Funds Saved from Diesel Subsidy Cuts to be Diverted to Three Programs

The government intends to scrap subsidies for diesel fuel and divert the funds to some of the Energy and Mineral Resources (EMR) Ministry’s new programs.

Head of the Public Communication Centre at the Energy Ministry, Sujatmiko, said the funds saved from diesel subsidy cuts would be reallocated to new programs in the ministry, such as the energy security fund (DKE), Bright Indonesia Program (PIT) and strategic petroleum reserves (SPR). “The subsidies will be reallocated to programs that are more on target,” Sujatmiko told Katadata at his office yesterday.

The Energy Ministry has allocated some IDR 800 billion for energy security funds in the revised 2016 state budget. The ministry also allocated IDR 800 billion for strategic petroleum reserves, while the Bright Indonesia Program received IDR 77 billion. (Read: Government Allocates IDR 800bn for Energy Security in Revised 2016 State Budget).

The establishment of an energy security fund is crucial for national energy security. One use of these funds would be to develop new and renewable energy, such as geothermal energy, solar energy, wind energy, hydro energy, bioenergy and deep water energy. The government expects the development of these types of energy to reduce the nation’s reliance on fossil energy.

Strategic petroleum funds are also important for national energy security. Indonesia still does not have reserve funds for fuel despite Government Regulation No. 79/ 2014 regulating and allocating strategic reserves to ensure long-term energy sustainability.

Meanwhile, the Bright Indonesia Program is aimed at electrifying the rural areas PLN has difficulty accessing. This program aims to provide electricity to 10,300 target villages in Indonesia by 2019. (Read: Government Provides Incentive for Bright Indonesia Program ).

Reducing fuel subsidies is the right move, according to Sujatmiko, especially considering global crude prices and the benchmark crude price, or Mean of Platts Singapore (MOPS), are on the rebound. If global crude prices continue to rise, the state’s finances could be in trouble because the government would be spending more.

Sujatmiko added that diesel subsidies will continue to be reduced gradually and may even be removed entirely. “We will reduce it gradually, then we’ll look at the positive and negative effects at the end of the year,” he said at the EMR Ministry’s office in Jakarta, Monday (6/6).

Previously, Finance Minister Bambang Brodjonegoro said diesel subsidies had been cut in the revised 2016 state budget draft from IDR 1,000 per litre to IDR 350 per litre under a fixed subsidy scheme. “Because crude oil prices fell,” he said during a meeting with the House of Representatives’ (DPR) Budget Board last Thursday. (Read: Diesel Subsidies Cut to IDR 350 per Litre in Revised 2016 State Budget Draft).

The draft budget also reduced refined fuel oil and 3 kg LPG cylinder subsidies by IDR 23.05 trillion to IDR 40.63 trillion.