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Govt to slash diesel subsidy 50%, generate trillions in 2021 savings
The government plans to slash its diesel subsidy by 50 percent to generate trillions of rupiah in fuel subsidy savings for the 2021 state budget.
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A gas station attendant fills up a motorcycle in the West Papua city of Bintuni in this 2019 file photo. (JP/Jerry Adiguna)
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ouse of Representatives (DPR) Commission VII overseeing energy on Monday approved a proposal from the Energy and Mineral Resources Ministry to cut the diesel subsidy by 50 percent to Rp 500 (3.5 US cents) per liter, on the back of expectations that crude prices will remain low in the aftermath of the COVID-19 pandemic.
The Indonesian Crude Price (ICP) is projected in 2021 to hover between US$42 and $45 per barrel, lower than the 2019 ICP average of $63 per barrel, according to the energy ministry.
“Commission VII basically agrees with the government. We will fix the diesel subsidies at Rp 500 per liter in the proposed 2021 state budget,” energy minister Arifin Tasrif said at Monday's meeting in Jakarta.
The commission also gave its nod to a plan to increase the quota for subsidized cooking gas (LPG) while maintaining the quota for subsidized fuel in the 2021 draft state budget (RAPBN).
The Cabinet and the House are currently drafting the 2021 state budget, with President Joko Widodo scheduled to announce the finalized RAPBN during the state of the nation address in August.
Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for ASEAN and East Asia (ERIA), estimated that slashing the diesel subsidy by half could save the government Rp 8.4 trillion in fuel subsidies and Rp 4 trillion in biodiesel subsidies this year, when fuel consumption was lower than usual. Savings could therefore be even higher next year, when fuel consumption was expected to be higher than this year.
All diesel sold in Indonesia is a biodiesel blend, in accordance with the government's mandatory B30 biodiesel policy launched in September 2019.
The estimated savings assumed that fuel consumption would remain 25 percent lower than usual this year, added Alloysius, referring to statements from Pertamina officials.
“The funds needed to subsidise biodiesel will be lower than what [biodiesel] producers expect,” he told The Jakarta Post on Monday. “I think that’s quite good.”
Saving on fuel subsidies is particularly attractive now for the government, which has been struggling to fund its cash-strapped budget amid the COVID-19 economic downturn.
The government plans to disburse Rp 695.2 trillion in state funds this year to mitigate the epidemic and ensuing socioeconomic impacts. The coronavirus has infected 56,385 Indonesians and caused 2,876 deaths by June 30, official data shows.
Minister Arifin also said the government might raise the quota for subsidized LPG on the basis of expected higher consumption this year compared to 6.84 metric tons (MT) last year.
The cooking gas is sold in 3-kilogram canisters affectionately dubbed “melon” for their bright green color.
“With higher gas consumption during the pandemic and more converter kits available to fishermen and farmers, we expect total consumption of 6.89 MT in 2020,” he said, referring to the ministry's program that distributes LPG-to-fuel converters to farmers and fishers.
The ministry plans to distribute 35,000 converters this year and 50,000 converters next year.
Lawmakers are "exercising" tight control over the fuel subsidy quota amid expectations of relatively low consumption in 2021, and as the government expands its digital fuel nozzle program that aims to prevent ineligible customers from buying subsidized fuel.
State-owned energy holding company Pertamina, which operates over 90 percent of the gas stations in the country, expects to complete its digital fuel nozzle program by August.
“We will finish the program in two months. We faced some delays due to COVID-19, [because] some of the parts come from China,” Pertamina president director Nicke Widyawati said on Monday.
