Fuel Price Reforms in Indonesia: Some Lessons - Presentation by Teguh Dartanto, Head of Poverty and Social Protection Research Group, LPEM FEB UI

1. Fuel
Price
Reforms
in
Indonesia:
Some
Lessons
Teguh
Dartanto
Head
of
Poverty
and
Social
Protec2on
Research
Group,
LPEM
FEB
UI
Director
of
Undergraduate
Program
in
Economics
University
of
Indonesia

2. Reasons
for
Reforms
2
Sources:
Ministry
Energy
and
Mineral
Resources
and
Ministry
of
Finance

3. Energy
Subsidy
in
Indonesia:
Burden
to
the
Budget
3
25.3
9.0
16.7
21.2
4.0
4.4
1.9
1.7
3.1
3.8
2.8
3.0
4.5
1.7
3.4
3.7
3.4
3.9
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Energy
Subsidy:
Burden
to
the
Budget,
2000-­‐2014
%
of
central
government
spending
%
of
GDP
(secondary
axis)
Monthly
Adjustment
Fuel
price
2002-­‐2003
March
2005-­‐
30%
fuel
price
Adjustment
October
2005
–
67
%
fuel
price
adjustment
October
2008
–
30
%
fuel
price
adjustment
February
2009
–
back
to
October
2009
price
regime
June
2013,
44
%
fuel
price
adjustment
Sources:
Ikhsan,
2014

4. 550 600
900
1650
2100
5500
4500
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000 Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Dieselprices(NominalRpperliter).
Retail price Industry Price MOPS Gasoil
Same
price
for
all
(75%
of
MOPS)
with
ceilings
Same
(fixed)
price
for
all
Retail:
fixed
at
ceiling
Industry:
MOPS
+
5%
with
ceiling
Retail:
fixed
Industry:
MOPS
+
15%
Retail:
rule-­‐based
(increase
allowed
if
6-­‐
month
average
of
ICP
rises
15%
above
budget
assump2on
of
$105/bbl)
Retail:
fixed
Industry
50%
of
MOPS
Indonesia
has
tried
many
types
of
pass-­‐through
Rule-­‐based
(with
trigger)
for
retail;
full
pass-­‐through
for
industry
Sources:
Ikhsan,
2014

5. The
New
Reform:
Formula
of
Fuel
Prices
• The
Ministry
of
Energy
and
Natural
Resources
through
the
regula2on
No.
0219
K/12/MEM/2010
and
No.
3784
K/12/MEM/2014
regulates
the
formula
of
HIP.
• Where
HP
is
benchmark
price;
HIP
is
market
price
index;
and
αi
is
profit
margin
and
transporta2on
costs;
i
is
the
average
of
previous
month
price.
HIP
follows
the
price
of
MOPS
(Mean
of
Plafs
Singapore).
• Adjustment
for
every
two
weeks
at
early
stage,
but
now
becoming
every
six
months
(too
long).
• In
order
to
speed
up
the
reform
in
the
oil
and
gas
sector,
the
Government
of
Indonesia
had
formed
a
special
taskforce
namely
Oil
and
Gas
Reform
Team
(December
2014-­‐May
2015).
11/4/15
5
!"! = !"#! + !!
!"#!"#$%&'( = 0.9842!!"#$!"#$%!"
!"#!"#$#%!!"# = 0.9967!!"#$!"#$%&!!.!"%!!"#$!!"
!"#!"#$%"&" = !"#$!"#!!"#$%"&"

6. Current
Fuel
Reforms:
Gasoline
11/4/15
6

7. Current
Fuel
Reforms:
Diesel
Fuel
11/4/15
7

8. Fiscal
Impacts
of
Fuel
Subsidy
Reforms
11/4/15
8
subsidies

9. Fuel
Subsidy
Reform
and
Economic
and
Environmental
Impacts
(Input-­‐Output
Approach)
11/4/15
9
1. S1a:
50%
fuel
subsidy
removal,
redistributed
to
u2lity
sector
(gas
sector);
2. S1b:
100%
fuel
subsidy
removal,
redistributed
to
u2lity
sector
(gas
sector);
3. S2a:
50%
fuel
subsidy
removal,
redirected
to
the
poor
(direct
cash
transfer)
4. S2b:
100%
fuel
subsidy
removal,
redirected
to
the
poor
(direct
cash
transfer);
5. S3:
50%
fuel
subsidy
removal,
equally
reallocated
to
gas
sector
and
poor
households
(a
mix
of
scenario
1
and
2);
6. S4:
50%
fuel
subsidy
removal,
realloca2on
to
several
key
sectors
(i.e.
’Agriculture,
Hun2ng,
Forestry
and
Fishing’,
’food,
beverages,
and
tobacco’,
and
’government,
defense,
and
educa2on’)

10. Fuel
Subsidy
Reform
and
Environmental
Impacts
11/4/15
10
Source:
Author’s
esBmaBon
based
on
Dartanto
(2013)
and
Fathurrahman
et
al.
(forthcoming)

11. Socio
Economic
Impacts
of
Reforms
11/4/15
11
-­‐0.20%
-­‐0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
Simula2on
#1
Simula2on
#2
SimulaQon
#1:
The
cost
of
UHC
is
around
IDR
18.07T
(2008
value):
financed
by
15%
cujng
fuel
subsidies.
The
alloca2ons
of
saved
money
are:
3.3%
(construc2on);
30.2%
(government
services);
4.7%
(educa2on
services),
46.6%
(BPJS
health
sector),
14.6%
(public
health
services).
SimulaQon
#2:
The
cost
of
UHC
is
around
IDR
18.07T
(2008
value):
financed
by
7.5%
cujng
fuel
subsidies
and
voluntary
contribu2on
of
society.
The
alloca2ons
are
as
same
as
SimulaQon
#1.
Source:
LPEM
FEB
UI’s
esBmate

12.
Thank
you
very
much
for
your
afen2ons
teguh@lpem-­‐feui.org
teguh.dartanto@ui.ac.id
11/4/15
12