fossil-fuel subsidies and the poor in asia · • e.g. bolivia tried to raise fuel prices by...
TRANSCRIPT
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2011/SOM3/DIA/005 Session 2
Fossil-Fuel Subsidies and the Poor in Asia
Submitted by: ADB
Policy Dialogue on Fossil Fuel Subsidy Reform
San Francisco, United States23 September 2011
10/12/2011
1
FOSSILFOSSIL‐‐FUEL SUBSIDIES FUEL SUBSIDIES AND THE POOR IN ASIAAND THE POOR IN ASIA
ShikhaShikhaJhaJhaAsian Development BankAsian Development Bank
APEC Senior Officials Meeting, 23 September 2011APEC Senior Officials Meeting, 23 September 2011
San FranciscoSan Francisco
Outline of the presentation
An overview of the energy scene in Asia
Political economy of subsidies
Proposed research study
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2
The Energy Scene in Asia: An overview
Asia‐Pacific: Energy for all?
Fastest demand growth, esp fossil‐fuel energy
¼ of global energy; PRC accounts for ½
No access to basic electricity services
800 million (20% of population)
Reliance on traditional biomass
1.8 billion (44%)
ADB: Access to energy to 100 million by 2015
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3
The poor spend larger % on fuel and light
India Philippines
6
7
8
9
10
11
12
13
1 2 3 4 5 6 7 8 9 10
%
Monthly per capita exp deciles
Rural
5.0
5.5
6.0
6.5
7.0
1 2 3 4 5 6 7 8 9 10
%
Income deciles
Rural
Source: Household Consumer Expenditure in India, 2007‐08; Report No. 530; 2009 Philippines FIES
Prices differ substantially across the region – An example
0
40
80
120
160
US
cen
ts/li
ter
Retail Gasoline Prices in Developing Asia(Oct 2008) Gasoline
US Premium Gas Retail Price
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4
Challenge
To come up with ways and means to
enhance energy supply security
improve energy accessibility of the poor and
provide them affordable modern energy services
… while tackling climate change and other environmental issues
Strategies proposed by G20 Asian members – Some examples
PRC: To gradually reduce urban land‐use tax relief for fossil fuel producers
India: To work out implementation strategies and timetables for rationalizing and phasing out fossil‐fuel subsidies
Indonesia: To gradually phase out subsidies and adopt other measures to reduce fossil‐fuel energy consumption
Korea: To phase out subsidies to anthracite coal and briquette producers
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Fossil‐fuel subsidies: The political economy angle
Characteristics of energy sector
Typical developed economy
PRC Vietnam Indonesia
Political discretion in price setting
Low Moderate Moderate High
Dominance by state‐owned vertically‐integrated utilities
Low, some exceptions
High High High
Central planning in the electricity sector
Low, some exceptions
High High High
Political difficulty of reform
Mixed Moderate N/A (Just starting)
High
Difficulty in finding instruments to compensate low‐income households for
price changes
Low Moderate Moderate Moderate
Source: World Bank, 2011, Climate Change and Fiscal Policy: A Report for APEC
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Complexities of subsidies
Interest‐group influence Industry lobby
Vote banks
Off‐budget subsidies Tax holidays
Waiver of import duties
Logistical difficulties Users are organized differently
Government’s ability to deal with interest groups varies
Responsible offices —foreign affairs, finance, energy, tax, national planning: Requires coordination
Varied energy pricing systems
Liberalized–market‐determined prices
Automatic – regulations establishing an automatic adjustment mechanism
Price controls – administer, regulate, or adjust prices on an ad‐hoc basis
Gasoline Pricing Mechanisms (2006) Number of economies
Liberalized 15
Automatic 8
Ad hoc 21
Total 44
Source: IMF 2008. Fuel and Food Price Subsidies: Issues and Reform Options
10/12/2011
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Difficulties in measuring subsidies
Oil and gas subsidies easy to estimate: international price to benchmark economic costs
Subsidies for coal (partially traded, contractual prices) and electricity (non‐traded) hard to measure
No single on‐going process or consistent database
Reference Energy System
CoalExtraction
Co
al Re
sources
Oil Import
Gas Import
Prim
ary Co
al
Prim
ary O
il
Prim
ary Ga
s
Coal PowerPlant
Gas PowerPlant
Oil PowerPlant
Hydro PowerPlant
Oil HeatingPlant
Cogeneration
Electricity
District H
eat
Ga
s
Oil
Coa
l
Electricity
District H
eat
Ga
s
Oil
Coa
l
CoalTransport&Distribution
Oil Transport&Distribution
GasTransport&Distribution
ElectricityTransport&Distribution
Distr ict HeatTransport&Distribution
Indu
strial He
at
Indus
trial E
lectricity
Re
sidentia
l/Com
me
rcial H
eat
Re
sidentail/C
om
me
rcial E
lectricity
Tran
sport
Coal Ind.
Oil Ind.
Gas Ind
Elec. Ind.
Coal R/C.
Oil R/C
Gas R/C
Elec. R/C
DH R/C
Oil Trp
RESOURCES PRIMARY SECONDARY FINAL DEMAND
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ADB Research Project
Rationalizing and Phasing Out Fossil‐Fuel Subsidies
Rationale
Energy subsidies are critical for development
can stimulate economic activity/ spur growth
alleviate poverty
But these subsidies
are expensive and divert resources from other priorities
result in excessive production/consumption
deplete exhaustible resources, harm the environment
Phasing out subsidies would
save fiscal resources and energy
reduce carbon dioxide emissions
10/12/2011
9
Objectives of the Study
1. Identify and measure fossil‐fuel subsidies
2. Assess household impact of their elimination
3. Discuss options to mitigate impact on poor
Potential economies
Bangladesh, PRC, India, Indonesia, Kazakhstan, Malaysia, Pakistan, Thailand, Uzbekistan
Korea, Philippines, Viet Nam
Contributions of the project
Systematic measurement and analysis of fossil fuel subsidies to consumers and producers
Asia‐wide evaluation of impact of subsidy elimination and social safety nets for the poor OECD: Case study of subsidy reform in Indonesia
WB: Poverty and Social Impact Analysis of subsidy removal on poor in Armenia, Sri Lanka and Tajikistan
Dissemination of the findings to governments to encourage reforms
Benchmark to initiate studies of macroeconomic impacts
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2011/SOM3/DIA/002 Session 1
Fossil-Fuel Subsidies and Strategies for Reform
Submitted by: Global Subsidies Initiative (GSI)
Policy Dialogue on Fossil Fuel Subsidy Reform
San Francisco, United States23 September 2011
10/12/2011
1
Fossil‐Fuel Subsidies and Strategies for ReformStrategies for Reform
APEC Senior Officials’ Policy Dialogue on Fossil‐Fuel Subsidies
Kerryn Lang, Global Subsidies Initiativey g23 September 2010
Global Subsidies Initiative (GSI)
• Established by the International Institute for Sustainable Development (IISD) in 2005
• Purpose: to investigate and promote reform of subsidies that have negative economic, social or environmental impacts.
• Phase I (2006 – 2008): Biofuel subsidies• Phase II (2009 2011): Fossil fuel subsidies• Phase II (2009 – 2011): Fossil-fuel subsidies• Phase III (2012 – 2014): Energy and Water
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Outline of this presentation
1. Overview of fossil-fuel subsidies for both consumption and production
2. Benefits of fossil-fuel subsidy reform3. Increasing momentum for reform on international
agendas4. Elements of a successful reform strategy
1. Overview of fossil‐fuel subsidies
Consumption subsidies:• Estimated to amount to $312 billion in 2009,
$558 in 2008 (IEA 2010)$558 in 2008 (IEA, 2010)• Mostly in developing and energy-exporting
economies• Not well targeted for intended
beneficiaries (the poor)• Hurdles to reform include
swaying public opinion & developing effective welfare nets
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1. Overview of fossil‐fuel subsidies
Producer subsidies:• GSI’s estimate: $100 billion per year• Used in developed and developing economies• Used in developed and developing economies• Many different types (e.g. financial transfers, tax
breaks, royalty reductions, accident liability caps)• Canada study: 63 subsidies totaling CA$2.84 billion in
2008• Indonesia study: 3 subsidies totaling US$ 1.8 billion in
20082008• Hurdles to reform include political lobby groups
2. Benefits of fossil‐fuel subsidy reform
• Reforming fossil-fuel subsidies will:– Level the playing field for investments in clean
and renewable energy technologies energy and renewable energy technologies, energy efficiency
– Reduce global greenhouse gas emissions by 10% by 2050 (OECD, 2010)
– Reduce public expenditure; remove a fiscal liability in times of high and volatile oil pricesliability in times of high and volatile oil prices
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• G-20 and APEC commitments to rationalize and phase out over the medium term [inefficient] fossil-fuel subsidies that encourage wasteful
3. Increasing momentum for reform
fossil fuel subsidies that encourage wasteful consumption…while protecting the poor
Timeline
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4. Elements of a successful reform strategy
• Research: costs, benefits, options and impactsE.g. Government of Indonesia commissioned 3 university reports to inform its roadmap for university reports to inform its roadmap for
phasing out fuel subsidies, identifying various options:
1. Raise the price of subsidized fuel2. Limit the amount of subsidized fuel available and
target who receives it (e.g. older cars, not new cars)3. Phase out the subsidy by region (starting with Jakarta)
• Consultation and communication
4. Elements of a successful reform strategy• Price-setting mechanisms: independent,
transparent & adjustable.Price rises: gradual or sharp?g p• E.g. Bolivia tried to raise fuel prices by
between 53% and 87% in December 2010 but failed
• GIZ recommends raising prices 10% at a time, however
• E g Iran reformed fuel subsidies in one • E.g. Iran reformed fuel subsidies in one price rise, by providing compensation for entire population (~50% of the revenues)
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4. Elements of a successful reform strategy
• Complementary policies:• Cash transfers: conditional or unconditional• Reduce/abolish school fees provide free school mealsReduce/abolish school fees, provide free school meals• Increase the minimum wage• Extend credit facilities for entrepreneurs or small
businesses (e.g. farmers, fishermen, women in rural areas)• Increased investment in public transport systems, rural
electrification schemes and other essential services• Expand pension or health insurance schemes
4. Elements of a successful reform strategy
• Monitoring, evaluation and adjustment• E.g. monitoring energy price adjustments against the
international market priceinternational market price• E.g. evaluating and adjusting the targeting or delivery
of cash transfer payments
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2011/SOM3/DIA/003 Session 2
IEA Analysis of Fossil-Fuel Subsidies for APEC
Submitted by: IEA
Policy Dialogue on Fossil Fuel Subsidy Reform
San Francisco, United States23 September 2011
© OECD/IEA 2011
IEA analysis of fossilIEA analysis of fossil‐‐fuel fuel subsidies for APECsubsidies for APEC
Amos Bromhead
Office of the Chief Economist
International Energy Agency
San Francisco, 23 September 2011
© OECD/IEA 2011
Primary energy demand in APEC Primary energy demand in APEC economies in the Current Policies economies in the Current Policies ScenarioScenario
APEC energy demand expands by 44% between now and 2035 – an average rate of increase of 1.4% per year – with fossil fuels remaining dominant in the energy mix
01 0002 0003 0004 0005 0006 0007 0008 0009 000
10 00011 000
1990 2000 2010 2020 2030 2035
Mto
e Other renewables
Hydro
Nuclear
Gas
Oil
Coal
© OECD/IEA 2011
Spending on oil & gas imports as a Spending on oil & gas imports as a share of GDP in APEC economies in the share of GDP in APEC economies in the Current Policies ScenarioCurrent Policies Scenario
The combination of higher prices and expanded imports translates to a growing import bill for the region, which can be a heavy burden on economic growth
0%
1%
2%
3%
4%
5%
6%
7%
1990 2000 2010 2020 2030 2035
Indonesia
China
Japan
Mexico
United States
ASEAN*
Australia/
New Zealand
© OECD/IEA 2011
EnergyEnergy‐‐related COrelated CO22 emissions in APEC emissions in APEC economies in the Current Policies economies in the Current Policies ScenarioScenario
APEC’s share of global CO2 emissions increases slightly to 59% in 2035, highlighting that the region will have to play a key part if climate objectives are to be met
0
5
10
15
20
25
30
35
40
45
1990 2000 2010 2020 2030 2035
Gt Gas
Oil
Coal
World
© OECD/IEA 2011
FossilFossil‐‐fuel subsidies can have fuel subsidies can have unintended effectsunintended effects
Fossil‐fuel subsidies result in an economically inefficient allocation of resources and market distortions, while often failing to meet their intended objectives
© OECD/IEA 2011
Quantifying fossil‐fuel consumption subsidies using the price‐gap approach A price‐gap is the amount that an end‐use price is below the full cost of
supply or reference price
It is applicable where end‐use prices are regulated and fall short of international market levels
Does not capture: production subsidies, rebates to consumers, the effect of cross‐subsidies, cost of investing in new capacity (electricity)
What costs are represented by estimates from the price‐gap approach?
> For net exporters, these are essentially opportunity costs
> For net importers, these are estimates of direct, budgetary transfers
Relevant calculations
> Subsidy = (reference price – end‐use price) * consumption
> Reference price (fuels) = int’l price (quality adj) +/‐ freight & insurance + local distribution + VAT
> Reference price for electricity is based on annual average‐cost pricing: calculated from a weighted average of the cost of electricity production (according to specific power mix), plus transmission and distribution
© OECD/IEA 2011
Quantifying fossil‐fuel consumption subsidies using the price‐gap approach
0 0.2 0.4 0.6 0.8 1.0
Gasoline
Diesel
LPG
Dollars per litre
International price
Freight and insurance
Internal distribution
Value-added tax
End-use pricePrice gap(subsidy)
The price‐gap method compares end‐use prices paid by consumers with reference prices that correspond to the full cost of supply – a subsidy is present If the end‐use price falls short of
the reference price
© OECD/IEA 2011
World subsidies to fossil‐fuel consumption using the price‐gap approach
Worldwide, fossil‐fuel consumption subsidies totaled $409 billion in 2010 – about $100 billion higher than in 2009; among APEC economies, we estimate they reached $105 billion
FossilFossil‐‐fuel consumption subsidies fuel consumption subsidies remain bigremain big
0
25
50
75
100
125
150
0
100
200
300
400
500
600
2007 2008 2009 2010
Do
llars
pe
r bar
rel
Bill
ion
dol
lars
Rest of world
APEC economies
IEA average crude oil import price (right axis)
© OECD/IEA 2011
FossilFossil‐‐fuel consumption subsidies per fuel consumption subsidies per capita and as a percentage of total GDP capita and as a percentage of total GDP
The economic cost of subsidies can be more completely understood when viewed as a percentage of GDP or on a per‐capita basis
Economies with higher rates Economies with lower rates
Iran
Saudi Arabia
Venezuela
UAE
Iraq
Kuwait
Turkmenistan
Qatar
Libya
Egypt
Algeria
Brunei
PakistanEcuador
0
500
1 000
1 500
2 000
2 500
3 000
0% 5% 10% 15% 20% 25%
Subsi
die
s per ca
pit
a (d
ollars
per ca
pit
a)
Subsidies as a share of GDP (MER)
See below
Scale (billion $)
40
10
Russia
IndiaChina
Indonesia
Argentina
Malaysia
Thailand
Mexico
Kazakhstan
Vietnam
Philippines
Nigeria
Azerbaijan
South Africa
0
50
100
150
200
250
300
0% 1% 2% 3% 4%
Subsi
die
s per ca
pit
a (d
ollars
per ca
pit
a)
Subsidies as a share of GDP (MER)
APEC
Other
Chinese Taipei
© OECD/IEA 2011
Major energy producers are among Major energy producers are among the biggest subsidisersthe biggest subsidisers
For net exporters of oil and gas in APEC economies, subsidies to those fuels totalled $74 billion in 2010, compared with $31 billion in net‐importing economies
Fossil‐fuel consumption subsidies by net importer and net exporter of oil and natural gas in APEC economies
0
20
40
60
80
100
120
2007 2008 2009 2010
Bill
ion
dol
lars
Exporter
Importer
© OECD/IEA 2011
FossilFossil‐‐energy subsidies go energy subsidies go mostly to the richmostly to the rich
Only 8% of the amount spent on fossil‐fuel consumption subsidies in 2010, reached the poorest 20% of the population
Share of fossil‐fuel subsidies received by the lowest income quintile by fuel in surveyed economies*, 2010
© OECD/IEA 2011
Getting rid of fossilGetting rid of fossil‐‐energy subsidies energy subsidies would save energy & cut emissionswould save energy & cut emissions
Without further reform, spending on subsidies in APEC economies is set to reach $150 billion in 2020
Subsidy reform would have energy security, environmental & economic benefits
Phasing‐out subsidies in APEC economies by 2020 would:
reduce energy demand by 2.3%
reduce oil demand by 0.5 mb/d
cut CO2 emissions by 0.6 Gt
Savings would be considerably higher in the economies that have subsidies
© OECD/IEA 2011
Recent pricing reforms inRecent pricing reforms in selected selected economieseconomiesEconomy Description of actions or announced plans
Angola Raised gasoline & diesel prices by 50% and 38% in Sept 2010. Plans to reduce fuel subsidies by 20% per year until eliminated.
IndiaScrapped regulation of gasoline prices in June 2010, with plans to do the same for diesel; Plans to eliminate cooking gas and kerosene subsidies in a phased manner starting April 2012, replacing with direct cash support to the poor.
IndonesiaPostponed a restriction of subsidised fuel for private cars in February 2011, which could push state subsidies higher than the budgeted amount. Previous plans
IranSignificantly cut energy subsidies in Dec 2010 as start of a 5‐year program to bring the prices of oil products, natural gas and electricity in line with international market‐ levels. Cash payments are being made to ease the impact of higher fuel prices.
Jordan Announced an expansion of their subsidy programme in January 2011 by further reducing kerosene prices and gasoline prices.
Malaysia Cut subsidies for gasoline, diesel and LPG in July 2010 as part of a gradual reform programme..
Mexico Steadily increased gasoline, diesel, and LPG prices in 2011, with the goal of eliminating subsidies.
Pakistan Raised gasoline, diesel and electricity prices in 2011, but prices increases have not kept pace with international prices. Plans are to reduce the power subsidy by 23% this year and gradually phase out.
Qatar Increased petrol, diesel and kerosene prices by 25% in January 2011.
Russia Plans to raise natural gas prices to international levels for industrial users through 2014.
South AfricaPlans to raise electricity prices by 20% per year through 2015 according to the Integrated Resource Plan, approved in March 2011.
UAE Increased gasoline prices in April and July of 2010 to the highest level in the GCC
UkraineRaised gas price for households and electricity generation plants by 50% in August 2010 and announced plans to raise them by 30% in 2011.
© OECD/IEA 2011
Consultation on pricing dataConsultation on pricing data
The IEA welcomes consultation with individual APEC economies about pricing data
IEA contacts on fossil‐fuel subsidies:
Fatih Birol, [email protected]
Amos Bromhead, [email protected]
Matthew Frank, [email protected]
Jung Lee, [email protected]
___________________________________________________________________________
2011/SOM3/DIA/008 Session 3
Fuel Subsidy Policy in Indonesia
Submitted by: Indonesia
Policy Dialogue on Fossil Fuel Subsidy Reform
San Francisco, United States23 September 2011
10/12/2011
1
FUEL SUBSIDY POLICYFUEL SUBSIDY POLICY
Fiscal Policy Office Fiscal Policy Office –– Ministry of FinanceMinistry of Finance
FUEL SUBSIDY POLICYFUEL SUBSIDY POLICYIn IndonesiaIn Indonesia
San Fransisco, 23 September 2011
Outlines
1. General Information on fuel subsidy
2. Development of fuel subsidy budget
3 Policy of fuel subsidy3. Policy of fuel subsidy
4. LPG conversion program
5. Compensation program in reducing fuel subsidy in 2005 Fiscal stimulus and cash transfers 2009
2
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2
Fuel Subsidy
According to the Indonesian Budget Law, fuel subsidy defined as abudgetary allocation given to a company or institution that producesand/or sells the oil fuel and Liquefied Petroleum Gas (LPG), with thepurpose to provide access of energy at an affordable price forconsumers.
The fuel price is lower than the market price due to the application of administered price policy for premium, kerosene, and diesel.
Allocated directly through State Owned Enterprise/Company.
Problems:Problems:
• Volatility of raw fuel price makes domestic fuel price is also volatile• Fuel demand is still high.
3
Regulatory Framework on Fuel Subsidy
Law No.22/2001 on Oil and Gas
Govt Regulation No.36 /2004 on Downstream Oil and Gas
Presidential Decree No.55/2005 on retail domestic fuel prices and preceeding Presidential Decree No.9/2006
Regulation
4
Presidential Decree No.71/2005 on Provision and Distribution of Particular Type of Fuels
10/12/2011
3
Fuel Subsidy Calculation Formula
• Retail fuel price is the retail selling price per liter of fuel in domestic area.
• Tax is a Value Added Tax (PPN 10%) and Motor Vehicle Fuel Tax (PBBKB 5%).
• Reference price of fuel is calculated based on the MOPS price plus distribution costs and i
Fuel Subsidy :Fuel Subsidy := [Reference Price of Fuel = [Reference Price of Fuel -- (Retail Fuel Prices (Retail Fuel Prices -- Tax) ] x Fuel VolumeTax) ] x Fuel Volume
margins.
• Reference price of fuel = MOPS + α
α is the distribution cost + margin
MOPS (Mid Oil Platt’s Singapore) is the price on the stock sale and purchase transactions on the Singapore oil.
6.000
IDR/liter
Reference proce of fuel
5
0
4.500
MOPS Official Price Retail Price
VAT & PBBKB
Subsidy
THE RECIPIENTS OF SUBSIDIZED FUEL
Household Transportation
RECIPIENTS
Micro Industry Public Services
6Source: Presidential Decree No.9/2006
Fishery Industry
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4
Composition of Subsidized Fuel Consumption
Land transportation
Water transportation
= 1 %
household= 6%
Micro industry
Premium= 60 %M. Solar
= 34 %
Clusters of ConsumersType of Subsidized Fuel
GasolineDiesel
p= 89%
y= 1%
fishery= 3%
IBT = 10%
NTB dan NTT= 2% Sumatera
M. Tanah= 6%
Gasoline Consumption (Land Transportation)
Gasoline Consumption (by Region)
Motorcycle= 40%
Subsidized Subsidized Fuel Fuel
ConsumptionConsumption
Kerosene
7
Sumatera Kota Besar
= 4%
Sumatera excKota Besar
= 18%
Kalimantan Kota Besar
= 2%Kalimantan exc Kota
Besar = 5%
Jawa – Bali = 59%
(Including Jabodetabek
18% from total or 30% from Jawa-
Bali)Private Car= 53%
Public= 3%
Business Car
= 4%Source : Ministry of Energy and Mineral Resources
BPH BPH MigasMigas
MinistryMinistryOf EnergyOf Energy
MinistryMinistryOf FinanceOf Finance
Determining of type and estimation of volume of subsidized fuel
Subsidized Fuel Budgeting Mechanism
Regulatory body for fuel and gas upstream activities
Of EnergyOf Energy
DPRDPR--RIRI
Proposing type and estimations of volume subsidized fuel FFinancinancialial Note Note
and and State State BudgetBudget
Calculation of estimated fuel subsidy based on some asumption and paramaters
Estimations of fuel subsidy
The ParliamentThe Parliament
Budget Budget LawLaw
Budget allocation for subsidized fuel
Amendment of budget allocation for subsidy fuelRevised Revised
Budget Budget LawLaw
8
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5
Fuel Subsidy in State Budget
126.8
139.1
129.7 120.0
150.0
Trillion Rp
Gasoline Kerosene Diesel Gas
52.4
45.0
88.9 82.4
30.0
60.0
90.0
9
-Budget Revised
Audited Budget Revised
Audited Budget Revised
Audited Budget Revised
2008 2009 2010 2011
gas diesel kerosene gasoline
Fuel Subsidy Compared to Others Subsidies, Central Government Expenditures, Total Expenditures, and GDP
40.0
60.0
80.0
100.0
erce
ntag
e
‐
20.0
40.0
2008 2009 2010 2011Revised Budget
Pe
PSO & Others Seeds & Fertilizer Food Electricity Fuel
20.0
25.0
age
10
‐
5.0
10.0
15.0
2008 2009 2010 2011Revised Budget
Per
cent
a
Total Exp. (%) Central Govt. Exp. (%) GDP (%)
10/12/2011
6
Volume of Subsidized Fuel Consumption, Year 2008 ‐ 2011
38.2 37.4 38.240.5
40.0
50.0
Million KL
11.5 11.8 12.8 14.2
7.7 4.6 2.4 1.8
19.020.9 23.0 24.5
0.0
10.0
20.0
30.0
2008 2009 2010 2011 Revised Budget
11
Conversion program from kerosene to LPG since 2007 has reduced the volume of kerosene significantly from 10.0 million in kilo litters in 2006 to 1.8 million kilo litters in 2011.
Gasoline Kerosene Diesel
Commodities and Fuel Domestic Prices, 2003‐2010
Year 2003 2004 2006 2007 2008 2009 2010
1Jan-31Des 1Jan-31Des 1Jan-1Oct 1Oct-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des 1Jan-31Des
GASOLINE S S S S S S S S S
DIESEL S S S S S S S S S
2005
5 000
6.000
7.000
IDR
GASOLINE
DIESEL
KEROSENE S S S S S S S S S
DIESEL OIL FOR INDUSTRY
S S S NS NS NS NS NS NS
FUEL OIL S S S NS NS NS NS NS NS
12
‐
1.000
2.000
3.000
4.000
5.000
01-A
pr
01-Ju
n
17-Ja
n
01-Ja
n
21-Ja
n
01-Fe
b
01-Ja
n
03-Ja
n
01-O
ct
1Jan
-23 M
ay
24-M
ay
01-D
ec
15-D
ec
2001 2002 2003 2004 2005 2006 2007 2008 2008 2009
DIESEL
KEROSENE
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Medium Term Expenditure Framework Fuel Subsidy
300.0
Trilion Rp
Electricity Subsidy Fuel Subsidy
88.9 82.4 95.9129.7 123.6
103.382.9
55.1 57.6 40.7
65.645.0
25.8
25.4
144.0 140.0 136.6
195.3
168.6
129.0
108.3
100.0
200.0
13
0.0
Rivised Budget
Realization Budget Rivised Budget
Proposed Budget
MTEF MTEF
2010 2011 2012 2013 2014
Fuel Subsidy Policy
Policy Implementation Reducing type of subsidized fuel in 2005 from 5 to 3 types by removing Diesel Oil for industry and
Fuel Oil (minyak bakar) from subsidy
Changing the subsidy payment mechanism from a cost and fee system to an alpha system (margin + distribution cost)
Continuing kerosene to LPG conversion program since 2007
Energy diversification (Gas for Bus and public transportation)
Retail fuel price rationalization
Improving the subsidized fuel distribution mechanism to enable the subsidy to be more targeted.
Policy 2011 Conversion of kerosene to LPG
Controlling the use of subsidized fuel through a closed distribution system, gradually and improving
14
the regulations
Increase the utilization of alternative energy (such as bio fuels)
The government has authority to make adjustments in subsidized fuel prices if the ICP within 1 year increased more than 10%
Subsidized bio-fuel at IDR2.000-per liters
Increasing Motor Vehicle Fuel Tax (PBBKB) by 5 percent.
Include motor vehicle fuel tax in the structure of fuel subsidy.
10/12/2011
8
Lower volume of
Decreasing energy intensity Rising fuel
i
Target Condition
Policy Framework for Phasing Out Fuel Subsidy
Lower volume of subsidized fuels
Minimum subsidy on fuels
Non-fuel diversified renewable energy sources
intensity
Provision of sufficient infrastructure and transport of fuel
Alleviating fuel subsidy along with compensating variation
Energy diversification
consumption
Fuel prices increases
Bottleneck domestic refineries
Restricting domestic fuel stock
Insufficient infrastructure of public
Fuel Subsidy Alleviation
15
publictransportation
Less consumption on non-fuel subsidy
Strategy
Current Condition
Fuel Subsidy Policy Reform, 2012 ‐ 2014
I. Policy 2012 ‐ 2014
Reducing the fuel subsidy gradually
Controlling the volume of subsidized fuel consumption through the control of subsidized fuel distribution especially for private carscontrol of subsidized fuel distribution, especially for private cars.This policy will start from Jawa and Bali, and finally all regions in Indonesia.
Increasing the subsidized fuel retail price
II. Earmaking saving from fuel subsidy reform
Cash Transfer
Infrastructure development
16
p
national and local roads, train (Line north of Java, local cities including monorail). ports and airports (pioneer). urban transport system. drinking water
Social development (health and urban environment).
10/12/2011
9
Impact of Impact of Kerosene to Kerosene to LPG LPG ConversionConversion
17%
100%
Kerosene Consumption LPG Consumption (energy equivalent)
74%83%
85%
51%
26%17%
40%
60%
80%
17
15%
49%
0%
20%
2008 2009 2010 2011 Revised Budget
Roadmap of Kerosene to LPG Conversion ProgramRoadmap of Kerosene to LPG Conversion Program
Up to 2007
• Kerosene used by majority households in Indonesia (9.9 million KL) and subsidized by Government (more than Rp 37 Trillion /year)
• LPG only used by 10% of households and more expensive than subsidized kerosene
2007 - 2009
• Government program : distribute 42 millions of conversion package to targeted households.
• Removing 2,069 million KL of kerosene and distribution of 19 million conversion package up to 2008.
• Removing 4,1 million KL of kerosene and
2010 forward…
• LPG will become major energy with estimated volume of 4.1 million tonnes/year.
• 6 million KL of kerosene will remove and only maintain 2 million KL.
Nanggroe Aceh Darussalam
Sumatera Utara
RiauKalimantan Timur
Sulawesi Utara
kerosene. gdistribution of 23 million conversion package up to 2009.T
Green area converted in 2009 with 23 million conversion
3
Sumatera Barat
Riau
Jambi
BengkuluLampung
Sumatera Selatan
Bangka Belitung
Kepulauan Riau
BantenJawa Barat
Jawa TengahDKI Jakarta
D.I. Yogyakarta Jawa Timur
Bali
Kalimantan Barat
Kalimantan TengahKalimantan Selatan
Nusa Tenggara Barat
SulawesiBarat
Sulawesi Tenggara
Nusa Tenggara Timur
Sulawesi Tengah
GorontaloSulawesi Utara
Maluku Utara
Maluku
Papua Irian Jaya Barat
Sulawesi SelatanRed area converted in 2007 and 2008 with 19 million conversion packages.
In 2007, 42 million conversion packages distributed in Java.
packages.
1 2
18Source : Ministry of Energy and Mineral Resources
10/12/2011
10
Fuel Subsidy Reduction Compensation Program of 2005
The government raised fuel prices in March and October 2005 asthe result of high crude prices.
To mitigate the impact of rising fuel prices, the Governmentprovided compensation program for fuel subsidies reduction( l PKPS BBM) i th f f(namely PKPS-BBM), in the forms of:
Education (eq. School Operational Assistance/BOS andStudent Special Assistance /BKM)
Health (eq. basic health services, health care referrals, andother support services).
Rural infrastructure (roads, bridges, clean water, sanitation,boat moorings, basic irrigation system, and electricity supplyto isolated areas)
Direct Cash Transfers (BLT) for poor.
PKPS-BBM was allocated on the year of 2005 and 2006
Fiscal Stimulus Program, on 2009
In order to prevent the weakening of the domestic economy as the result ofthe global economic crisis, the Government provide countercycle policymeasures through fiscal stimulus, aiming of:
Increased purchasing power
Reducing personal income tax rates and broadening progressive taxg p g p grates, subsidies for cooking oil VAT, bio-fuels, for generic medicine.
Improved business competitiveness and durability
Reducing corporates and public companies income tax, subsidies forindustrial import duties, gas exploration tax, geothermal sales tax, article21 income tax, reducing diesel reail price, discount rates for electricityindustry, interest subsidy for water companies, and state equityinvestment to credit providers and guarantors.
I d l b i t i i f t t Improved labor-intensive infrastructure.
On the other hand, in order to maintain the purchasing power, Governmentallocates salary increases for civil servants and pensioners, paying 13th
salary, and two months of direct cash transfers.
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11
Changes in energy subsidies would have a very broad impact, including :
Inflation (first round effect and second round effect)
Poverty and Unemployment
Competitiveness industry
Impact of Changes in energy subsidies
Competitiveness industry
Economy growth
Fiscal sustainability
Energy sustainability
Therefore designed of a comprehensive subsidies reduction policy isneeded , including calculate the impact widely.
Subsidies reduction policy can be follow with compensation policy to the Subsidies reduction policy can be follow with compensation policy to thetarget communities or certain industries to reduce the negative impact
In developing economy such as Indonesia, the implementaition of thesubsidies reduction policy will strongly influenced by political policy
21
39.3037.17
34.9632.53
31.02 30.0230
35
40
The Number of Poor and Poverty Rate2006 ‐2011
Although some macroeconomic indicators are still strong, the poverty rate in Indonesia has decreased slowly, as not as we hope....
17.75 16.58 15.4214.15 13.33 12.49
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011
Jml Penduduk Miskin (juta org) Tingkat Kemiskinan (%)
• The poverty rate in 2006 was high enough because of the fuel price’s increasing.• Since 2006, the number of poor and poverty rate has decreased.• During March 2010‐March 2011, the number of poor decreased from 31.02 million people to 30.02million people, and the poverty rate decreased from 13.33% to 12.49%.
10/12/2011
12
2005‐06 Gejolak Harga Pangan & BBM 2008 Gejolak Harga Pangan Harga pangan dan berasmeningkat tajamsebelum panen
Kemiskinan naikhampir 2 percentage
points
The Fluctuation of food and fuel prices in the last six years in Indonesia could potentially increase the number of poor people ....
23
Source: BPS
Thank YouThank You
10/12/2011
13
Differentiation between fuel subsidy price and Economical Price
9,000
10,000 IDR/Ltr
Gasoline Economic Price
Diesel Economic Price
Gasoline and Diesel Subsidies
P t
4,500 4,000
5,000
6,000
7,000
8,000 Pertamax
25
Gap between economical price and fuel subsidized price is getting wider. as the impact of the rising world oil prices
3,000
Jan'10 Mar Mei Juli Sept Nop Jan'11 Mar Mei Juli Sept**
• Transform price subsidy to direct subsidy• Social Safety Net to shield the vulnerable
Compensating
Mid-Term Development Plan Fuel Subsidy Phase-out Strategy(According to Ministry of Energy and Mineral Resources)
Social Safety Net to shield the vulnerable society (the poor)
a. Energy diversificationb. Closed distribution systemc. Incentive and disincentive fiscal
Reduction of Fuel
Subsidy
Variance
Less Volume of Subsidized
Fuels
a. Minimizing fuel distribution cost b. Full cost absorption of fuel provisionc. Effective targeting and costing of fuels
subsidy
Fuel Price Reference
26
10/12/2011
14
Sep ' 05 Okt ' 05 Apr ' 06 2007 2008 2009 2010 2011 2012 2013 2014
Rumah Tangga S S S S SUsaha Mikro S S S S S
Industri NS NS NS NS NS NS NS NS NS NS NS
Transportasi S S S S SPerikanan NS NS S S S
Pengguna BBMTahap VII Stage VIII
S/Tutup 1
Premium
S/Closed 2
S/Tutup 1S/Tutup 1
S/Closed 2
S/Tutup 1
Tahap V Tahap VI
Minyak tanahS/Closed 2
S/Closed 2
Challenge : The Implemention of Fuel Subsidy Roadmap
Perikanan NS NS S S SIndustri NS NS NS NS NS NS NS NS NS NS NS
Transportasi S S S S SPerikanan S S S S S
Industri NS NS NS NS NS NS NS NS NS NS NS
Industri Pelayaran NS NS NS NS NS NS NS NS NS NS NS
Industri Pelayaran NS NS NS NS NS NS NS NS NS NS NS
Transportasi Udara NS NS NS NS NS NS NS NS NS NS NS
S S b idi
S/Tutup 1 S/Closed 2
S/Tutup 1
Avtur
Minyak Tanah Untuk Industri Pelayaran
Solar untuk Industri Pelayaran
S/Tutup 1 S/Closed 2
Solar
S/Closed 2
S = SubsidiNS = Non SubsidiS/Tutup 1 = Uji coba penataan (2009-2010)S/closed 2
1. To decrease the state budget burden, the phasing out of fuel subsidy will be done gradually through the limitation of fuel volume.
2. Implement the diversification of energy conversion of kerosene to LPG and the provision of non-fuel fuel
3. Implement a closed distribution system for certain users.
4. The diversion of Price Subsidy to Direct Subsidy and Social Assistance through the strengthening of poverty reduction programs.
27
• To maintain the good and service price stability, to protect the lower income of society, to increase the agricultural production, and to give insentif for business and
Medium Term Subsidy Policy Direction
community.
• Redesign of subsidiy : Price Subsidy Targeted SubsidyDirect subsidy and/or closed subidy according to the targeted
receivers. Supported by a better population database.
R i l G t t d t h l i th• Regional Governments are expected to help in the supervision of subsidy distribution to minimize the leakage and to have a more targeted subsidy.
28
10/12/2011
15
The implementation of administered price policy has increased inflation rate in Indonesia….
6 5%
7.5%
8.5%
9.5%
16%
18%
20% mtmyoy Inflasi yoy (LHS) inflasi mtm (RHS)
1 & 15 Des 2008 : Penurunan
1 Okt 2005 : Kenaikan hargaBBM bersubsidi + 92%
15 Jan 2009 : Penurunan harga
0 5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
4%
6%
8%
10%
12%
14%1 & 15 Des 2008 : Penurunanharga BBM bersubsidi + 4 & 11%
15 Jan 2009 : Penurunan harga BBM bersubsidi +8%
1 Juli 2010 : KenaikanTarif Dasar Listrik
+10%
1 Mar 2005 : Kenaikanharga BBM bersubsidi +
23% 24 Mei 2008 : Kenaikan harga BBM bersubsidi +31%
Sumber: BPS
‐0.5%
0.5%
2%
4%
2004 … F M A MJ J A S O N D
2005 … F M A MJ J A S O N D
2006 … F M A MJ J A S O N D
2007 … F M A MJ J A S O N D
2008 … F M A MJ J A S O N D
2009 … F M A MJ J A S O N D
2010 … F M A MJ J A S O N D
2011 … F M A
Although the increase of subsidized fuel price and the electricity tariff impact significantly to the inflation rate, the implementation of these policy will have minimal impact if done when the inflation rate has historically been relatively low (such as the period from March to April during the main harvest and after the Idul Fitri)
29
In general, inflation rate in Indonesia is still high. August inflation was 0,93% (mtm),4,79% (yoy) and 2,69% (ytd) mainly driven by the increase of food prices which gave the highest contribution 0,24% (mtm). Gold prices pushed the core inflation up to 5,15% (yoy).
Monthly and Yearly Inflation
2.010.0(%)(%)
Inflasi Tahunan (yoy, LHS)
I fl i K l tif ( td LHS)
Yearly Inflation (yoy, LHS)820 (%)(%)
4.79
2.69
0.93
0.5
1.0
1.5
2.0
4.0
6.0
8.0
Inflasi Kumulatif (ytd, LHS)
Inflasi Bulanan (mtm,RHS)
Cumulative Inflation (ytd, LHS)
Monthly Inflation (mtm, LHS)
2.69
5.64
5.15
3
4
5
6
7
0
5
10
15
Source: BPS
30
‐0.5
0.0
‐2.0
0.0
J‐09
M‐09
M‐09
J‐09
S‐09
N‐09
J‐10
M‐10
M‐10
J‐10
S‐10
N‐10
J‐11
M‐11
M‐11
J‐11
0
1
2
‐10
‐5
J‐09
M‐09
M‐09
J‐09
S‐09
N‐09
J‐10
M‐10
M‐10
J‐10
S‐10
N‐10
J‐11
M‐11
M‐11
J‐11
Adm Volatile Core
10/12/2011
16
Indonesia growth remains strong in Q2 2011
GDP Growth (%)
9.5
1.60.70.8
3.4
0.5
6.5
Q1 Q2 Q3 Q4 Q1 Q2
2010 2011
AS Inggris Italia Korea Selatan Cina Singapura IndonesiaUS UK Italy South Korea China Singapore
• Some economies experienced slowing GDP growth compared to Q2‐2010.
• Indonesia GDP growth in Q2-2011 was 6.5% or higher than Q2 2010 of 6.1%.
31Source: Statistic Bureau (BPS) & Bloomberg
AS Inggris Italia Korea Selatan Cina Singapura IndonesiaUS UK Italy South Korea China Singapore
___________________________________________________________________________
2011/SOM3/DIA/006 Session 3
Managing Subsidy Reform in the Context of Sustainable Development
Submitted by: World Bank
Policy Dialogue on Fossil Fuel Subsidy Reform
San Francisco, United States23 September 2011
1
M i b id f M i b id f Managing subsidy reform Managing subsidy reform in the context of sustainable development in the context of sustainable development
Maria Vagliasindi, Lead EconomistMaria Vagliasindi, Lead EconomistEnergy Energy Anchor,WorldAnchor,World BankBank
Prepared for the Prepared for the APEC High Level Policy Dialogue APEC High Level Policy Dialogue on Fossil Fuel Subsidy Reformson Fossil Fuel Subsidy Reforms
September 23rd 2011
OutlineOutline
i.i. MethodologyMethodology
ii. Key Policy Questionsii. Key Policy Questions
iii. Summary Resultsiii. Summary Results
Have energy subsidy reforms managed to avoid adverse social Have energy subsidy reforms managed to avoid adverse social impacts?impacts?
iv. Lessons learnediv. Lessons learned
2
MethodologyMethodology
Sample Selection for Case Studies AnalysisSample Selection for Case Studies Analysis
Net Energy Importer Net Energy Exporter
Low and Lower
Middle Income
Group AGroup A Group CGroup CAFR Ghana Ghana NigeriaNigeriaEAP IndonesiaIndonesiaECA Armenia, Armenia, MoldovaMoldova AzerbaijanAzerbaijan
MNA MoroccoMorocco, , JordanJordan EgyptEgypt, , IranIran, Yemen, Yemen
SAR India, India, PakistanPakistan
Upper-Middle
and High
Income
Group BGroup B Group DGroup DEAP Malaysia Malaysia ECA TurkeyTurkey
LACChile, Dominican Rep., Chile, Dominican Rep.,
PeruPeru Argentina, Argentina, MexicoMexico
Source: World Bank’s Background Paper
Have energy subsidy reforms managed to avoid Have energy subsidy reforms managed to avoid adverse social impacts?adverse social impacts?
To address such a question need to look at evidence from To address such a question need to look at evidence from household surveyhousehold survey
patterns of consumption of the different fuels, patterns of consumption of the different fuels, by quintiles or decilesby quintiles or deciles
implications for the direct and indirect impact implications for the direct and indirect impact of the removal of subsidiesof the removal of subsidies by the average consumerby the average consumer by different quintiles or decilesby different quintiles or deciles
3
a)Patterns of consumption of the different fuelsa)Patterns of consumption of the different fuels
Kerosene is used for lighting and heating, especially in low income economies where households do not have access to electricity.The share of income spent on kerosene accounts for the poorest quintile up to 6 times more than for the richest quintile.
Kerosene Expenditure (% income), between top and bottom quintileKerosene Expenditure (% income), between top and bottom quintile6 times more than for the richest quintile.
Source: World Bank’s Background Paper
a) Patterns of consumption of the different fuels (a) Patterns of consumption of the different fuels (ctdctd))
G li E dit (% i ) b t t d b tt i tilG li E dit (% i ) b t t d b tt i til
Gasoline which is used in internal combustion engines is mainly spent by the richer quintile who consumes 10 to 20 times more than the poorest quintile.
Gasoline Expenditure (% income), between top and bottom quintileGasoline Expenditure (% income), between top and bottom quintile
Source: World Bank’s Background Paper
4
a)Patterns of consumption of the different fuels (a)Patterns of consumption of the different fuels (ctdctd))
Electricity Expenditure (% income), by top and bottom quintileElectricity Expenditure (% income), by top and bottom quintile
Electricity is more important for the bottom quintile, with few notable exceptions.
y p ( ), y p qy p ( ), y p q
Source: World Bank’s Background Paper
b) Welfare Impact of Removing Fuel Subsidiesb) Welfare Impact of Removing Fuel Subsidies
Welfare Impact of Removing Fuel Subsidies (% loss in real income) Welfare Impact of Removing Fuel Subsidies (% loss in real income)
Source: Del Granado et al (2010)
5
b) Welfare Impact of Removing Fuel Subsidiesb) Welfare Impact of Removing Fuel Subsidies
Welfare Impact of fossil fuel subsidy removal in Malaysia, by quintilesWelfare Impact of fossil fuel subsidy removal in Malaysia, by quintiles
Source: Del Granado et al (2010)
Source: Moradkani et al. (2010) based on Household Expenditure Survey (2005)
What What alternative alternative instruments instruments can be used to reach the can be used to reach the poor?poor?
The most recent CGE literature consider the results of“recycling” at least some of the savings coming fromreduction of subsidies through alternative policies.g p
In most of the cases, fossil fuel subsidy removal has adverseeconomic and social impacts. Incidence of poverty issignificantly lower where the subsidy removal does notinclude kerosene, supporting the evidence that among fossilfuel subsidies they are the most “progressive”.
To mitigate and offset the negative impact on the economy,the re-allocation of given percentage of the subsidy to thepoor through cash transfer have proven to be effective.
6
Unconditional cash transfer (Indonesia)Unconditional cash transfer (Indonesia)
Welfare Impact of Removing Energy SubsidiesWelfare Impact of Removing Energy Subsidies(% increase in urban and rural poverty) in Indonesia(% increase in urban and rural poverty) in Indonesia
Soure: Yusuf (2008)
Scenarios 1.A and 1.B. report the 2005 package of reforms without or with the increase in the price of kerosene; Scenarios 2. A represent the 2005 package of reform together with an untargeted cash transfer (UCT). Scenarios 2B and 2C introduce a targeted cash transfer, with different degree of effectiveness (100% and 75%). Scenarios 3. A and 3.B introduce subsidy to targeted household for spending on education and health (in the same amount of the UCT) with and without the 2005 package of reform
The case of targeted cash transfer (Argentina)The case of targeted cash transfer (Argentina)
Welfare Impact of Removing Energy Subsidies (% loss in real income) in ArgentinaWelfare Impact of Removing Energy Subsidies (% loss in real income) in Argentina
(a) without cash transfers (b) with cash transfers(a) without cash transfers (b) with cash transfers
Source: Benitez and Chisari (2010)Note: P1-P5 refers to the 5 years period after the simulation of the tariff increase in 2006
7
Lessons learnedLessons learned
1.1. Strengthening social safety nets and improving the targeting Strengthening social safety nets and improving the targeting mechanisms for subsidies: mechanisms for subsidies:
a)a) lifeline tariffslifeline tariffsb)b) geographical or sociogeographical or socio--economic targeting and subsidies economic targeting and subsidies
to enhance access to enhance access c)c) cash transfers cash transfers
2.2. Informing the public and announcing oneInforming the public and announcing one--off compensatory off compensatory measuresmeasures
33 E i th S t i bilit f S b id P li th h E i th S t i bilit f S b id P li th h 3.3. Ensuring the Sustainability of Subsidy Policy through Ensuring the Sustainability of Subsidy Policy through Broader Broader SectoralSectoral Reforms Reforms
1. Strengthening social safety nets and improving the 1. Strengthening social safety nets and improving the targeting mechanisms for subsidies: a) lifeline tariffs targeting mechanisms for subsidies: a) lifeline tariffs
Targeting mechanisms and methods for identifying those eligible for the subsidy program can vary, depending on the degree of coverage as well as the extent to which different programs are progressive, determining trade-offs between different solutionsbetween different solutions
Source: Komives et al. (2007)
In the case of lifeline tariffs while they offer the advantage of much higher coverage in middle income economies than other existing targeted programs, but they entail a relatively high cost of implementation
Source: World Bank’s Background Paper
8
b) Geographical or sociob) Geographical or socio--economic targeting economic targeting
One approach to improve the targeting performance of electricity subsidies is to use of geographical or socio-economic targeting variables
An alternative approach is to replace consumption subsidies withconnection subsidies. Simulations show that connection subsidies designedto reach a majority of un-served population living in areas connected to thegrid are superior to consumption subsidies and in most of the cases are alsoprogressive
Source: Komives et al. (2007)
c) Cash Transfers c) Cash Transfers
Oportunidades is Mexico’s main anti-poverty government program usingcash transfers to households linked to regular school attendance andhealth clinic visits and in 2007 an energy component was added
Cash transfers have been found in general to be progressive, vis-à-vissubsidies which are highly regressive. However, the implementation oftargeted transfers can be challenging. Their effectiveness and efficiencydepend on the targeting method and administrative capacity.
Source: ENIGH (2008)
9
2. Informing the public and announcing 2. Informing the public and announcing oneone--off compensatory measuresoff compensatory measures
Governments need to ensure public trust in the reformagenda through broad communication, appropriate timing
f b id l d i l i fof subsidy removal, and implementation of compensatorysocial policies.
While developing social safety nets is important to ensurethat consumers can cope with higher prices successfully inthe long run, tariff and fuel price increases may need to beaccompanied by immediate short term measures toaccompanied by immediate short-term measures toaddress any acute impacts of subsidy reform
Informing the public and announcing oneInforming the public and announcing one--off compensatory off compensatory measuresmeasures
In JordanJordan, the minimum wage was increased, with low-paidgovernment employees receiving higher wage increases than otheremployees as palliative measures, largely regarded as successful inemployees as palliative measures, largely regarded as successful indealing with price increases. An electricity lifeline tariff for thoseusing less than 160 kWh per month was kept. A one off compensationfor the non poor was also implemented. Along with subsidy reform,measures aimed at fuel substitution and energy efficiency were alsoimplemented.
In the case of GhanaGhana, budget savings from fuel subsidies were directedd d l bltowards transparent and easily monitorable poverty mitigation. In
addition, planned investment in the provision of mass urban transportexpansion was expedited and the existing rural electrification systemwas expanded.
10
3. Ensuring the Sustainability of Subsidy Policy through 3. Ensuring the Sustainability of Subsidy Policy through Broader Broader SectoralSectoral Reforms Reforms
Where the quality of electricity services is low, engaging in broaderreforms to improve service ahead of reforming energy subsidies lendscredibility and improves consumer willingness to pay theunsubsidized prices.
Steps such as improvingimproving metering,metering, billingbilling andand paymentpayment collectioncollection,and enhancement of quality of service can make tariff increases moreacceptable as subsidies are removed.
ImprovingImproving energyenergy efficiencyefficiency will also help to reduce the potentialsocial costs of removing subsidies to consumers.
More generally, rationalizing the fuel mix for electricity and transportand discouraging private transport in favor of public transport canand discouraging private transport in favor of public transport canhelp support reforms, as will the prioritization of structural expensesthat benefit the poor (including sectoral road and rural electrificationschemes, but also social expenditure, including health andeducation).
Thank you!Thank you!
Let us know how we can best help you in your Let us know how we can best help you in your effort to implement subsidy reformseffort to implement subsidy reforms