Indonesia needs to prepare for higher electricity tariffs as the government and House of Representatives (DPR) agreed on cutting electricity subsidies for 450 VA and 900 VA households starting from 1 January 2016. Indonesian authorities only want to provide electricity subsidies to the 24.7 million poorest Indonesian households. However, currently around 45.4 million Indonesians have connections of 450 VA and 900 VA.
Cutting the electricity subsidy bill is part of government efforts to reduce costly energy subsidies and redirect these funds to productive investments (for example infrastructure development or health care programs). In January 2015, the government basically scrapped low-octane gasoline subsidies and implemented a fixed IDR 1,000 per liter subsidy for diesel. However, as part of the government's third economic stimulus package (unveiled on 7 October 2015), the government lowered prices of jet fuel, 12-kilogram LPG canisters, diesel, 92-octane gasoline Pertamax, and 90-octane Pertalite to boost people's purchasing power. Moreover, electricity tariffs for industries were cut to support companies amid the current economic slowdown (that has led to an increase in number of layoffs).
In the 2016 State Budget the government wants to cut electricity subsidy spending to IDR 38.4 trillion (approx. USD $2.8 billion) from IDR 66.2 trillion in the 2015 State Budget. Most of the budgeted electricity subsidies (IDR 29.4 trillion) will be spent on electricity for the poorest 24.7 million Indonesians, while IDR 2.2 trillion goes to electricity subsidies for industries.
According to data from Perusahaan Listrik Negara (PLN), 22.9 million Indonesians have electricity connections of 450 VA. These people pay a subsidized rate of IDR 415.5 per kWh. Meanwhile, around 22.5 million people have a connection of 900 VA and pay a subsidized tariff of IDR 586.2 per kWh. However, currently more than 20 million Indonesians with connections of 450 VA and 900 VA are enjoying cheap rates while they are not classified as 'poor' or 'near-poor' and thus do not deserve the subsidized price. PLN said there are many households that exploit the system by having more than one connection of 900 VA inside their homes.
Earlier this year, the Indonesian government had already terminated subsidies for electricity subscribers with connections of 1,300 VA and 2,200 VA.
Based on the latest data from Statistics Indonesia (BPS), there were 28.59 million poor people in Indonesia in March 2015, equivalent to 11.22 percent of the total Indonesian population. This figure is higher than the poverty figure six months earlier (BPS releases poverty statistics twice per year) due to the economic slowdown and high inflation (particularity the rice price), while in real terms, farm workers’ wages declined.
However, there are still many Indonesians not connected to the country's electricity grid, evidenced by the country's electrification ratio of 81.5 percent (2014 data).
Indonesian Poverty and Inequality Statistics:
(% of population)
Source: Statistics Indonesia