More ironically, amid the soaring consumption of subsidized LPG and the swelling subsidy budget, the national supply of LPG has been highly dependent on foreign sources. The share of imports to total LPG supply continues to increase, from 58.9 percent in 2014 to 79.7 percent in 2021. This means that the supply is prone to the fluctuation of global natural gas prices and the Rupiah exchange rate, which in turn will make imports even pricier. In 2021 alone, the value of LPG import hit US$ 4.09 billion (Rp58.5 trillion), soaring 58.5 percent compared to US$2.58 billion just a year earlier.
Meanwhile, the upward trend in Contract Price Aramco (CPA) continues to increase, up to US$725 per metric ton as of July (up 13 percent year-on-year). As a result, domestic market price of LPG is expected to double, from Rp8,606 per kg in 2020 to Rp19,609 per kg. This means that the state must subsidize the difference between the market price (Rp19,609 per kg) and the retail price (Rp4,250 per kg) which amounts to Rp15,359 per kg. In other words, from the retail price enjoyed by the community, the subsidy component reaches 78.3 percent. That is the consequence of Indonesia’s unfortunate dependence on LPG and its open subsidy policy.
The second reason why the conversion program was introduced by the Government is a large electricity oversupply, one likely to continue increasing. According to PLN’s data, the installed electricity capacity in 2021 stood at 349,000 Giga Watt Hours (GWh) and the electricity sold was 257,000 GWh, meaning a surplus of 26.35 percent. Assuming that the production cost (BPP) is Rp1,333 per kWh, the oversupply can potentially cost Rp122.8 trillion and counting, because the electricity oversupply has averaged around 25 percent per year over the past decade.
The risk of oversupply will also increase in line with the Government’s plan to build new power plants capable of generating 40.6 GW between 2021-2030, meaning that the total installed capacity will reach 99.2 GW in 2030. The problem is, demand may not automatically keep up.
The proof is in the Long-Term Electricity Procurement Plan (RUPTL) for 2019-2028, where the growth of national electricity demand is targeted at an average of 6.4 percent per year, but the realization is only 3.5 percent per year (2015-2021). In fact, the electricity demand from the industrial sector, which should drive up consumption, only grew 1.21 percent in 2021 and is expected to contract by 7.24 percent in 2022, far below the targeted 6.4 percent. This prompt the Government to lower its projection to 4.9 percent (moderate scenario) per year in the 2021-2030 RUPTL. However, the challenge to increase demand is still very high, as it will be influenced by industrial growth and household purchasing power, which is currently being eroded by an upward trend in inflation.