PRELIMINARY
Energy price determination in Indonesia is not carried out through market mechanisms but is determined administratively by the government. When determining energy prices, there are four things that must be considered, namely:
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Economic efficiency objectives: to meet domestic energy needs at the lowest possible price and maintain oil reserves for export purposes, especially by encouraging the domestic market to substitute its consumption with alternative fuels that are more abundant in supply (gas and coal) or non-tradable energy sources such as hydropower and geothermal.
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The aim of mobilizing funds: by maximizing export revenues and government budget revenues from exports of tradable energy sources such as oil and gas and coal and enabling producers of energy sources to cover their economic costs and obtain sources of funds to finance growth and development.
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social objectives (equity): promoting equality through expanding access to basic energy-dependent needs such as lighting, cooking and public transportation.
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Environmental sustainability goals: encourage environmental pollution to a minimum as a result of burning energy sources.
The four objectives above are factors that need to be considered in determining the objectives above, so that possible clashes between objectives can be overcome. The four goals above are impossible to achieve because conflicts between goals will definitely occur. For example, a study conducted by Pitt (1985) showed that the goal of reducing environmental impacts was practically not achieved. Furthermore, Table 1 shows that the goal of equality was not achieved. The decomposition of the Gini index for fuel components except general kerosene actually encourages a worsening of income distribution.
For more details, please contact the publishing department at 021-3143177 (511)
Mohamad Ikhsan
Teguh Dartanto
Usman
and M. Herman Sulistyo
