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Govt, House agree to lower diesel fuel subsidy next year
The Energy and Mineral Resources Ministry and House Commission VII, which oversees energy, have agreed to cut the diesel fuel subsidy next year and channel the savings to provide more gas to the people
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span>The Energy and Mineral Resources Ministry and House Commission VII, which oversees energy, have agreed to cut the diesel fuel subsidy next year and channel the savings to provide more gas to the people.
The subsidy for diesel fuel, sold under the Solar brand, is to be cut to Rp 1,500 (11 US cents) per liter next year in order to increase the volume of subsidized liquefied petroleum gas (LPG).
Lawmaker Maman Abdurrahman from the Golkar Party said during House of Representative hearing on June 20 that the decision was made in consideration of the high demand for subsidized LPG and people’s difficulty in accessing it.
“Looking at the Solar fuel subsidy, one cannot separate it from the ongoing efforts to convert kerosene to gas. Hence, we proposed transferring [a portion of the] Solar subsidy, some of which is enjoyed by non-eligible consumers, to subsidize the 3 kilograms LPG canisters,” Maman said.
The hearing ended with both the government and the House agreeing to a fuel subsidy of Rp 1,500 per liter of Solar next year.
They also agreed to increase the 2020 quota for subsidized diesel to 15.31 million kiloliters, up 5.5 percent from this year's quota of 14.5 million kl.
The final figures are lower than the ministry's initially proposed subsidy rate of Rp 2,000 per liter and proposed quota of 15.58 million kl for subsidized Solar.
Meanwhile, the two sides also agreed on a maximum quota of 7 million metric tons (mt) for subsidized LPG — which is sold in 3 kg canisters — a slight increase from last year's realized quota of 6.8 million mt.
The ministry’s oil and gas director general, Djoko Siswanto, said the proposed subsidy rate of Rp 2,000 per liter was the maximum rate and not the baseline, so it could be reduced depending on the global price of crude.
“Hence, if the crude price falls, the subsidy can [also] be reduced,” he said.
“We have no problems [as long as] the country can save Rp 500 per liter, so Rp 1,500 per liter is no problem for us,” he added .
Besides, said Djoko, the lower subsidy rate for Solar would be fine because the 30 percent biodiesel mix (B30) policy would be implemented next year, which would reduce the consumption of diesel.
Once the B30 policy is implemented next year, the Indonesian Biofuel Producers Association (APROBI) estimates that national consumption of Solar, which is already mixed with biofuel, would increase about 60 percent from the 2019 consumption target of 6.12 million kl.
The government and the House also agreed on six other assumptions for next year's energy budget during the hearing: Indonesian Crude Price (ICP) of $60 per barrel, oil and gas lifting of 1.89 million barrels oil equivalent per day, cost recovery at $10-$11 billion and an electricity subsidy budget of $4.14 billion.
The budget assumptions are now to be discussed further by the government and the House budget committee.
