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

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

Global Fossil-Fuel Subsidies Source IEA World Energy Outlook 2011

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

Recent experience in other countries 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 Nigeria, 2012 – Raised prices of gasoline N65 to N141/litre with 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

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

Complementary policies to consider Industry/business - Support to restructure sectors e.g. retraining programmes - Measures to improve energy efficiency - Investments in infrastructure Social - Cash transfers: (un)conditional - Social safety nets, pensions, health insurance - Increase (minimum) wages - Pro-poor expenditure Energy - Investment in rural electrification, renewable or alternative energies - Energy conservation, energy security, energy efficiency policies Macro-economic - Policies to manage inflation - Strengthen market forces and encourage competition Banking - Can help roll out cash transfers - Credit facilities, e.g. for SMEs and micro-credit Transport - Expanding public transport systems - Alternatives for freight (rail or inland waterways) - Transitional support for taxi drivers

Alternative social assistance mechanisms 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 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

Building public support: Three elements Governance Public Consultation Communication

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?

Thank You