Ministry of Finance of the Republic of Indonesia

Pertamina Energy Outlook 2015-Jakarta, 3rd Dececember 2014

Sustainable Energy

Initiatives in Indonesia

Macroeconomic

Movements

Challenges &

Problems

Development

Targets

Fiscal Policy

To respond To answer To achieve

“Responding to movements of the economy, answering the challenge and supporting the

achievement of optimal development targets“ through 3 basic fiscal functions:

Allocation: improving the efficiency of the economy in order to increase

competitiveness and economic growth through infrastructure development,

etc. Distribution: Distributing wealth, increasing economic justice and reducing

inequalities through social assistance, & transfers to the regions

Stabilization: Keeping the balance and stability of the fundamental of the

economy through the security & political stability and price (subsidy)

Sound Fiscal

(fiscal sustainablilty)

Fiscal Policy Formulation : how fiscal policy works….

Narrow fiscal space

Large share

of subsidy

(20,3%)

Mandatory spending.

Education expenditure

(20%) & transfer to

region, universal

healthcare, village fund Unoptimal

budget

absorption and

unproportionally

absorbed in Q4

Widening fiscal space: revenue

optimization and expenditure

efficiency

Additional

mandatory

spending need

to be controlled

Efficiency:

-Raising price;

-Fixed subsidy;

- Limitation &

conversion

Improving budget

absorption and making

it proportionally

absorbed in each

quarter

Fiscal

Sustainability

Challenges in fiscal management 2015

Vulnerable

to external

factors

Improving

resiliency

- fiscal buffer

-flexibility;

- fiscal

vulnerability

Negative

fiscal

balance

Moving towards

positive

4

State expenditure in 2014-2015 APBN-P 2014 APBN 2015

State Expenditure 1,876,873.8 2,039,483.6

I. Central Government Expenditure 1,280,368.6 1,392,442.3

- Line Ministries Expenditure 602,292.0 647,309.9

- Non-Line Ministries Expenditure 678,076.6 745,132.4

1. Personnel Expenditure 258,435.6 293,129.4

2. Material Expenditure 195,206.7 222,467.9

3. Capital Expenditure 160,790.5 174,704.4

4. Interest Payments 135,453.2 151,968.3

a. Domestic Interest

b. External Interest

5. Subsidies 403,035.6 414,680.6

a. Energy 350,310.5 344,702.8

i. Oil Subsidy 246,494.4 276,013.2

ii. Electricity Subsidy 103,816.3 68,689.7

b. Non Energy 52,725.1 69,977.7

6. Grants 2,853.3 3,565.1

7. Social Expenditure 93,355.4 85,501.9

8. Other Expenditure 27,938.4 46,424.8

II. Transfer to Region 596,505.2 647,041.3

1. Balanced Fund 491,882.9 516,401.0

a. Revenue Sharing 117,663.6 127,692.5

b. General Allocation Fund 341,219.3 352,887.8

c. Special Allocation Fund 33,000.0 35,820.7

2. Special Autonomy & Adjustment Fund 104,621.3 121,574.1

3 Village Fund 9,066.2

DEPARTEMEN KEUANGAN RIDEPARTEMEN KEUANGAN RIDEPARTEMEN KEUANGAN RIDEPARTEMEN KEUANGAN RI

Subsidy Expenditure

22.8

23.2

21.5

21.5

20.3

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.5

-

50

100

150

200

250

300

350

400

450

2011 2012Real

2013Real

2014APBN-P

2015 APBN

Per

cen

tage

%

Trill

ion

Ru

pia

hs

Fuel Electricity Non Energy Subsidy Subsidy to state expenditure

• Government policy to raise subsidized fuel price since 18th November 2014 and

the decline of oil price adds additional fiscal space around IDR 110-140 Trillion

(in 2015)

• The decline of oil price and expenditure efficiency provides additional allocation

to stimulate the economy and support poor people

• The share of energy subsidied will decline significantly in 2015

6

Parameter :

1. ICP (US$/bbl) 105,0 105,0

2. Exchange Rate (Rp./US$.1) 11.600 11.900

3. Volume BBM (thousands KL) 46.000 46.000

- Gasoline and Biofuel 29.430 29.480

- Kerosene 900 850

- Diesel and Biofuel 15.570 15.670

4. Volume LPG (Million Kg) 5.013 5.766

5. Alpha BBM (Rp/liter) 764 - Gasoline 755,6 787,3 - Kerosene 778 485,9 - Diesel 480 736,7

6. Fuel Selling Price (Rp/liter)

- Gasoline and Biofuel 6.500 6.500 - Kerosene 2.500 2.500 - Diesel and Biofuel 5.500 5.500

7. Subsidize Biofuel(Rp/liter)

- Biodiesel 1.500 1.500 - Bioethanol 2.000 2.000

8. LGV Subsidy (Rp/liter) 1.500 1.500

(Rp. Billion)

1. Certain types fuel subsidy (JBT) 179.777,8 194.645,7

a. Gasoline and Biofuel 99.446,5 108.284,8

b. Kerosene 6.239,1 6.089,1

c. Diesel and Biofuel 74.092,2 80.271,8

2. LPG Subsidy (3 Kg) 43.631,9 55.119,7

3. Sub Summary (1+2) 223.409,7 249.765,4

4. VAT on JBT and LPG (3 kg) 22.341,0 24.976,5

5. LGV Subsidy Projection 100,0 4,2

6. Last year subsidy shortfall 46.910,5 46.267,0

7. Carry Over to next year (46.267,0) (45.000,0)

8. Summary (3 to 7) 246.494,2 276.013,2

2015 APBN 2014 APBNP

Fuel Subsidy, 2014-2015

7

1. Increasing the efficiency of the budget allocation for fuel oil subsidy to more targeted subsidy.

2. Reducing the use of subsidized FUEL consumption gradually;

3. Continuing control subsidized fuel (Permen ESDM No. 1/2013);

4. Continuing convertion program from fossil fuel to gas fuel for transportation sectors;

5. Support the development of renewable energy (EBT), through the conversion of biofuels and gas;

6. Increasing and developing program of gas for urban households;

7. Expanding the uses of biodiesel (BBN);

8. Improve the supervision of the distribution of subsidized FUEL, among others through the use of technology;

9. Increasing the role of local government in the control and supervision of the subsidized fuel.

10.Controlling subsidy to maintain fiscal sustainability.

Fuel Subsidy Policy 2015

8

Comparison between Economic Fuel Price with Regulated Fuel Price….

6,500

8,500

4,500

5,500

7,500

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jan

Mar

Mei Ju

l

Sep

No

p

Jan

Mar

Mei Ju

l

Sep

No

p

Jan

Mar

Mei Ju

l

Sep

No

p

Jan

Mar

Mei Ju

l

Sep

No

p

Jan

Mar

Mei Ju

l

Sep

No

p

2010 2011 2012 2013 2014

ECONOMIC PRICE ECONOMIC PRICE REGULATED PRICE REGULATED PRICE

GASOLINE DIESEL GASOLINE DIESEL

Subsidized Fuel Consumption

Source: Ministry of Finance

21.2 22.9 25.5

28.1 29.3 29.4 30.1

4.7 2.3 1.7

1.2 1.1 0.9 0.9 12.0 13.0

14.5 15.5

16.0 15.7 17.1 37.9 38.2

41.8

44.8 46.4 46.0

0.0

10.0

20.0

30.0

40.0

50.0

2009 2010 2011 2012 2013 2014 APBN-P 2015RAPBN

Juta KL

Gasoline Kerosene Diesel

48.0

The increase of domestic fuel price in mid 2013 has been able to

reduce the growth of domestic subsidized fuel consumption from

around 7% to below 4%

10

Boost biodiesel and bioethanol as the alternative

Consumption limitation

Maintain the regulation of gas fuel

Increase production of biodiesel and bioethanol

Presidential Act No 15/2012

The change of the criteria of subsidized fuel consumer.

Permen 01/2013

Gradually limit the use of fuel by government institution (central

and local government and state owned enterprise), mining sector,

plantation, foresty, non-pioneer cargo shipping

BPH Migas Letter No. 937/KaBPH/ 2014

Restriction consumption of diesel in central jakarta, Highway gas

station is prohibitted to sell gasoline and etc.

Presidential Act No.64/2012 The Provision, Distribution and Pricing of gas fuel for transportation mode. The implementation of this policy starts gradually in some big cities. It is strictly exist for public transportation, including taxi.

Increase subsidized fuel price

Gasoline Rp8.500 Diesel Rp7.500

Increase Nov 18th, 2014

Demand side:

Supply side:

Support from other institution

Mass transportation, non-fuel transportation, technology (Fuel card, RFID, dll)

Government continues to control fuel subsidy by improving the

management of demand and supply….

Roadmap Mandatory of Bio fuel (Ministry of Energy Regulation 25/2013)

Minimum Liability of Biodiesel utilization Phasing as a Fuel Mix

Minimum Liability of Bioetanol utilization Phasing as a Fuel Mix

Minimum Liability of Pure Palm Oil (PPO) utilization Phasing as a Fuel Mix

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Progress on Biofuel Use

*Explanation: FAME composition for power plant is based on PT PLN commitment Source : PT Pertamina (Persero) Note : PT PLN plans to use pure plant oil (PPO) to replace fossil fuel use in power plant

Diesel and Biodiesel

2013

Realization Jan - August

Target Sept-Dec

Target

Transportation - PSO 10,238 5,422 15,659

FAME 10% 500 380 880

Transportation - NPSO 92 45 137

FAME 3% - 1 1

Industry and commercial use 3,748 - 3,748

FAME 5% 131 - 131

Power plant* 3,724 1,862 5,586

FAME 10% - 130 130

Biodiesel Total 17,801 7,328 25,130

FAME Total 631 511 1,142

Diesel and Biodiesel

2014

Target

Transportation - PSO 16,500

FAME 10% 1,650

Transportation - NPSO 1,127

FAME 10% 113

Industry and commercial use 7,277

FAME 10% 728

Power plant 4,241

FAME 20% 848

Biodiesel Total 29,145

FAME Total 3,339

(Thousand KL)

13

2014 2015

APBN-P APBN

Asumption

-ICP ( US $ / barel ) 105 105

-Exchange rate ( Rp/US $ ) 11.600 11.900

Parameter

- Growth Sales (%) 7,0 9,0

- Energy sales (TWh) 198,5 216,4

- Looses (%) 8,5 8,5

-Fuel Mix

- HSD (million KL) 3,5 3,4

- MFO (million KL) 1,3 1,2

- IDO (million KL) - -

- Coal (million ton) 47,2 51,5

- Gas (MBBTU) 0,4 0,5

- Geothermal (TWh) 4,1 5,2

- Biodiesel (million KL) 1,20 1,15

- Margin (%) 7 7%/Rp 19,97T

Current Subsidy ( billion Rp) 94.262,6 68.689,7

Total Subsidy ( billion Rp ) 103.816,3 68.689,7

SUBSIDY

Electricity Subsidy, 2014-2015

Electricity Subsidy Policy 2015

1. Increasing the electrification ratio;

2. Reducing the electricity losses;

4. PT PLN increases the efficiency of source of energy, as follows:

Reducing the use of oil in generating the electricity by optimizing the use of gas, coal, geothermal, biodiesel, and other non-oil energy;

Reducing the electricity losses;

5. Monitoring electricity infrastructure investment activities of PLN.

6. Building new electricity subsidy formula, from cost plus margin to performance based regulatory to increase accountability and efficiency of PT PLN (Persero).

15

Fiscal Policy

Revenue side

Spending side

Financing side

Income tax (PPh)

VAT (PPN)

Import duties

Energy Infrastructure

The development of new renewable energy & energy conservation

Subsidy (energy, non-energy)

Gheotermal Revolving Fund

Project guarantee for PLN (10.000 MW)

Energy Security

Fiscal Concept for Energy Security

16

Tax Facilities

Income Tax

Article 31A UU PPh PP 52/2011

VAT Article 4 UU PPN

Article 16B UU PPN PP 31/2007

Import duties

Import duties Pasal 25 & 26 UU

No 17/2006 Customs

Impor VAT PP 31/2007

PPh Ps 22 SKB

UU No.25/2007

Article 18 (pargh 5) PP 94/2010 130/PMK.011/2011

76/PMK.011/2012

Tax Incentives for Energy Security

The regulation applies to Permanent Establishment (BUT) investing in sectors or regions qualified as national priority;

Capital investment includes start-ups, expansion, and quality improvement, unless covered by any other tax incentives;

Applied for industries such as: textile and clothes, pulp, chemistries, rubber, and basic metal industries (including oil and gas industries)

Income tax facilities are as follows:

Income tax deduction in the sum of 30% capital investment over six years;

Accelerated amortization and depreciation

10% tax on dividend or lower according to tax treaty;

Extended tax loss carry forwards up to 10 years

Income Tax Facilities for Particular Sectors and Regions

Government Regulation No.52/2011

For pioneer industry: industry that has wide linkage, value added and positive externalities.

Eligible Industries:

1. Basic metal industry

2. Oil Refinery and organic basic chemical industry derived from oil and gas

3. Machinery industry

4. Industry for Renewable energy

5. Telecommunication equipment industry

Income tax facilities are as follows:

Tax exemption is given for 5-10 years

Another 50% deduction for two years after the tax exemption period is over

Government Regulation No. 94/2010 and Ministry of Finance Regulation No. 130/2011

Tax Holiday for Specific New Industries

• Import and/or delivery of strategically goods could be granted abolishment of VAT

• Strategically goods is defined as capital goods such as machinery and factory tools

Government Regulation No 31/2007

VAT Facility

Abolishment and exemption of import duties could be granted for import of:

1. Goods and materials used for building and developing industry

2. Machinery for building and developing industry

3. Goods and materials for building and developing industry for specified time period

Conditional to be effective:

1. Goods and machinery could not be produced domestically

2. Goods and machinery which could be produced domestically, but the specification is below the needed

3. Goods and machinery which could be produced domestically, but the number remains limited and could not meet the domestic demand

Import Tax Facility

Law No. 17/2006 article 26

Thank you...

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