Energy and Mineral Resources Minister Ignasius Jonan briefs the press on revocation of regulations - Photo by MEMR

JAKARTA (TheInsiderStories) – Indonesia government projected the electricity subsidies will swell to Rp59.99 trillion (US$4.18 billion) from the initial budget that has been targeted in the 2018’s State Budget, said one senior official on Thursday (20/07).

Minister of Energy and Mineral Resources (MEMR) Igansius Jonan reported to the parliament, until June the actual distribution of power subsidy has reached Rp25.01 trillion.  And by the end of this year the subsidies swell to Rp59.99 trillion.

Previously in the hearing with Budget Committee of the Indonesian parliament on July 17, Finance Minister Sri Mulyani Indrawati projects that the realization of energy subsidy budget will swell almost doubled to Rp163.49 trillion or rose 173 percent from initial planned in the 2018’s State Budget of Rp94.53 trillion.

That would be the highest subsidy bill since 2014 and compares with Rp97.6 trillion rupiah last year, official data show. She explained, the amount consists of the realization of fuel subsidy budget and LPG 3 kilogram of Rp103.5 trillion or 220.8 percent raised and the electricity subsidy.

Until the first half of 2018, the realization subsidy reached Rp59.51 trillion or 63 percent over the target. Indrawati continued, the swelling of the subsidy budget is the result of the government’s calculation based on the amount of subsidy that already existed in the first semester and the difference in the price of diesel set at the current price.

Earlier, the minister stated that the government had agreed to increase diesel subsidy amounting from Rp500 per liter to Rp 2,000 per liter in this year to keep state-owned energy producer Pertamina’s balance sheet maintained to run the policy of the subsidy.

President Joko Widodo earlier of this year slapped price controls on power and fuel prices, prompting criticism from analysts and credit ratings companies and raising questions about his zeal for economic reform ahead of the presidential election in April.

Director General of Electricity for MEMR, Andy Noorsaman Sommeng describes the addition of electricity subsidies are potentially occur due to a change some parameters such as changes in the rupiah against the U.S dollar and the Indonesian Crude Price (ICP).

In 2018’s State Budget, the ICP set at $48 per barrel while the realization until June the average ICP reached $66.55 per barrel. By the end of the year ICP projection is estimated at $65 per barrel.

In addition the number of customers or consumers of electricity also increased by around 5 percent for 450 volt ampere (VA) and 900 VA. Besides increase in the number of customers, the electricity consumption is still quite stable, he added.

The incoming data until June showed the electricity consumption has reached 112 trillion watt hours (TWh). This amount is believed to grow by the end of the year and could even exceed last year’s number 221 TWh.

The government through the Ministry of Finance (MoF) estimates that almost all macro assumptions in the 2018’s State Budget lapse. But the ministry decided not to file the draft of the Revised State Budget for 2018.

Indrawati has said, some macro assumptions are missed such as economic growth, exchange rate, three-month treasury note, ICP, oil and gas lifting. So far, the MoF has reported the progress of the realization of the first half of 2018 and the prognosis until the end of the year to the Budget Committee of parliament.

Chairman of the the budget committee Aziz Syamsuddin said the change in macro assumption did not have significant impact for state revenues and expenditures, even though the energy subsidy budget swelled. Hence, the government’s decision is understandable.

In the prognosis, the government is confident that this year’s state revenues will reach 100.4 percent of the targeted in the 2018 state budget. Meanwhile, state expenditures are estimated to reach 99.9 percent of the target with the realization of ministry and government institution budget estimated at 95 percent of the target.

Thus, the final budget deficit of 2018 is forecast to reach only 2.12 percent of Gross Domestic Product (GDP), lower than the targeted 2.19 percent of GDP.

Electricity Price Not Raise

Based on the draft of Electricity Supply Business Plan 2017-2026, coal is still projected as the main energy source for power generation. In 2017, the state-owned power producer PT Perusahaan Listrik Negara‘s (PLN) energy mix from the coal sector is estimated to reach 55.6 percent.

But in the last few weeks PLN has been dampened by the steady rise in coal prices, and lastly the price of coal under MEMR even touches $100 per ton for certain calories.

In terms of finance, PLN has announced that the company suffered losses of up to Rp 14 trillion due to rising coal prices. This loss is because PLN only assumes coal prices at $51.8 per ton, while real prices in the field are well above that benchmark. For 2018, PLN fixes coal assumption at $63 per ton.

According to PLN’s chief executive Sofyan Basir, production expenses at the company rose by Rp10 trillion in the first six months of this year due to rupiah depreciation and higher oil price. The company recorded rising production cost by Rp1.3 trillion for every Rp100 drop in the value of the rupiah against the U.S dollar.

PLN recorded Rp7 trillion potential loss in the first quarter of this year due to the rupiah depreciation, though the company saved Rp1 trillion from the government’s policy that caps coal price purchased for electricity generation by $70 per ton.

The rupiah assumption against U.S dollar is Rp13,400 in the 2018 state budget, however, rupiah persistently weakens in recent months and is currently at Rp14,385 per US$1.

PLN recorded Rp4.42 trillion in net income last year, significantly lower than Rp8.15 trillion in 2016 due to coal price hike. It brought significant impact to the company as coal is the energy source for 58 per cent of power plants. The production cost increased by Rp16.46 trillion due to coal price spike.

PLN’s financial condition has been in the spotlight for a long time. Last year, PLN was heavily criticized for inefficiency and accumulating debts totalling US$22 billion. The mounting debts had raised concerns from Indrawati about the company’s debt servicing ability and financing capacity over the long term.

Many stakeholders had warned that PLN may suffer cash flow problems because of the mandatory 35,000 MW mega power plant over the long run. PLN will need around $10 billion for the construction of the 10,000 MW plants and for transmission under the programme.

Even so, Basir claimed PLN’S debts were still manageable. Around Rp100 trillion of debt was owed to local creditors, $1.1 billion to the World Bank and Asian Development Bank and the remainder of around Rp186 billion to various foreign creditors.

US$1: Rp14,300

Written by Staff Editor, Edited by Linda Silaen, Email: theinsiderstories@gmail.com

 

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