Indonesia’s energy subsidy could reach US$32.6 billion this year

A document from the Indonesian Finance Ministry showed that the country’s energy subsidy this year could reach Rs306 trillion (US$32.6 billion), or 23% of the country’s revenue. High crude oil prices, a weaker currency and an increasingly robust domestic demand could push energy subsidies to all-time high levels. The document showed that during the first six months of the year, the government spent Rs124.4 trillion (US$13.11 million) on energy subsidy. This number represents 62% of the full-year allocation, and around four times the amount the country spent for capital expenditure which reached a total of Rs30.6 trillion (US$3.2 million). Fuel subsidies reached Rs88.9 trillion (US$9.37 million) during the January-June period; the country also spent R35.5 trillion (US$3.7 million) on electricity subsidy. According to Deputy Finance Minister Anny Ratnawati, subsidized fuel consumption this year could be higher than the allocated 40 million kiloliters, possibly reaching 42 million kiloliters. The ministry expects this year’s total energy subsidy to reach Rs305.9 trillion (US$32.2 million), 51.2% above the allocation, and almost a fifth higher than last year’s Rs255.6 trillion (US$26.9 million). The ministry had earlier estimated the country’s budget deficit to reach 2.2% of gross domestic product (GDP), but if the total amount spent on energy subsidy goes beyond the budget, it could slightly push the budget deficit to 2.3% of GDP. Indonesia is the fourth most populous country in the world and according to the World Bank, about half of the country’s 240 million people live on less than US$2 a day. To shield the poor, the country heavily subsidizes gasoline, diesel fuel and electricity. The price for the widely used RON 88 gasoline is pegged at Rs4,500 (US$0.47) a liter, the cheapest in Southeast Asia. (July 5, 2012)