1 Ministry of Energy & Mineral Resources Republic of Indonesia
IGN Wiratmaja
Director General of Oil and Gas
Ministry of Energy and Mineral Resources
IEA International Conference on Fossil Fuel Subsidy Reform
Paris, 13 October 2016
Update on Fossil Fuel Subsidies in Indonesia
3 Ministry of Energy & Mineral Resources Republic of Indonesia
3 Ministry of Energy & Mineral Resources of the Republic of Indonesia
INDONESIA GDP 2015 : USD 872.6 billion (16th in the world)
Economic Growth 2015: 4.79%
Population: 250 million
4 Ministry of Energy & Mineral Resources Republic of Indonesia Ministry of Energy & Mineral Resources of the Republic of Indonesia
LPG GAS CRUDE OIL
Gas export & consumption as of October 2015
2015
15
Production 830,000 BOPD Production 2.27 million MTonnes Production 8,113 MMSCFD
Import 770,000 BOPD Import 4.3 million MTonnes Export 3,048 MMSCFD
Consumption 1.6 million BOPD Consumption 6.57 million MTonnes Consumption 3,703 MMSCFD
Annual Consumption
Growth
3%
Annual Consumption
Growth
13%
Annual Consumption
Growth
2%
44
Indonesia is both a producer & consumer.
5 Ministry of Energy & Mineral Resources Republic of Indonesia
History of Gasoline Price in Indonesia
2x
Rise
2x Price Increase
7x Price Adjustment
3x Price Increase
18x Price Increase
No
Price
Rise
Gasoline Price
Pre
miu
m P
rice
, R
p /
liter
6 Ministry of Energy & Mineral Resources Republic of Indonesia
Gambar 6
1. Since 2005, MOPS was used as a basis pricing formula, due to multi retail players assigned to manage PSO
2. Starting in 2015, targeted subsidy with fixed subsidy level
PSO
MOPS + α
PSO
Cost + Fee
4 years 1 Mo + 7 days
LAW 22 2001 PRESIDENT REG 71 2005
MEMR REG 2043 K/20/MEM/2005
D E R E G U L A T I O N & R E S T R U C T U R I Z A T I O N
PSO
Cost + Fee
PREPARATION & TRANSITION
TRANSITION
PERTAMINA PERTAMINA
MOPS USED AS ECONOMIC PRICE DETERMINATION
23 November 2001 1 January 2006 23 November 2005
6
PSO
MOPS + α
1 January 2015
PRESIDENT REG 191 2015
MEMR 39/MEM/2015
FIXED RETAIL PRICE WITH FLOATING SUBSIDY
FLOATING RETAIL PRICE
FIXED SUBSIDY TRANSITION TO TARGETED SUBSIDY
PSO Fuels Regulation Roadmap
DEREGULATION
PERTAMINA (Market Leader) + (OTHER OIL TRADERS)
7 Ministry of Energy & Mineral Resources Republic of Indonesia
Volume of Subsidized Fuel
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Vo
lum
e (
Mill
KL)
Premium (Gasoline 88) HSD 48 Kerosene
8 Ministry of Energy & Mineral Resources Republic of Indonesia
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sub
sid
y (B
illio
n U
SD)
Premium (Gasoline 88) HSD 48 Kerosene LPG
No Gasoline
Subsidy
Diesel Subsidy
Dropped
Significantly
Fuel Subsidy Spending
Total Subsidy for the last 10 years: USD 110.95 Billion
• Consumption of LPG 3 kg is continously growing :
Open distribution system no limited users, everyone can buy a subsidized commodity
Illegal practice : taking out LPG from 3 kg canisters to be refilled to 12 or 50 kg canisters price disparity
Migration of users : people who previously used LPG 12 kg prefer to buy LPG 3 kg because of the cheaper price
9 Ministry of Energy & Mineral Resources Republic of Indonesia
Shifting Fossil Fuel Subsidies
Encourage the construction of public infrastructure, such as Bridge, Irigation, Road, etc
- The funds are used for infrastructure development and social security program
- Not only for developing energy access, also can be used for multi sectoral
infrastructure
- Government has larger fiscal space for State Budget
10 Ministry of Energy & Mineral Resources Republic of Indonesia
Shifting fuel subsidy to infrastructure & social security program
11 Ministry of Energy & Mineral Resources Republic of Indonesia
Shifting fuel subsidy to infrastructure & social security program
12 Ministry of Energy & Mineral Resources Republic of Indonesia
1/1/15 01/07/16 21/06/13
MEMR 18/2013 •Premium: Rp.6.500/ltr •Kerosene: Rp.2.500/ltr •Diesel: Rp.5.500/ltr
Realization: •ICP: 105,42 US$/bbl •Exchange Rate: Rp.11.500/US$1 •ICP Rp.7.623/ ltr
Subsidy Scheme Reform (Transformation of Floating to Fixed Subsidy)
MEMR 34/2014 •Premium: Rp.8.500/ltr •Kerosene: Rp.2.500/ltr •Diesel: Rp.7.500/ltr
Realization Nov’14 •ICP: 75,39 US$/bbl •Exchange Rate : Rp.12.097/US$1 •ICP Rp.6.736/ ltr
18/11/14
1/10/15
Retail Fixed Price
Price calculation : monthly average
Since January 1st, 2015:
-gasoline 88 is no longer subsidized
-Fixed subsidy of HSD 48
-Fixed retail price of kerosene (fluctuative subsidy)
Present
Price calculation :
3-month-average
Fixed Subsidy of HSD 48 : Rp 1.000/liter
Fixed Subsidy of HSD 48 : Rp 500/liter
Fixed subsidy will result in a fluctuation of retail price
13 Ministry of Energy & Mineral Resources Republic of Indonesia
0.3
0.4
0.5
0.6
0.7
0.8
0.92
5-N
ov-
14
25
-De
c-1
4
25
-Jan
-15
25
-Fe
b-1
5
25
-Mar
-15
25
-Ap
r-1
5
25
-May
-15
25
-Ju
n-1
5
25
-Ju
l-1
5
25
-Au
g-1
5
25
-Se
p-1
5
25
-Oct
-15
25
-No
v-1
5
25
-De
c-1
5
25
-Jan
-16
25
-Fe
b-1
6
25
-Mar
-16
25
-Ap
r-1
6
25
-May
-16
25
-Ju
n-1
6
25
-Ju
l-1
6
25
-Au
g-1
6
25
-Se
p-1
6
25
-Oct
-16
25
-No
v-1
6
25
-De
c-1
6
USD
/lit
er
Retail Price (USD/liter) Calculated Price (USD/liter) Daily Price (USD/liter)
Strategy How to Handle Gasoline RON 88 Price Fluctuation
Retail Price 18 Nov – 31 Des USD 0.689
Retail Price 1 Mar – 27 Mar USD 0.552
Retail Price 1 – 18 Jan USD 0.616
Retail Price 19 Jan – 28 Feb USD 0.535
Retail Price 28 Mar – 4 Jan USD 0.592
Retail Price 5 Jan – 31 Mar USD 0.564
Retail Price 1 April – 31 Dec USD 0.523
14 Ministry of Energy & Mineral Resources Republic of Indonesia
0.3
0.4
0.5
0.6
0.7
0.8
0.925
-No
v-1
4
25-D
ec-1
4
25-J
an-1
5
25-F
eb-1
5
25-M
ar-1
5
25-A
pr-
15
25-M
ay-1
5
25-J
un
-15
25-J
ul-
15
25-A
ug-
15
25-S
ep-1
5
25-O
ct-1
5
25-N
ov-
15
25-D
ec-1
5
25-J
an-1
6
25-F
eb-1
6
25-M
ar-1
6
25-A
pr-
16
25-M
ay-1
6
25-J
un
-16
25-J
ul-
16
25-A
ug-
16
25-S
ep-1
6
25-O
ct-1
6
25-N
ov-
16
25-D
ec-1
6
USD
/lit
er
Retail Price (USD/liter) Calculated Price (USD/liter) Daily Price (USD/liter)
Strategy How to Handle HSD 48 Price Fluctuation
Retail Price 1 – 18 Jan USD 0.588*
Retail Price 28 Mar – 9 Okt USD 0.560*
Retail Price 19 Jan – 27 Mar USD 0.519*
Retail Price 10 Okt – 4 Jan USD 0.543*
Retail Price 5 Jan – 31 Mar USD 0.458*
Retail Price 1 April – 31 Dec USD 0.418**
* Subsidy Rp 1.000/liter
** Subsidy Rp 500/liter
Retail Price 18 Nov – 31 Des USD 0.608*
15 Ministry of Energy & Mineral Resources Republic of Indonesia
Fuel Price vs Macroeconomy Indicators
16 Ministry of Energy & Mineral Resources Republic of Indonesia
Note:
• Subsidies are assumed to be dependent on shifting policies and State Budget
Shifting to productive sectors
Trill
ion
Ru
pia
h
Infrastruktur Nasional
Shifting Subsidy Budget
Subsidy Scheme Reform
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sub
sid
y (B
illio
n U
SD)
Premium (Gasoline 88) HSD 48 Kerosene
“For the last 10 years, Government has spent USD 100 Billion for fuel subsidy (LPG not included), in the next 5 years it is expected that fuel subsidy will decrease by USD 50 Billion”
Energy
Subsidy National Infrastructure
17 Ministry of Energy & Mineral Resources Republic of Indonesia
Impact of Fuel Price Increase (Premium and Diesel) of Rp 2,000/liter Respectively Impact of Fuel Price Increase (Premium and Diesel) of Rp 2,000/liter Respectively
Fuel Price vs Inflation
• Inflation of 7,8%-8,5% (yoy) is a result of increasing fuel price in 2014 . • Transportation cost also increased by 14% (considered only fuel price) and affected the inflation rate by 2,58%. • But if transportation cost also takes other costs into account, the transportation cost would increased by 27,26% and affect the
inflation rate by 3,26% (yoy).
Impact of Subsidized Fuel Price Increase Value (%) Inflation (%) Impact (%)
Direct Impact 1.27
Gasoline 3.95 30.77 1.21
Diesel 0.16 36.36 0.06
Indirect Impact to Transportation Cost 1.42
Ferry 0.01 28.58 0
Intercity Transport 0.66 27.26 0.18
Public Transport 2.57 47.08 1.21
Sea Transport 0.05 5.92 0
Train 0.12 11.16 0.01
Taxi 0.09 10.18 0.01
Indirect Impact to Other Commodity 0.57
Core 63.1 0.57 0.36
Volatile Food 17.46 1.21 0.21
Total Impact to Inflation 3.26
Unregulated Transportation Tariff Regulated Transportation Tariff
Impact of Subsidized Fuel Price Increase Value (%) Inflation (%) Impact (%)
Direct Impact 1.27
Gasoline 3.95 30.77 1.21
Diesel 0.16 36.36 0.06
Indirect Impact to Transportation Cost 0.73
Ferry 0.01 14.68 0
Intercity Transport 0.66 14 0.09
Public Transport 2.57 24.18 0.62
Sea Transport 0.05 3.04 0
Train 0.12 5.73 0.01
Taxi 0.09 10.18 0.01
Indirect Impact to Other Commodity 0.57
Core 63.1 0.57 0.36
Volatile Food 17.46 1.21 0.21
Total Impact to Inflation 2.58
• Impact to Transportation Cost is conservative, considering the rise of staple costs in
2014 (not only fuel oil, but also other components such as capital costs, cost of crew,
depreciation, etc.)
• Indirect costs are based on estimation using latest data (elasticity of 10% subsidized
fuel increase will raise the pressure of core inflation of 0.17% and Volatile food of
0.36%
• Impact to Transportation Cost is optimistic, and only considers the rise of fuel oil of Rp
3,000/liter (reflecting upon the success of regulating transportation tariffs in 2013)
• Indirect costs are based on estimation using latest data (elasticity of 10% subsidized fuel
increase will raise the pressure of core inflation of 0.17% and Volatile food of 0.36%
Fuel Price vs. Inflation
19 Ministry of Energy & Mineral Resources Republic of Indonesia
Reducing Kerosene will deliver advantages:
Added value Kerosene can be upgrading to avtur
Reducing misuse of subsidized kerosene
Remanaging the distribution system of subsidized fuel to minimize illegal practice and
shortage
Background of Kerosene to LPG Conversion
In 2006, fuel subsidy was amounted to IDR 64.212 Trillion. Out of that amount, IDR 31.58 Trillion was
dedicated for Kerosene that put a huge burden to the State budget
National Energy Policy to diversify sources of energy supply and reduce dependency on fossil fuels
in particular Kerosene
LPG has a higher energy density and lower emission compared to Kerosene
20 Ministry of Energy & Mineral Resources Republic of Indonesia
Total 2015
0,78
57,19
1,12 1,30
2014 2009 2013 2012
0,00
2011
0,00
2010
10,37
24,16
2008
15,76
2007
3,70
Million Packages)
Distribution = 57,19 million initial packages
Papua Papua Barat
Area 2007-2008
Area 2009
Area 2010
Area 2012 – 2015 Conversion Planning
Kerosene to LPG Conversion Area
21 Ministry of Energy & Mineral Resources Republic of Indonesia
Sales of Kerosene vs Sales of LPG 3 kg 1 liter kerosene ~ 0,4 kg LPG
Subsidy Saving (un-audited) Reaching USD 15.16 Billion
0 21 547 917 738 402 2349 2712
2009
4683
1767
2008
7855
2007
9850
2006
9959
Actual sales till
Sept 2016
4431
2015
5567
2014
4998
2013
1109
4403
2012
1183
3906
2011
1696
3258
2010
Kerosene (Thousand KL)
LPG (Thousand MT)
0.02 0.76 0.95 1.19
1.97 2.10 2.29 3.37 3.55
16.21
0
0.60 0.56 0.83 1.97 2.10 2.26
3.35 3.52
15.16
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 Total
Gross Saving
Conversion Cost
Nett Saving
Diminishing misuse of Kerosene for Cooking
(due to illegal practice)
Savings Due to Conversion Program
22 Ministry of Energy & Mineral Resources Republic of Indonesia
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Jan
'09
Ma
r'0
9
Me
i'09
Jul'0
9
Se
p'0
9
No
p'0
9
Jan
'10
Ma
r'1
0
Me
i'10
Jul'1
0
Se
p'1
0
No
p'1
0
Jan
'11
Ma
r'1
1
Me
i'11
Jul'1
1
Se
p'1
1
No
p'1
1
Jan
'12
Ma
r'1
2
Me
i'12
Jul'1
2
Se
p'1
2
No
p'1
2
Jan
'13
Ma
r'1
3
Me
i'13
Jul'1
3
Se
p'1
3
No
p'1
3
Jan
'14
Ma
r'1
4
Me
i'14
Jul'1
4
Se
p'1
4
No
p'1
4
Jan
'15
Ma
r'1
5
Me
i'15
Jul'1
5
Se
p'1
5
No
p'1
5
Jan
'16
Ma
r'1
6
Me
i'16
Jul'1
6
Se
p'1
6
Pri
ce (
Rp
/ K
g)
Implementation of Closed Distribution System
Efficient
Accountabel
Transparant
Targeted Group
Quota Based
Appropriate Price
Re-arranged Distribution System, Information Technology, Law Enforcement
Open distribution system, no limited access
LPG 3 kg consumption and its subsidy is
growing rapidly
Since its launching in 2007 the kerosene to LPG
program has distributed
±57 million initial packages
Background of Closed LPG 3 Kg Distribution System
Under Control
Sustainable
Distribution Cost & Margin Landed Price Retail Price Rp/Kg Retail Price (without Margin & VAT)
Rp/Kg
Indonesia LPG Price from 2009 to 2016
23 Ministry of Energy & Mineral Resources Republic of Indonesia
Government
Subsidy is given only to the targeted group
People
People People
Security of supply
People buy LPG 3 kg according to the
price stipulated by the local government
Wealth improvement
Advantages of Closed Distribution System of LPG 3 Kg
24 Ministry of Energy & Mineral Resources Republic of Indonesia
• Continuous Reform to targeted subsidy as single social security
policy
Next Step
• Establishment of “Energy Resiliency Fund” to develop NRE, energy
infrastructure development, R&D and HRD
Create Dynamic Adjustment Retail Oil Pricing Scheme
Fundraising strategy
Fund Management
25 Ministry of Energy & Mineral Resources Republic of Indonesia
Indonesia is both a
producer and consumer
Closing Remarks
Total Fuel Subsidy Spending in last 10 years:
USD 110.95 Billion
Harmonizing fuel pricing policy
To maintain economic stability