Figure 2). The
reason behind this electricity subsidy reduction/reform was from a strong
triangle relation between electricity tariff, more effective subsidy
programme and global crude oil price. Under electricity tariff equation,
global crude oil price and subsidy were two important variables that had
direct effect to the electricity tariff if both change. Approaching 2015, a
fall of global oil price opened an opportunity for government in reducing
the amount of subsidy to the electricity tariff to create more effective
subsidy. The cheaper oil price would encourage lower tariff. Or, it might
keep the tariff at the previous level but it provided an opportunity for
less subsidy. Rather than an electricity tariff reduction (with huge
subsidy), the subsidy reduction was a good choice for the government to take
away half of the subsidy in 2015 without getting complaints.

Moreover, as written in Ministerial Decree No. 28 and No. 29 in 2016,
subsidies should be precisely directed to the people who live below the
poverty line. In 2016, the National Utility (PLN) and the GoI concluded that
citizens whose electricity capacity are at 900 VA (around 18.7 million
people) will not be subsidised by early 2017, which will potentially reduce
the electricity subsidy again this year. The tariff for this type of users
is adjusted from only IDR 791/kWh in the first stage (January 2017) and to
the level price of IDR 1,325/kWh in third stage (May 2017).

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Link to Original Article:
http://www.4-traders.com/news/ASEAN-Center-for-Energy-The-Status-of-Electric
ity-Subsidy-Reform-in-Indonesia--24786804/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com