Indonesian official eyes fuel subsidy cuts
Date: 28-Jul-09
Country: INDONESIA
Author: Sunanda Creagh
JAKARTA - Indonesia may cut subsidies for fossil fuels and introduce policies requiring state electricity firm PLN to use renewable energy sources for part of its supply within a year, a senior environment official said Monday.
Ranked the world's third-biggest emitter of greenhouse gases in a 2007 World Bank report, Indonesia is considered a key player in the fight against climate change.
However, it has struggled to attract investment for geothermal, solar and wind energy projects, partly because its fuel subsidy program strains the national budget and makes it difficult for renewable sources of energy to be competitive.
Fuel subsidies, which cost the state billions of dollars, are a particularly sensitive political issue and in the past cuts in subsidies have sparked social unrest.
The government raised the price of subsidized fuel in tandem with higher global oil prices in early 2008, but cut them again as oil prices dropped in late 2008 and early 2009, just a few months before parliamentary and presidential elections, which incumbent President Susilo Bambang Yudhoyono won in a landslide.
The head of Indonesia's National Council on Climate Change, Agus Purnomo, told Reuters Monday that with elections now out of the way, he expected fossil fuel subsidies would drop to a level where renewable energy producers could compete within a year.
He said the fossil fuel subsidy would continue to exist but would be "below the distortion level that discourages renewable energy. What I am pushing is to get it below that level so that renewable energy can be more competitive."
Purnomo also said he hoped that Yudhoyono would introduce a new feed-in tariff policy, whereby the national electricity firm would be required to buy electricity produced from renewable sources at very attractive rates.
The national electricity provider, PLN, is currently not required to buy any electricity from power producers using renewable sources.
"I think we can make some progress on this," he said.
"We would also like to have a feed-in tariff as a viable option but for it to be effective we need some structural changes in our distribution methods," he said.
Agus Sari, Southeast Asia policy director for carbon offset trading company Ecosecurities, said Purnomo's comments were encouraging.
"I think the president has the political capital to do it now, after his election result," he said.
(Editing by Sara Webb)
