How renewable energy will create jobs for local people, generate more added values, and drive subsidy goes to the right direction in Bali
(Yostinus Tomi Aryanto)
MM Executive Batch 16 – Binus Business School
Background: What’s wrong with our energy subsidies?
“Energy is central to everything we do, from powering our economies to empowering women, from generating jobs to strengthening security. It cuts across all sectors of government and lies at the heart of a country's core interests. Now more than ever, the world needs to ensure that the benefits of sustainable modern energy are available to all.”
Ban Ki-moon, Secretary-General of the United Nations => 2012 - The International Year of Sustainable Energy for All. ======================
Everyone agrees when President Susilo Bambang Yudhoyono said during his annual budget address at the House of Representatives on mid of August, “It is the state obligation to provide subsidies for those who need it.” However, it is also within the state obligation to keep our financial condition sound and sustainable and to ensure that the subsidy only goes to those who actually need it. On the other hand, the government’s indecisiveness in cutting the budget-straining subsidy may cost Indonesia a delay in securing investment-grade status. “The abandonment of a planned electricity tariff rise, the inability to implement fuel subsidy cuts despite rising oil prices, and a host of proposed or actual policy measures in industry and trade, point to a rising level of policy uncertainty,” Standard & Poor’s wrote in a summary analysis recently. This top rating agency is the only ratings company that rates Indonesia below investment grade, while Fitch Ratings and Moody’s Investors Service saw an indication of declining investment risks, which could allow the country to borrow cheaper in the debt market. The last status put the country on the same level as India, after 14 years, when Indonesia lost the investment grade rating in December 1997 during the Asian financial crisis. The rating status itself is not the most important thing. The more substantial here is related to the second part of the President’s statements, when the ballooning subsidy is seen to benefit the haves rather than helping those who are in need. At the same time, it is cripple our government’s fiscal position and overcrowding development spending for infrastructure, education, and social safety net. In the 2013 proposed state budget, electricity subsidies were set at Rp 80.9 trillion ($8.5 billion), a 24 percent rise from Rp 65 trillion this year. However, actual spending on electricity subsidies this year is projected to reach Rp 89.1 trillion. Total energy subsidies are projected to cost Rp 274.7 trillion in the proposed state budget, up from Rp 202 trillion this year. The lack of adequate and reliable supplies of electric power is one of the most serious problems facing Indonesia today. Each percentage point in future GDP growth will demand a 2.5 percent increase in electric power output. If Indonesia is to reach a 6 percent annual growth rate, we will require a power increase of at least 15 percent every year. PLN says that average growth on electric demand is 7 per cent, and still, they cannot afford it since only about 45 percent of the government’s first 10,000 MW power generating system to increase capacity has been completed. Approaching the situation on the supply side is quite tricky. Under the current arrangement, when the country is heavily dependent on fossil fuels for its power plants, more output equals more subsidies. What we need is a comprehensive and more creative idea to solving our energy crisis, or at least a real step we can make to ensure that we are on the right way approaching the target.
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