Consumer Fossil Fuel Subsidies

The Government of Indonesia is considering reform of its consumer subsidies for liquefied petroleum gas (LPG) due to its rising fiscal cost: IDR 25 trillion (USD 1.9 billion) in 2016: around half of its total energy subsidy expenditure.

This policy brief analyzes Indonesia’s mechanisms for adjusting domestic fuel prices in response to fluctuating world prices, consistent with existing efforts to reform diesel and gasoline prices. It also offers some insights regarding the ongoing LPG pricing reform process.

Electricity distribution utilities in India are currently unable to cover the cost of their operations from the sale of electricity. This report presents the findings of a household survey that sheds light on the awareness and views of different socioeconomic and geographical groups regarding electricity subsidies and electricity tariff reform. It concludes that there is a significant lack of awareness of the existence and size of electricity subsidies, although subsidy reform is a tough sell. At the same time, surveyed households recognize that higher power prices would have significant negative impacts on their daily activities, and some of them show willingness to pay for a more reliable power supply.

India is one of the world's largest users of kerosene, most of which is provided at highly subsidized prices and at significant fiscal cost to poor households through the national Public Distribution System.

In addition to Indonesia’s objective of increasing the share of renewable energy in their generation mix, the country’s electricity sector is facing a number of challenges, notably the need to meet rising demand for electricity and to serve consumers in geographically remote regions. This report demonstrates that subsidies are still an important part of the state-owned electricity company and that remote areas are not seeing previous improvements in the same way as populated ones are. Also, coal generation is getting the main focus of the capacity-increase programs, despite the important potential of renewable sources.

This briefing note sets out some basic information about international experiences with “dual pricing”: selling the same fuel product at two different prices to different types of consumers. It begins with a broad overview of information from international literature and then presents several detailed case studies.

In 2015 electricity demand rose by just 0.5 percent over 2014 levels, while coal consumption dropped by 5 percent. The slowdown in coal-use together with a continuing rise in generation from renewable sources plunged the domestic coal production industry into a crisis and led to a dramatic fall in coal imports.