Energy Subsidies Need To Be Reduced

"Landep News"

Indonesian subsidies just for energy including electricity and fuel have reach 15-18 percent of the total state budget over the last five years. In fact, next year, the energy subsidies are estimated to reach more than USD 18 billion. This year alone USD 13.7 billion of the state budget has been spent on energy subsidies.

“(The increase in the budget) due to higher crude oil prices in international markets which already exceeds the budget assumption for 2011 and increase the volume of subsidized fuel. Coupled with the increase in fuel consumption for electricity generation due to delays in the acceleration of 10,000 megawatt power plant,” said Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR) here on Tuesday (07/05/2011).

Energy Subsidies Need To Be Reduced

Fabby also mentioned that the energy subsidies could reach more than USD 18 billion in 2012. Therefore, he suggested the government to reform energy subsidies. The subsidy is higher due to higher consumption and energy prices in Indonesia.

“The reforms can be done through rationalization and subsidies beneficiaries targeting and more stringent mitigation policies to anticipate the impact of the energy subsidies reform” he said.

At the moment the largest beneficiaries of energy subsidies are those who consume fuel in large quantities which mean high-income communities.

“This fact violates the original purpose of the policy for fuel and electricity subsidies,” he said.

In the end, he added, the wrong policy goals will only resulted in increased state budget and greater fiscal risks.

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