From Oil to Renewable: Indonesia’s Energy Pricing Policy

MINISTRY OF NATIONAL DEVELOPMENT PLANNING/ NATIONAL DEVELOPMENT PLANNING AGENCY

Presented at OECD Expert Seminar “Aligning Policies for the Transition to Low-Carbon Economy” Novotel Bogor, 4 November 2015

FROM OIL TO RENEWABLE: INDONESIA’S ENERGY PRICING POLICY

by J. Rizal Primana

Director for Energy Resources, Mineral, and Mining

FUEL OIL SUBSIDY POLICY FROM TIME TO TIME

Slide - 2

2000-2005

- 5 types of subsidized fuel oil are: premium, kerosene, automotive diesel oil, diesel oil and burning oil

- Subsidy payment mechanism uses a cost & fee system

2006-2014

- 3 types of subsidized fuel oil are: premium, kerosene, and automotive diesel fuel

- Subsidy payment mechanism uses alpha BBM

2015 to date

- 2 types of subsidized fuel oil are: kerosene and automotive diesel fuel

- Subsidy payment mechanism uses fixed subsidy Rp 1.000/litre for automotive diesel fuel

HIGHER GASOLINE SUBSIDY LEADS TO

Slide - 3

o Inefficient use of energy and fuel oil in particular (no incentives on efficient use)

o Gasoline and other fuel oil smuggling (who get benefit of gasoline price subsidy?)

o Limited gasoline supply especially outside Java (shifting to other utilization instead of transportation)

o Financial and budget bleeding (as the fuel oil consumption increase so that the subsidy, and at its peak of Rp. 250 trillion or equal to around USD 20 billion)

FUEL OIL SUBSIDY AND CONSUMPTION

Slide - 4

Notes: 1) Since 2007, fuel oil subsidy include LPG 3 Kg 2) Since 2009, fuel oil subsidy include LPG 3 Kg and Biofuel 3) Since 2012, fuel oil subsidy include LPG 3 KG, Biofuel, and LGV

-

50,0

100,0

150,0

200,0

250,0

300,0

-

10,0

20,0

30,0

40,0

50,0

60,0

70,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

KL

Subsidy Volume Subsidy Budget

Rp

Trillion

Diesel and burning oil subsidy revoked

ICP decreased from 101,42 to 55,48

Premium subsidy revoked

Data Source: Ministry of Finance, 2015

At the average of 1USD=Rp. 12.000, Rp. 200 Trillon = US$16.6 billion.

2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3

4,23 4,08 4,33

4,57 4,23

4,76 5,23

5,55

6,17 5,57 5,53 5,68 5,45

6,04

OIL CONSUMPTION INTENSITY INDEX (GDP/OIL CONSUMPTION)

32

87

07

35

39

15

34

78

90

34

49

17

39

20

33

36

79

89

35

30

39

35

41

21

33

76

45

39

09

34

41

88

95

43

38

05

48

03

64

45

90

17

2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3

T O T A L O I L C O N S U M P T I O N ( T H O U S A N D B O E )

13

89

77

0,3

14

42

98

4,6

15

06

12

4,4

15

77

17

1,3

16

56

51

6,8

17

50

81

5,2

18

47

12

6,7

19

64

32

7,3

20

82

31

5,9

21

78

85

0,3

23

14

45

8,8

24

64

67

6,5

26

18

13

9,2

27

70

34

5,1

2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3

G D P C O N S T A N T 2 0 0 0 P R I C E S ( B I L L I O N R U P I A H S )

GDP AND OIL CONSUMPTION

Data Source: Handbook of Energy 2014, processed

1

1,3

0,81

1,27

0,4

0,87

0,98

0,65

1,13

1,41

0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6

Myanmar

Kamboja

Indonesia

Laos

Brunei

Vietnam

Philipina

Malaysia

Thailand

Singapore

PREMIUM GASOLINE PRICES COMPARISON IN ASEAN (US$) 2015

Year Kilolitre Rupiahs (Billion)

2011 1.449 7,24 2012 38.130 225,7 2013 NA 8,9 2014 62.971 10,25

Year Kilolitre Rupiahs (Billion)

2010 NA 3,47 2011 1.224,59 22,72 2012 253.311,7 409,8 2013 7.235 16,15

The Estimated Data of Gasoline Smuggling (Action by Indonesian Customs and Excises Ministry of Finance / Ditjen. Bea Cukai)

(Action by Regulatory Agency Supply and Distribution of Fuel Oil / BPH Migas)

GASOLINE PRICE DISCREPANCIES LEADS TO HEAVY SMUGGLING

Prices, US cents/litre

Country 1998 2000 2002 2004 2006 2008 2010 2012 2014 Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline Diesel Gasoline

Singapore 36 72 38 84 38 85 55 89 63 92 90 107 104 142 126 168 116 158

Thailand 27 30 35 39 32 36 37 54 65 70 64 87 95 141 97 156 90 129

Cambodia 28 47 44 61 44 63 61 79 78 101 89 94 98 115 127 135 124 134

Lao PDR 24 31 32 41 30 36 48 54 73 86 76 92 97 126 118 133 108 140

Philippines 22 34 28 37 27 35 34 52 67 76 81 91 85 105 101 125 82 105

Myanmar 12 13 12 33 28 36 10 12 75 66 52 43 80 80 - 104 93 114

Vietnam 26 35 27 38 27 34 32 48 53 67 77 80 77 88 106 115 91 104

Malaysia 17 28 16 28 19 35 22 37 40 53 53 53 56 59 59 62 65 68

Indonesia 7 16 6 17 19 27 18 27 44 57 42 50 51 51 47 47 62 93

Brunei 18 34 18 31 18 30 19 32 21 34 21 38 24 39 26 43 - 41

UEA 15 23 26 25 30 29 28 28 53 37 62 45 71 47 64 47 64 47

Source: http://wdi.worldbank.org/table/3.13

FUEL PRICES COMPARISON

GASOLINE SHORTAGE

• Higher price for non-transport use, creates black market and as the market grows, the intended supply to transportation reduced.

• At the state border province or nearby the border, the oil smuggling outside country, makes the supply for that particular area shiftted and leads to shortage for domestic purposes

• Highly subsidy also pushes Pertamina to deal with limited supply due to budget constraint and very limited government spending.

Sulawesi

Aceh

Southern part of Sumatera

OIL SUBSIDY AND THE BENEFICIARIES

Slide - 10

o The beneficiaries of the subsidy more to the haves rather than to the needed groups

o Creating unfair transfer leads to pushes marginal groups further away of its poverty status.

o Other social problems, as it also creates discrepancies between the poor and the wealth more deeper

As from MEMR data 89 % of fuel oil subsidy goes to land transportation, while other mode of tansportation that receive subsidy is sea transportation of 1 %. House hold account for 6 %, fishery of 3 %, and small enterprises of only 1 %.

mobil pribadi

53%

motor 40%

mobil barang

4%

umum 3%

4%

35%

61%

Minyak Tanah

Solar

Premium

THE BENEFICIARIES OF FUEL OIL SUBSIDY

Slide - 12

Sumatera 22%

Java-Bali 59%

NTB-NTT 2%

Kalimantan 7% Eastern Part of Indonesia

10%

GASOLINE CONSUMPTION PER REGION

Private Car 53%

Motorcycle 40%

Public 3%

Goods Transport 4%

PREMIUM CONSUMPTION BY LAND TRANSPORT

89%

1%

6%

1%

3%

Land Transport

Sea Transport

Household

Small Business

Fishery

FUEL OIL CONSUMPTION BY USER

60%

34%

6%

Premium Automotive Diesel Oil Kerosene

FUEL OIL CONSUMPTION BY TYPE

Data Source : Ministry of Energy and Mineral Resources, 2012

OMITTING OIL SUBSIDY

Slide - 13

o Feed in tariff for renewable

o Direct subsidies for the needed groups

o Petroleum and natural resources fund

PHASING OUT FUEL OIL SUBSIDY TO IMPROVE FISCAL SPACE

Slide - 14 Data Source : Ministry of Finance, 2015

The percentage of subsidy budget declining and budget for ministry and regional government increased that could be used to improve infrastructure

and social welfare

COMPARISON BETWEEN FUEL OIL SUBSIDIES AND INFRASTRUCTURE BUDGET

8

6 11

4,2

14

5,5

15

5,9

17

7,9

29

0,4

0

50

100

150

200

250

300

350

2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

Subsidy (Trillion Rupiahs)

Infrastructure Development Budget (Trillion Rupiahs)

Year Subsidy (Trillion

Rupiahs)

Infrastructure Development Budget

(Trillion Rupiahs)

2010 82,4 86

2011 165,2 114,2

2012 211,9 145,5

2013 210 155,9

2014 240 177,9

2015 64,7 290,4

SHIFTING SUBSIDY BUDGET TO INFRASTRUCTURE

Slide - 16

Subsidy budget for fuel oil reallocated to productive sector,

especially infrastructure

0%

5%

10%

15%

20%

25%

30%

-

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

450,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rp

Tri

llio

n

Fuel Oil Subsidy Electricity Subsidy Non Energy Subsidy % Gov't Expenditure

Infrastructure Budget

Data Source : Ministry of Finance, 2015

NATIONAL ENERGY POLICY: FROM OIL TO RENEWABLE

Slide - 17

2013

2025

2050 5%

46%

31%

18%

23%

25% 30%

22%

31%

20% 25%

24%

Total 194 MTOE

Total 400 MTOE

Total 1000 MTOE

Power Plant: 51 GW

Energy Consumption: 0,8 TOE/kap

Electricity Consumption: 776 KWh/kap

Electrification Ratio (2014): 84,33%

Power Plant:115 GW


Electricity Consumption: 2.500 KWh/kap

Electrification Ratio (2020): closely to 100%

Power Plant:430 GW


Electricity Consumption: 7.000 KWh/kap

New and Renewable Energy

Oil

Natural Gas

Coal

Data Source: National Energy Council, 2015

RENEWABLE POWER PLANT DEVELOPMENT 2015-2019

Slide - 18

Coal 54%

Gas 21%

LNG 4%

BBM 11%

Import 0%

Water 6%

Geothermal 4%

2015

Coal 66%

Gas 10%

LNG 8%

BBM 1%

Import 0%

Water 6%

Geothermal 9%

2019

Performance Indicators Unit Year 2014 Development Plan

2015 2016 2017 2018 2019

The Cumulative Installed Capacity PLT EBT:

MW 8.449,13 8.752,20 9.419,40 10.147,20 11.465,50 14.026,50

PLTP (Geothermal) MW 1.403,50 1.438,50 1.712,50 1.976,00 2.609,50 3.154,50

PLTA (Water) MW 5.255,00 5.339,00 5.534,00 5.741,00 6.086,00 7.693,00

PLT Bioenergi (Bioenergy) MW 1.716,00 1.892,00 2.069,40 2.291,90 2.559,30 2.871,80

PLTS (Solar) MW 71,02 76,90 92,10 118,60 180,00 260,30

PLT Bayu (wind)/Hybrid dan Arus Laut (wave power)

MW 3,61 5,80 11,40 19,70 30,70 46,90

% BBM Reduced

Data Source: Ministry of Energy and Mineral Resources and PT PLN (Persero), 2015

FEED IN TARIFF FOR RENEWABLE

Slide - 19

NO REGULATION POLICY

1 Minister of Energy and Mineral Resources Decree No. 17/2013

Feed-in Tariff for Solar PV Power Plant

US$ 30 sen/kWh


Feed-in Tariff for MSW Power Plant

Rp 1.450,00/kWh, connected with medium voltage network

Rp 1.798,00/kWh, connected with low voltage network.

3 Minister of Energy and Mineral Resources Decree No.17/2014

Ceiling Price for Geothermal Power Plant

The commercial operation date (COD) and regional distribution as the benchmark in price defined


Feed-in Tariff for Hydro Power Plant

Defined by observing the voltage of the electrical network of PT PLN ( Persero) and location / region generator (factor F)


Feed-in Tariff Biomass and Biogas Power Plant

Biomass Power Plant (PLTBm): Rp 1.150,00/kWh x F, connected with medium voltage network Rp 1.500,00/kWh x F, connected with low voltage network

Biogas Power Plant (PLTBg): Rp 1.050,00/kWh x F, connected with medium voltage network Rp 1.400,00/kWh x F, connected with low voltage network

INCENTIVE FISCAL FOR RENEWABLE

Slide - 20

• Reduced net income for

30% of total investment

• Accelerated depreciation

• Imposition of Income

Tax on dividend paid

to Foreign Taxable at 10%

• Compensation for losses in

certain circumstances

Exemptions of VAT

for Taxable Goods,

machinery and

equipment for RE

utilization (not

included spare

parts)

Regulated in State

Annual Budget

Law and its

implementing

regulations

Exemptions for Import Duty

of

• Goods and Machinery for

development and capital

investment

• Capital Goods Imports

for construction and

development of

electricity industry

FINANCIAL INSTRUMENTS SUPPORT

Income Tax Value Added

Tax Import Duty

Tax Borne by Government

Source Data: Ministry of Finance Regulation No. 21/PMK.011/2010

THANK YOU

From Oil to Renewable: Indonesia’s Energy Pricing Policy

Environment