1. The GSI’s research on subsidies for fossil fuels

The International Institute for Sustainable Development (IISD) is conducting a study on fossil fuel subsidies as part of its Global Subsidies Initiative (GSI). The GSI is dedicated to research and awareness building on government subsidies and their impacts on sustainable development. In cooperation with a growing international network of research and media partners, the GSI seeks to lay bare just what good or harm public subsidies are doing and to encourage public debate and awareness of the options that are available for reform. IISD’s Trade Knowledge Network (TKN) is assisting with this call for proposals by reaching out to its partner organizations. TKN is a global collaboration of research institutions working on issues of trade, investment and sustainable development.

The GSI has given priority to fossil fuel subsidies because of their central role in economic development, environmental change and social welfare. Good management of energy resources will be critical in achieving sustainable development; however, in many cases, government intervention in the sector could be encouraging over-exploitation of resources and inefficiency.

In both developed and developing countries, subsidies to the production and consumption of fossil fuels exist in a wide variety of forms, including direct budgetary transfers, tax exemptions, and price controls. Although subsidies are often justified as having an overall benefit for social welfare, research has found that many fossil fuel subsidies have a net negative effect, both nationally and internationally. Fossil fuel subsidies distort the market, resulting in a host of negative impacts including potentially greater greenhouse gas emissions, high costs imposed on government budgets, and reduced incentives for energy efficiency and conversion to alternative energy sources.

2. Objectives of the Indonesia case study

Indonesia’s consumer subsidies to oil, gas and electricity were estimated to be US$17 billion for 2007 .   This substantial figure is assumed to underestimate the full size of Indonesia’s subsidies as it uses the price gap method which accounts for only those subsidies that impact the market price of fuel and electricity.  The need for reform of these consumer subsidies has been highlighted as an urgent priority for the Indonesian government by World Bank  and International Energy Agency reports. 

The GSI is commissioning a case study in Indonesia to identify, quantify and assess the impacts of subsidies to the oil and gas sectors.  The case study will extend upon the current analysis by putting a spotlight on producer subsidies for the oil and gas industry. 

The study will research a range of government interventions to: 
a. identify and classify the types of subsidies that the Indonesian oil and gas industry receive;
b. endeavor to quantify those subsidies;
c. undertake an assessment of the most significant economic, environmental and social impacts of the subsidies; and
d. develop a range of policy recommendations to reform perverse subsidies.

3. Research proposals

The GSI is requesting proposals (maximum 5 pages) outlining how the researcher proposes to undertake the case study.

Proposals should include:

• A flowchart depicting a breakdown of the research tasks over time.
• A table outlining how many hours the researcher will assign to each task.
• The research team structure, including time and tasks allocated to each person.

4. Selection criteria

Research proposals will be selected on the basis of:

Evidence of the researcher’s:

• in-depth knowledge of the oil and gas sector;
• knowledge of public finance and economics;
• contacts and networks within government and the oil and gas sectors;
• awareness of the relevant political, economic, social and environmental implications of fossil fuel subsidies;
• previous written publications in this or relevant fields;
• clarity of analysis and written expression;
• familiarity with Bahasa Indonesia and fluency in English.

Methodology, in particular:

• access to data and information sources, including contacts within government and industry;
• approach to quantifying different types of subsidies.
• short resumes for members of the research team. 

5. Destination and audience

The Indonesia country case study will contribute to the GSI’s core research programme on fossil fuels subsidies.  It will be part of a series of case studies researching subsidies to sector-specific fuels in both developing and developed countries.  The study will provide valuable input to GSI’s ongoing work to build a global picture of the size and scale of fossil fuel subsidies with a view to promoting subsidy reform.

The GSI anticipates an in-country launch of the report.  The launch would include a presentation of the report’s key findings to government representatives, industry and other important stakeholders.

The report will be published online and in hard copy, and will be disseminated to a wide network of stakeholders through a variety of channels.

6. Assignment

The consultant will undertake research to identify what subsidies the oil and gas industry receives in Indonesia.  The study should research a wide range of producer subsidies along the supply chain. 

The GSI has identified several types of activities and government interventions to be included in the study:

1. General resources on energy policy, industry structure and prices

2. Government-owned energy minerals
a. Process for mineral leasing
b. Royalty relief or reductions in taxes
c. Process of paying royalties

3. Government ownership of energy-related enterprises
a. Security-related enterprises
b. Transport of bulk fuels
c. Municipal utilities and public power

4. Market price support and regulation
a. Consumption mandates
b. Border protection or restrictions
c. Regulatory loopholes

5. Direct spending
a. Earmarks
b. Agency appropriations and contracts
c. Research and Development support

6. Tax breaks and special taxes
a. Reduced rates, tax exemptions, special deductions
b. Excise or special taxes

7. Credit support
a. Government loans and loan guarantees
b. Subsidized credit to domestic infrastructure and power plants
c. Subsidized credit to fossil-fuel related exports

8. Insurance and indemnification
a. Government-provided insurance or indemnification
b. Statutory caps on commercial liability

9. Health and Safety oversight

10. Environmental issues
a. Responsibility for closure and post-closure risks
b. Waste management

This list is not exhaustive and the researcher(s) may identify other types of subsidies or emerging issues that need to be included within the study.  The research should cover all relevant ministries, departments and public bodies at national, regional and local levels.

The researcher will work closely with GSI in selecting their methods for calculating subsidies in order to ensure they meet the GSI’s criteria for promoting an internationally consistent approach to quantifying fossil fuel subsidies.

The consultant will provide a report based on his/her research findings which will include the following sections:

1. Description of the supply chains for oil and gas including:
a. physical characteristics of the supply chains
b. financial flows and pricing
c. ownership

2. Subsidy policies for gas production including:
a. objective of each subsidy
b. recipient of each subsidy
c. organization granting the subsidy
d. subsidy instrument
e. size of the subsidy (financial or otherwise)
f. time period the subsidy has been in place

3. Subsidy policies for oil production including:
a. objective of each subsidy
b. recipient of each subsidy
c. organization granting the subsidy
d. subsidy instrument
e. size of the subsidy (financial or otherwise)
f. time period the subsidy has been in place

4. Quantification of subsidies including:
a. Total support estimates
b. Aggregate subsidies for 2008 (or 2007)
c. Estimates of future subsidies

5. An assessment of the most significant economic, environmental and social impacts of the subsidies.

6. Conclusions and Recommendations
a. A range of policy recommendations to promote the reform of perverse subsidies. The policy guidance will draw on lessons learnt from past reform efforts and take into account relevant political economy issues.  The recommendations will promote the better use of public resources and effective government subsidy policy.   

7. Product and Deliverables

The consultant will:

1. Complete the study in five staged deliverables:
(i) Detailed outline of the proposed study, methodology and description of supply chains (section 1 of the report);
(ii) A short presentation outlining progress of research findings;
(iii) First draft report focusing on sections 2, 3 and 4 of the report (as outlined above);
(iv) Revised draft report including sections 5 and 6 of the report (as outlined above);
(v) Final report incorporating feedback from peer review.

2. Produce a final paper (maximum 100 pages) including relevant tables, graphs and charts.  The paper should be written in a style easily understood by policy makers.

3. Revise the paper in line with comments received from IISD and 3-4 external peer reviewers and submit deliverables within the timelines (outlined in section 8). 

4. Draft the paper in line with the IISD’s style guide (format and referencing).

8. Timelines

27 September 2009 Deadline for receiving research proposals.
30 October 2009 Successful researcher notified and contract negotiations completed.
27 November 2009 Due date for deliverable (i)
4 December 2009 IISD to provide written comments on deliverable (i)
22 December 2009 Due date for deliverable (ii)
26 February 2010 Due date for deliverable (iii)
12 March 2010 IISD to provide written comments on deliverable (iii)
16 April 2010 Due date for deliverable (iv)
28 May 2010 IISD to provide written comments on deliverable (iv) including from 
peer review
18 June 2010 Due date for deliverable (v), the final product.

9. Resources

IISD invites proposals to bid within the range of US$ 20,000 – US$ 40,000. Proposals will be assessed on the basis of quality and cost efficiency. 
There will be deductions for the late submission of deliverables. Unless previously communicated and agreed, there is no obligation to pay for any draft or final study that is more than one calendar month late from the agreed delivery time; or does not broadly follow the framework described in Section 6, above.

10. Contacts

All proposals should be sent to Kerryn Lang (GSI Research Officer) at the following email address: klang@iisd.org no later than the 27 September 2009.