A Citizens’ Guide to Energy Subsidies in Indonesia Learning from international experience

1. A Citizens’ Guide to Energy Subsidies in Indonesia Learning from international experience Damon Vis-Dunbar, IISD 12 October 2012

2. Fossil-fuel subsidies: A global snapshot • IEA estimates for consumption subsidies 37 countries: 2009: $312 billion 2010: $409 billion • Without further reform, spending on fossil-fuel consumption subsidies is set to reach $660 billion in 2020, or 0.7% of global GDP • GSI estimates + $100 billion for subsidies to producers

3. Global Fossil-Fuel SubsidiesSource IEA World Energy Outlook 2011

4. Missing the right target: poor consumers Share of fossil-fuel subsidies received by the lowest 20% income group, 2010 Source: IEA, World Energy Outlook, 2011

5. Recent experience in other countries • Nigeria, 2012 • Raised prices of gasoline N65 to N141/litrewith no warning • Serious corruption issues to address • Lack of trust in government support measures • Public demonstrations led to backtracking of reform – although prices still increased (N97/litre) • Civil society recognise need for subsidy reform but want corruption addressed first • Iran, 2010 • Allocated subsidy savings: • 50% households • 30% business • 20% government costs • Cash transfers not targeted, early payments • Expansion of banking system for cash transfers & micro-credit • Timing & measures to control inflation

6. 5 key principles for reform • Development focused – reform is an opportunity to invest resources into more effective social welfare programs and other development priorities • Inclusive– policy-makers understand concerns of affected groups and mitigate negative impacts as part of reform plan • Transparency & public communication – public understands rationale for reform including costs and benefits, and decision-making process and plan for reform • Short & long-term planning– managing short-term crises with longer-term vision and strategy • Well researched & prepared – evaluate a range of reform options, learn from experience of other countries

7. Complementary policies to consider

8. Alternative social assistance mechanisms • Jordan, 2008 • Minimum wage & public services wage increased • One-time bonus for low-income gov. employees & pensioners • Electricity subsidies continued • Food subsidies increased • Reduction of certain import duties • Ghana, 2005 • Primary & junior school fees eliminated • Increased health care funding for poorest • Increased investment in mass urban transport • Extra funds available for rural electrification

9. Building public support: Three elements • Governance • Public Consultation • Communication

10. Discussions points • Does the government have an effective reform strategy? • How can civil society participate more effectively in the government’s reform process? • What opportunities exist to raise public awareness about fossil-fuel subsidies and their impacts? • What sorts of social protection or other measures are necessary to support reform?

11. www.iisd.org/gsi Thank You