T

he government bore the brunt of rising commodity prices last year, spending more on energy subsidies than what was set in the revised 2017 state budget.

The government set aside Rp 97.6 trillion (US$7.2 billion) for energy subsidies in 2017, 108.7 percent of the Rp 89.9 trillion allocated in the revised 2017 budget, according to data from the Finance Ministry.

Electricity subsidies increased to Rp 50.6 trillion from the budget ceiling of Rp 45.4 trillion, while fuel subsidies rose to Rp 47 trillion from the Rp 44.5 trillion outlined in the revised budget.

The revised budget put crude oil at $48 per barrel, while oil prices increased steadily during the second half of 2017. Brent crude, for example, peaked at $67.02 per barrel in Dec. 26, according to Bloomberg data.

Finance Minister Sri Mulyani Indrawati said recently there was an energy subsidy increase because state-owned energy giant Pertamina and state-owned electricity firm PLN felt pressure from rising commodity prices.

The minister said a higher-than-expected Indonesia crude price (ICP) would have a positive impact on the budget as it would bring in more income in the form of non-tax income.

“Every increase in ICP has a positive impact on the state budget, [resulting] in additional state income from taxes as well as non-tax income,” she said.

Sri Mulyani said the government would assess energy subsidies in 2018 based on the dynamics of oil prices as well as last year’s figures.

“The government will look at the subsidy figures and the movement of the global oil price to assess developments in [energy] subsidies in 2018,” she said.

The government is set to allocate Rp 94.5 trillion for energy subsidies — Rp 46.87 trillion for fuel and Rp 47.66 trillion for electricity — as outlined in the 2018 state budget.

It has also committed to maintaining the prices for electricity as well as subsidized Premium gasoline and diesel fuel within the first quarter of 2018.

Bank Indonesia (BI) Governor Agus Martowardojo agreed with Sri Mulyani, saying the oil price increase would have a positive impact on the state budget in terms of additional income.

He added that, despite the risk of domestic inflation with an increased oil price, BI kept its 2018 estimate of 3.5 percent with a 1 percent margin of error.

“The [global] oil price [...] needed monitoring, but with prudent management, we still expect inflation to fall within that range,” he said in Jakarta on Wednesday.

The government and the House of Representatives budget committee previously agreed to increase the budget for subsidized diesel fuel by 0.77 percent to 15.62 million kiloliters (KL) in the draft 2018 state budget from 15.5 million KL in the revised 2017 budget.

Meanwhile, the budget for subsidized 3-kilogram liquefied petroleum gas (LPG) canisters was set at 6.45 million metric tons in 2018, up 4 percent from 6.19 million metric tons in 2017.

Within the first nine months of 2017, Pertamina saw its diesel fuel sales volume increase by 6.8 percent year-on-year to 10.58 million KL. Meanwhile, the company recorded a 6 percent increase in the sales of 3-kg LPG canisters to 4.7 million metric tons.

Looking at the sales growth rate of diesel fuel and 3-kg LPG canisters, Pertamina spokesperson Adiatma Sardjito said it might be difficult for the government to stay aligned with the targets set in the draft 2018 budget.

“It’s hard for us to monitor the distribution of such subsidized products, especially the 3-kilogram LPG canisters, as they were sold freely to the public. We can only remind the people, particularly ones in a better financial standing, to purchase non-subsidized products,” Adiatma said.