Utility hike hoped to add Rp 12t for govt spending

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The government says that next year’s planned increase in the price of electricity is expected to add about Rp 12 trillion (US$1.2 billion) to government revenue, which will be allocated for more capital spending.

“If we manage to reach an agreement [with the House of Representatives] on the electricity rate adjustment, then we might be able to increase our capital spending to around Rp 200 trillion [$21 billion] from the Rp 193 trillion set out in the 2013 state budget,” Finance Minister Agus Martowardojo said during an Idul Fitri open house at his official residence in Widya Chandra, Jakarta, on Sunday.

Agus said that next year’s electricity rise would be implemented gradually once every three
months until it reached an increase of at least 10 percent by the end of 2013.

“We had a quarterly electricity rate rise once in 1993. So, this is the scheme that we are going to discuss,” Agus said.

Coordinating Economic Minister Hatta Rajasa said the government was not considering raising the price of subsidized fuel simultaneously with electricity, in order to reduce subsidy pressures on the state budget next year.

Hatta said the volatility of global oil prices had made it difficult for the government to determine its policy on subsidized-fuel prices.

“Currently, the global oil price is being heavily affected by the world’s geopolitical situation,” Hatta said. “If political tensions over Iran’s Strait of Hormuz intensifies, then global oil prices will increase significantly,” he added, referring to the biggest global checkpoint for the sea-borne oil trade.

Reducing or removing energy subsidies has been a recurring sticking point for Indonesia’s presidents. Retaining the subsidies creates a huge annual burden for the state budget, swallowing up about 20 percent of the entire budget. But removing them altogether could present a severe political blow to a president and politicians at the House.

Providing the fuel subsidy has been increasingly burdensome given that Indonesia is a net importer of oil and is heavily dependent on imported oil.

Subsidized fuel stands at Rp 4,500 per liter, while non-subsidized fuel, such as Pertamax by state-owned oil and gas company Pertamina, hovers at between Rp 9,000 and Rp 10,000 per liter, depending on global oil prices.

Analysts and industry players have criticized the government’s prioritization of its subsidy policy in the recently issued 2013 state budget proposal. The budget for capital expenditure was also too small, they said.

The government is proposing to raise spending on subsidies in the state budget next year by 18 percent to Rp 316.1 trillion, prompting comments that President Susilo Bambang Yudhoyono’s administration is making a populist move, rather than one that would drive sustainable growth.

Energy subsidies account for 87 percent of total subsidy spending.

Agus said Indonesia needed to pay close attention to its growing subsidy spending. “We really need to have better quality spending and properly manage our subsidy allocations,” he said.

“We do not want subsidies to be enjoyed by those who do not need them. We must ensure that subsidies are only enjoyed by the impoverished,” he added.

Opponents of energy subsidies maintain that it is people from the middle- and upper-classes, namely those who own private cars, who enjoy the subsidies the most. They also say that Jakartans are the major consumers of subsidized fuel. Proponents of the subsidies, on the other hand, say the prices of basic goods, public transportation and public services would rise in line with fuel price increases, thereby hurting the country’s poor.