Transcript KEROSENE SUBSTITUTION PROGRAMS IN INDONESIA: INSTITUTIONS

KEROSENE SUBSTITUTION
PROGRAMS IN INDONESIA:
INSTITUTIONS AND PUBLIC POLICIES
Asclepias Rachmi
Indonesian Institute for Energy Economics
31st IAEE Pre Conference on Clean Cooking Fuels & Technology
Istanbul, 16-17 June 2008
Agenda
1. Energy Consumption
2. Fuel Price Policy
3. Kerosene substitution program
• The Program in brief
• Role of institutions
4. Evaluation:
•
•
•
•
Program Implementation
Complicating Factors
Energy Security
Concluding Remarks
ENERGY CONSUMPTION
Energy Consumption in 2005 (1)
350
300
Million Barrels of Oil Equivalent
250
Biomass
Electricity
200
Natural Gas
LPG
Coal
150
Other Oil Fuels
ADO
Kerosene
100
Premium
50
Industry
Household
Commercial
Transport
Others
Source: Handbook Statistik Ekonomi Energi Indonesia 2006
• Kerosene Consumption in 2005:
– Used by all consumer groups: as is and
mixed with other fuels
– Household is recorded as major user
• Available in bulk and retail in flexible sizes
• Relatively easy to handle, wide spread uses
• LPG consumption in 2005:
– Industry, Household, Commercial
– Household is recorded as major user
– Small overall share (1%)
– Small market -- limited infrastructure
• Available in bulk and retail in 50kg, 12 kg,
and 6 kg units
Energy Consumption in 2005 (2)
300
Household:
• Use 28% modern energy type mostly
kerosene, and 72% conventional biomass
• Kerosene for cooking, lighting, initiate fire
for all kinds of purpose, etc
250
Million BOE
200
Industry:
• Consumes various energy types
• Kerosene and LPG: recorded share in
the sector energy mix is only 1% each
150
100
50
-
Premium
Kerosene
Industry
ADO
Other Oil
Fuels
Household
Coal
Commercial
LPG
Natural Gas Electricity
Transport
Source: Handbook Statistik Ekonomi Energi Indonesia 2006
Biomass
Others
Substituting kerosene with LPG implies
significant change in both markets:
• Market size
• Infrastructure for production & distribution
• Operational details for both the supply
and demand side actors
FUEL PRICE POLICY
Fuel Pricing Policy
(1)
As stated in the Blue Print of Kerosene to LPG Substitution
Program:
1. Certain fuels (Bahan Bakar Tertentu) which requires
subsidy: price setting by the Government through laws
and regulations
2. Fuels for national needs: to be determined B-to-B,
approved by the Government
3. Fuels used by large amount of people but
unsubsidized: prices are based on certain formulas
4. General fuels: no price regulation, treated similar to
general commodities
Fuel Pricing Policy
(2)
Kerosene Prices Apr 2001-Mar 2008
6,000
5,000
Industry:
refer to market
Industry:
refer to market
7,000
Industry: fixed price
8,000
Industry: fixed max/min cap
Industry: 50% of market
9,000
Price (Rp/Lt)
Industry: 75% of market
10,000
4,000
3,000
2000
2,000
1,000
600
400
700
Apr01
Jul01
Oct- Jan- Apr01
02
02
Jul02
Oct- Jan- Apr02
03
03
Domestic: Retail
Jul03
Oct- Jan- Apr03
04
04
Jul04
Oct- Jan- Apr04
05
05
Domestic: Industry
Kerosene prices:
• Price differentiation
• Varying systems & formulas
• Current prices:
- Industry = MOPS +15%
- Retail IDR 2500
Jul05
Oct- Jan- Apr05
06
06
Jul06
Oct- Jan- Apr06
07
07
Jul07
Oct- Jan- Apr07
08
08
Singapore Market Price (MOPS)
Kerosene
Adjustment
Retail vs Industrial Price
Sep'05 Oct'05
May'08
12.5% 87.2% 23.4%
26.5%
597.7%
13.2%
Trillion Rupiahs
Fuel Pricing Policy
(3)
200
50%
180
45%
160
40%
140
35%
120
30%
26,1%
100
80
25%
21,4%
20,5%
20,6%
16,7%
13,4%
14.5%
60
11,1%
40
10.5%
15.7%
8,9%
7.5%
15%
16.5%
13.6%
11,0 %
4.8%
20%
18,3%
14,2%
11.5% 11.7%
8.8%
5.6%
5%
4.8%
20
10%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
Electricity Subsidy in the State Budget
Fuel Subsidy Realization
Electricity Subsidy Realization
Fuel Subsidy in the State Budget
Percentage share of fuel and Electricity subsidies to state expenditure in the budget plan
Percentage share of fuel and Electricity subsidies to state expenditure in realization
Source: IIEE, compiled from various sources
Implications: uncontrollable subsidy allocation
• Fuel price subsidy encourage more consumption & increase imports of products
• Domestic price differential provides incentives for misuse,
• High and volatile international price is translated to unstable state budget
KEROSENE SUBSTITUTION
PROGRAM
The Substitution Program in Brief
• Targets:
– ‘Zero Kero in 2012’:
• No subsidized kerosene for cooking in 2012
• Kerosene available at economic price and in a higher value form (e.g.,
aviation turbine)
– Distribution of 3kg LPG to 6 million household in 2007 and 42 million
household in 2012
• Implementation strategy:
– Reduce kerosene subsidy gradually, distribute LPG 3kg package based
on priority lists
– Develop LPG infrastructure
– Involve local businesses
– Prudent supply capping of subsidized kerosene
– Intensive campaign on using LPG safely
– Improve government role (central, provincial, municipal, community
level) in monitoring the distribution package
– Distribution of LPG package:
• 2007: pilot project in Jakarta, initial step in 13 municipalities in Java, then
other areas in Java-Bali
• 2008 onward: Sumatera and other islands in steps
Role of Institutions
As stated in Blue Print:
–
–
–
–
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Dept of EMR: coordinator, policy
Dept of Finance: budget
Dept of Industry: LPG canister
Ministry of Women Empowerment: public outreach
Ministry of Cooperation and Small Business: LPG
stove
– Dept of Social Affairs: business shift of kerosene
distributors & retailers
– BPH Migas: reduction of kerosene supply
– Pertamina: program implementor
EVALUATION
Program Implementation
(1)
• News monitoring indicates unclear work division & shift
in tasks
– Difficulty in carrying duties, some links to budget constraints
– Increasing responsibility of the program implementor
– Outcome below target
• Scarcity in kerosene and LPG 3kg supplies
– Both in locations of program implementation as well as other
areas
– Lead to adjustment in kerosene supply reduction at locations of
program implementation
– Induced market operations (extra supply)
– Impact in more hardship & people complaints
Program Implementation
BPH Migas (9 Jan 08):
- Need to improve coordination among institutions
- Action plan:
- Scrutiny realization of stove & canister distribution at 13 municipalities
- Take selected market operations (extra supply)
- Assist in fund support for kero retailer to become LPG retailer
- Revoke permits of agent & retailer participating in or facilitating misuse of
subsidized kero
- Issue coupon to counter misuse and illegal distribution
- Assess government subsidy payment based on actual distribution reaching the
target consumers (potential penalty for Pertamina, govt threatens not to pay
subsidy allocation for the volume used by non-subsidized users)
Ministry of Energy and Mineral Resources (14 Jan 08):
- Recent kero scarcity is due to price disparity, natural disasters, panic buying
- BPH Migas Task Force and Pertamina to warn and punish distribution agents
participating in illegal distribution of subsidized fuels
- Select areas with long kero queue as the next target of substitution program
- Expand the use of equipment to monitor route and volume (APRV) of distribution of
subsidized kero from depot to bulk agent (existing: only at Perak, Surabaya)
- Instruct Pertamina to disengage bulk agent involved in illegal distribution
- Improve public awareness and education in areas of the substition program, involving
facilitator and mobile display units
- Improve funding support for kero bulk distribution agent to become LPG distributor
- Take selected market operations (extra supply)
- Convey the message of no price increase of subsidized petroleum fuels until 2009
- Persuade general public to ignore the rumors on kero scarcity
- Complete the census on kerosene users to improve the targeting of subsidized kero
(2)
Complicating Factors
• Energy price adjustments
– Government increase general fuel prices in May 2008
– Pertamina:
• Regular adjustment of fuel prices for industry (non-susbidized,
MOPS as reference)
• Price of LPG 50kg (non-subsidized) increased by 20-25% in
January 2008
• Subsidy package (compensation program)
– Increase in general fuel prices is accompanied by a set of
compensation package: direct money transfer for household,
subsidy for schools and university students, subsidy for supply of
basic food staples, etc.
• Increase in kerosene consumption:
– Relatively larger increase in price of other fuels
– Natural disaster in various areas
– Scarcity of supply of both kerosene and LPG lead to panic
buying
Energy Security
• New paradigm of energy security:
– Each one in the business chain may have different perspective
on what energy security means for each of them
– It is not only about physical supply of energy
– 4As as indicators:
•
•
•
•
Availability
Accessibility
Affordability
Acceptability
• It is in fact in line with Sustainable Development concept:
balancing social-economic-environmental concerns
• Energy security and sustainable development together:
– More aspects to be considered,
– Indicates ways to address concerns of parties in the energy
value chain
– Important for addressing the national interest
Concluding Remarks
• Data accuracy
– Energy consumption: size, users, area
– Subsidy target
• Planning
– Program design: substance, institutions, budget
– Implementation strategy: coordination, public awareness
& acceptance, monitoring
• Energy security perspective
– To balance social-environmental-economic interests
– To address short & long term concerns
– To be more realistic: take into account position &
perspective of everyone in the value chain