POLITICAL & ECONOMIC UPDATE ON JOKOWI ADMINISTRATION UP TO APRIL 2015 PARLIAMENT VIEWS SATYA WIDYA YUDHA

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1 POLITICAL & ECONOMIC UPDATE ON JOKOWI ADMINISTRATION UP TO APRIL 2015 PARLIAMENT VIEWS SATYA WIDYA YUDHA Deputy Chairman of Comission VII DPR - RI PRESENTED TO CRANFIELD INDONESIAN SCHOLARS COMMUNITY (CRISCOM) CRANFIELD, UK 6th of May 2015

2 AGENDA IMMEDIATE CHALLENGES Political Configuration in Parliament National Security Issues and Foreign Policies - Demographic Bonus : Opportunity or threat - Illegal economy activities - Strong Armed Forces and Foreign policy Domestic Economy Issues - State Budget - Shifting Paradigmn on Energy Sector - Improving Oil Storage and Refineries Capacities - Increase in Tax Revenue - Increase Electricity Generation Capacities - Improve Infrastructure Quality Satya Yudha Page 1

3 IMMEDIATE CHALLENGES Political Configuration in Parliament Government Challanges National Security issues & Foreign Policies Domestic Economics issues Satya Yudha Page 2

4 1. Political Configuration in Parliament Before and after Presidential Inaguration Red & White Coalition 52 % PPP; 39 GOLKAR; 91 PKS; 40 PAN; 49 GERINDRA Demokrat 61 Presid en Inagur ation PRESIDENTIAL INAGURATION 30 Oct 2014 GOLKAR; 91 PKS; 40 PAN; 49 GERINDRA2 2; 73 Demokrat; 61 Red & White Coalition 45 % PPP; 39 NASDEM 35 PKB 47 HANURA 16 Internal conflict within Golkar and within PPP NASDEM 35 PKB 47 HANURA 16 Great Indonesia Coalition 37% PDIP 109 PDIP 109 Great Indonesia Coalition 44% Satya Yudha Page 3

5 Presidential system in Indonesia Indonesia s parliament and government work on the check and balance system.(a Little dispute on BG Case, Minister of Law and Human Rights) To secure the administration program, Government needs cooperation with the parliament. (At least Two Consultation Meeting taken place at the Palace & DPR) Parliament, by law, has the right to approve the state budget. If disapprove, government is unable to implement the new state budget. Voting is the last resort to approve or disapprove any new law - if deliberation fail to reach consensus. Satya Yudha Page 4

6 2. National Security Issues 1. Radicalism becomes a serious issue due to poverty and low level of education 2. Drugs and narcotics are an issue because it attacks the young generation of Indonesia 3. Illegal mining, fishing & logging and human trafficking Solutions 1. Create Economic policies focusing on growth & equality 2. Provide affordable access to quality health & education 3. Improve police and military capability especially in modernization of military equipment & technology Satya Yudha Page 5

7 Demographic Bonus : Opportunity or threat Opportunity Proper economic policies towards growth and equality as well as key polices in education and health to increase quality of human resources will transform demographic bonus as key factor to prosper Indonesia. Source : demografi.bps.go.id Threat if... inequality continuous to persist & no sufficient job opportunities are available. - since unemployment among young population is a strong ingredient for radicalism and terrorism. Satya Yudha Page 6

8 Lost Due To Illegal Economy Activities Estimated size of illegal coal mining in Indonesia in 2013 is ~71.9 million tonnes, equal with total export of South Africa On the marine sector, estimated size of potential loss due to illegal fishing is US$ 20 billion bn ,3 Fisheries Export Loss due to illegal fishing Output without ilegal fishing (export potential) Source: FAO, 2011, Ministry of Marine and FIsheries To Protect This, We Need Strong Armed Forces Satya Yudha Page 7

9 Strong Armed Forces and Foreign policy Protect its own sovereignty in land, sea and air A strong and modern armed force uplift Indonesia to become a respected power in East Asia region. Building its our own defense industries Security cooperation against extremist such ISIS based on equal treatment in exchange of information by respected intelligence agencies. Today, we believe there are more than 300 Indonesians joined the ISIS. Indonesia s free and active foreign policy obliges it to remain autonomous in dealing with large and small power. Indonesia has demonstrated its utility in bridging between powers and regions with disparate interest, such on the South China Sea dispute. Satya Yudha Page 8

10 3. Domestic Economy Issues (Limited State Budget) Tax Income Rp 1.294,3 T 74% Village Fund Rp. 20,8 T; 1% Gov't Institution Expenditure Rp.795,5 T; 40% Grants Rp 3,3 T 0% STATE REVENUE RP 1.761,6 T GOVERMENT EXPENDITURE Tranvers to regions Rp. 643,8 T; 32% RP 1.984,1 T Subsidy Rp. 212,1 T; 11% Other Expenditure Rp. 156,2 T; 8% Dept Interest Payment Rp. 155,7 T; 8% Customs Rp. 195 T 11% Revenue from Non tax sources Rp 269,1 T 15% 30% (Rp 81,4 T) of it from Oil and gas Satya Yudha Page 9

11 3. Domestic Economy Issues 5 Immediate Economic Challenges 1. Shifting Paradigm on Energy Sector 2. Improving Oil Storage and Refineries Capacities 3. Increase in Tax Revenues 4. Increase Electricity Generation Capacities 5. Improve Infrastructure Quality Satya Yudha Page 10

12 Shifting Paradigm on Energy Sector Shifting Paradigm o Commodity Subsidy to Targetted Subsidy (Reallocation Subsidy) o Oil to Gas o Industry follows the Energy Concept o Revenue Based to Economic Growth Based o Promoting Renewable Energy in the energy mix strategy for 2030 Challenges; - Control the Subsidy - FUEL Subsidy v/s Gas and Coal - Create the pricing scheme which is viable for the Development of Renewable Energy such as Geothermal, Microhydro, nuclear. Satya Yudha Page 11

13 Shifting Policies on Energy Subsidies Energy subsidy has increased from IDR 95 Tn(~US$ 10 bn) in 2009 to IDR 351 Tn(~US$ 31 bn) in 2014 Recent fuel price hike provide at least Rp Trilion to be reallocated for infrastructure, education & healthcare development in Trillion IDR ,3 In Trillion IDR SAVINGS , ,8 68, ,6 83, , ,2 211, ,1 64, R Fuel & LPG Subsidy APBN 2015 Oil Price Decrease Increase on Diesel Rp Increase on Gasoline Revised Subsidies 2015 Source: GoIAudited Financial Statement , internal calculation Satya Yudha Page 12 64,5

14 Fuel & Etc Import Crude Import Crude Export Improving Oil Storage and Refineries Capacities To Strengthen National Resilience Indonesia heavily depend on Import to fulfill demand on fuel product due to insufficient refineries capacity 243 Million Barrels Upstream Downsteram Storage CTP Production : 290 Oil and Condensat Other Inputs 64 Refinery CTP = Custody Transfer Point Oil Fuels account for 77% of a refined barrel of crude oil hence more crude oil volume must be imported and stored to produce the same quantity of Oil Fuels domestically vs direct Oil Fuels imports 96 On Million Barrels Storage 179 Non Fuel 449 Fuel Transportation Diesel Fuel Oil Household Industry Electricity Generators Crude Export Crude Import Crude Balance Fuel Import Net Balance Satya Yudha Page 13

15 Improving Oil Storage and Refineries Capacities To Strengthen National Resilience Although Indonesia ~20 days operating reserve, but it has zero strategic inventory compare to its peers in Asia, Comparison of Oil Strategic Inventory Inventory Days Product Crude To have 30 days of energy buffer inventory Gasoline 30 days (year 2025) EBR Jet/Kero Diesel Assumes new greenfield terminals cost US$ 800/KL Fuel Oil Indicative Investment US$ 17,250,000,000 Satya Yudha Page 14

16 Increase in Tax Revenue % Tax ratio comparation in 10 Countries ,7 34,732,9 25,424,3 19,719,4 14,314,310,3 Source: Budget in Brief APBNP 2015 Tax Ratio definisi Luas Tax Ratio definisi sempit 14,5 15,4 15,5 15,1 15,8 15,7 13,7 11,3 11,8 11,9 12,2 12,4 12,4 12,7 723,3 873,9 980, , , P In Trillion IDR Increasing tax ratio should be one of the top priority. The main target is to increase tax ratio to 15% from current level at 13.7%. This will increase tax revenue by ~US$ billion per year for the next 5 years. One key step to increase tax revenue is to give autonomy in human resources budget, and organizational structure to the tax office, and reducing corporate income tax to make it competitive with Singapore, hence avoid transfer pricing Satya Yudha Page 15

17 Increase Electricity Generation Capacities Indonesia has the lowest electrification ratio among its peers in southeast Asia at 73.7% ,3 73,7 99,4 89,7 Electrification Ratio (%) 97,3 Thailand indonesia Malaysia Philippines Vietnam To achieve higher economic growth, Indonesia needs to significantly increase its electrification ratio. We estimate, the country needs to double its electricity production capacity by 2019 which need ~ $90 billion investment. In addition to that, significant investment is also needed to replace diesel fired power plant with coal or gas to reduce electricity subsidies that currently absorb $7-10 billion per year Source: Tusk Advisory Satya Yudha Page 16

18 Increase Electricity Generation Capacities MW MW MW 35,000 MW project is absolutely necessary to support the growth of the national economy; as stated in Electricity Provider s business plan (RUPTL) which stated that each year takes additional capacity of 7,000 MW Project PLN IPP Nuclear Gen is Possible Option FUNDING NEEDS (trillion Rupiah) Details PLN Private Total Generation transmission and substation Total Satya Yudha Page 17

19 Increase Electricity Generation Capacities MW Powerplan development Status PLN IPP 2,2 5,1 4,2 2,9 11,3 9,6 3,2 4,3 Construction Committed Procurement Planning Progress on accelerating MW Simplification of of licensing Accelerating Independent Power Purchasing (IPP) appointment Accelerating IPP price negotiations Guarantees from government if required by the power and developers Government support in the provision of land, in accordance with Law no. 02 in 2012 Excess power price equated with the price of IPP; Private sectore is able to participate in building transmission. Satya Yudha Page 18

20 Improve Infrastructure Quality Transportation Cost Ratio to Total Cost in Indonesia is 3x higher than in Japan due to poor transportation infrastructure Indonesia needs US$ 545 billion in the next 5 years to improve its infrastructure quality to support economic growth Source: Government Mid Term Development Plan Support from private sectors as well as government funding resulting from reallocation of fuel subsidies, eradication of illegal activities and increased tax revenue will be key sources to finance infrastructure development in the next 5 years Satya Yudha Page 19

21 Conclusion 1. To secure the Government program, it should be in line with the parliament 2. Create Economic policies focusing on growth & equality 3. We need strong Armed Forces. 4. Law enforcement should be in place 5. Shifting Paradigm on Energy Sector 6. Increasing tax ratio Satya Yudha Page 20

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