Bappenas Reviews Shift of Electricity Subsidies to Investment Incentives

The Ministry of National Development Planning/National Development Planning Agency (“PPN/Bappenas”) is currently reviewing changes to the electricity subsidy scheme. One option under discussion is to shift a portion of the subsidies, which have traditionally been provided based on end-consumer usage, into a fiscal instrument designed to mitigate investment risks.

Abdul Malik, Deputy for Infrastructure at PPN/Bappenas, said the scheme is being reviewed to transform the function of a portion of the energy subsidies into a fiscal instrument that can be used to de-risk investments.

“So far, we’ve been limited to simply providing electricity subsidies. This instrument I’m currently examining would redirect electricity subsidies, which for years have been impossible to reallocate, along with other energy subsidies, into a new fiscal instrument for investment de-risking,” said Abdul Malik.

According to him, funds redirected from subsidies could be used to finance critical infrastructure components during the early stages of projects that involve high costs and significant risks.

Such financing can be directed, among other things, toward land acquisition and clearance, the construction of electricity transmission networks, and viability gap funding (“VGF”). The VGF scheme can be used to bridge part of a project’s economic viability gap, making the project more bankable.

Abdul Malik stated that the disbursement of these funds can be conducted through State Capital Injections (“PMN”). Another alternative is management through the Danantara Development Fund, which combines funds from the State Revenue and Expenditure Budget (“State Budget”) with soft loans from international donor institutions.

Under this scheme, subsidies not only serve as a tool to ensure electricity rates remain affordable for consumers but also have the potential to be directed toward strengthening project readiness and reducing infrastructure investment risks.