2012 energy subsidy balloons to Rp 305 trillion

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The government predicts that energy subsidy realization in 2012 might exceed its original allocation by at least Rp 103 trillion (US$10.7 billion) to reach Rp 305 trillion, a minister said on Monday.

“The total amount of the energy subsidy will therefore increase from Rp 202 trillion to Rp 305 trillion,” Finance Minister Agus Martowardojo told reporters after a hearing with the House of Representative’s budget committee.

During the hearing, Agus managed to convince legislators on the committee to approve the disbursement of contingency energy subsidy reserve funds worth Rp 23 trillion allocated in the revised 2012 state budget. Agus said the government needed about Rp 80 trillion more to cover the energy subsidy and that Rp 12 trillion could be taken from the state’s oil and gas income, Rp 1.7 trillion from non-energy subsidy savings and about Rp 50 trillion left over from last year’s allocation.

Despite the potentially significant rise in the energy subsidy, Agus said the government would be able to maintain the state budget deficit at 2.3 percent at the most.

The Finance Ministry’s fiscal agency interim head, Bambang Brodjonegoro, said that additional funding for the energy subsidy would be needed because the government had estimated during its latest analysis that demand for subsidized fuel would significantly exceed the initial estimation.

In the revised 2012 state budget, the government set a 40 million kiloliter subsidized fuel quota for this year, yet Bambang said that based on the latest estimates, demand could reach at least 43.5 million kiloliters.

“Therefore, the fuel subsidy could increase to Rp 216.8 trillion from Rp 137.4 trillion,” Bambang said.

The government also estimated that the electric subsidy could rise to Rp 89.1 trillion from Rp 64.97 trillion, he went on.

Bambang said that the relatively high Indonesian Crude Price (ICP) rate had significantly affected the government’s spending on the fuel subsidy.

From January to September this year, the average ICP rate stood at $114.40 per barrel while the government estimated the rate stood at $105 per barrel in the 2012 state budget.

University of Indonesia energy expert Kurtubi said the government had to become more serious about building necessary infrastructure for its energy conversion programs to reduce dependency on fuel.

“The government has been promoting its fuel-to-gas conversion programs, but to date we have not seen any concrete results,” Kurtubi said.

“This is the only way to reduce subsidized fuel usage without raising fuel prices and putting further burden on the low economic consumer segment,” he added.