Indonesia Passes National Energy Regulation, Set to Raise Price of Fuel, Power

Government to gradually reduce exports of fossil-based energy, especially natural gas and coal

By Tito Summa Siahaan/Jakarta Globe
Wednesday, January 29, 2014

Lawmakers approved on Tuesday a new government regulation on energy policy, which paves the way for the phasing out of costly fuel and electricity subsidies over the next decade and stop exports of coal and gas. The regulation will also increase the use of renewable energy.

The regulation aims to gradually reduce fuel subsidies, which means an increase in the prices of fuel and electricity, so that these would better reflect “production costs — including that for environmental conservation — and investment sustainability, in line with people’s purchasing power.”

“The regulation is a policy guideline for energy in Indonesia,” said Herman Darnel Ibrahim, a member of the National Energy Council, which is involved in drawing up the regulation.

Herman said the government will have discussion to determine an exact deadline for phasing out the fuel subsidy, but the regulation is aimed at reducing Indonesia’s dependency on oil-fuel to 20 percent of its total energy use by 2025, from 42 percent currently.

The country netted $31.3 billion from the sale of oil and gas last year but most of the proceeds were used to fund the Rp 310 trillion ($25 billion) energy subsidy.

Indonesia plans to spend Rp 282 trillion on electricity and oil-fuel subsidies this year.

Arguably the most controversial issues was the a provision in the regulation stating that the government will gradually reduce exports of fossil-based energy, especially natural gas and coal. It also sets a deadline for when these exports will have to cease completely.

But judging from a similarly contentious issue in the mining sector, the government’s definition on export ban is rather flexible.

Meanwhile, the government seeks to increase renewable and new energy sources — such as geothermal, wind, solar and tidal wave — to 23 percent by 2025, from only 2 percent currently.

This article first appeared in the January 28, 2014 edition of the Jakarta Globe.

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