Energy Subsidy Removal Assistance Program (ESRP)
Sponsored by the U.S. Agency for International Development (USAID), the Energy Subsidy Removal Assistance Program provided technical assistance, advisory and training services to the Ministry of Energy and Mineral Resources (MEMR), Government of Indonesia (GOI) and assisted the MEMR/GOI in developing short, medium and long-energy policy options to reduce/remove the fuel subsidy with minimum impact on the poor and to enhance private sector investment in the energy sector, particularly in the development of alternate energy resources. ESRP’s activities were shaped by two developments that were external to the project. One was the rapid increase in world oil prices and the decline in the value of the Rupiah. The second was related to the actions of the GOI in dealing directly with fuel subsidies and, more generally, with the development of an integrated energy policy that would shift domestic energy consumption from oil to other energy sources. Overall responsibility for implementing the GOI’s fuel price and fuel price subsidy was vested in several ministries with MEMR sharing direct responsibility with the Coordinating Minister of Economy on fuel pricing. MEMR had indirect responsibility in the other related activities such as mediation and public communication and awareness.
AEAI’s team took a proactive role, interacting effectively with the MEMR’s Secretary General’s staff and utilizing local universities to provide the requisite technical assistance, which included: analyzing options for developing and implementing programs to reduce/remove the fuel price subsidy; a remedial plan for compensating the poor reducing the volume/use of subsidized fuels; shifting demand of subsidized fuels to unsubsidized fuels, including renewable energy resources; a socialization (public awareness) program regarding the removal of the energy subsidy and other related policy issues; outreach activities intended to create a better understanding of the issues among stakeholders and the general public; and independent dialogues to gather public perceptions of government energy policy. As a result of the ongoing work, in 2005, the GOI implemented a 30% fuel price increase on subsidized fuels other than household kerosene on March 1; eliminated the fuel subsidy for mining processing industries, independent powers producers and investor-owned and export-oriented industries effective August 1; and raised the price of subsidized fuels by over 100% on October 1. The total price increase in 2005 exceeded 170%. Additional fuel price increases were planned for 2006.
ESRP provided technical assistance to the MEMR/Ministry of Finance (MOF) Working Group and worked closely with MEMR’s Center for Energy Information in developing the National Energy Management Blueprint (implementing regulations) and other blueprints; in developing South Sumatra’s Energy Development Plan; and a fiscal policy to support the National Energy Plan. A significant element of the blueprint process was the analysis of the relationship between Indonesia’s fiscal and energy policies. ESRP contributed to that analysis directly and through its sub-contracts with the University of Indonesia (UoI) and University Gadjah Mada. Workshops were held with key MEMR and MOF staff to provide inputs. UoI disseminated the blueprint to stakeholders via dialogues in four cities and workshops in 10 cities.
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