The Study of Subsidy Policy in Electricity Tariff Adjustment to Mitigate Impact on Economic Growth, Inequality and Poverty in Urban and Rural Areas

Abstraksi

The mandate of the RPJMN 2015-2019 in the fulfilment of the public service in the energy sector is the achievement of the 96.6% electricity ratio in 2019. The management of commodity-based subsidies, not a targeted person, makes state expenditures swell and electricity infrastructure development becomes inhibited. Subsidy reform starts in 2014 with the removal of fuel subsidy and continued with electricity tariff adjustment to align with the RPJMN indicator that achievement of the economic tariff of electricity in 2017, especially for people who are not eligible. The removal of fuel subsidies in 2014 has an impact on rising inflation, poverty and inequality but this effect is mitigated by a significant drop in world oil prices. Regarding this, it is important to examine the impact of adjustment in electricity tariffs in 2017, on economic growth, poverty, and inequality, both in rural and urban areas. This study employs Computable General Equilibrium with three scenarios: remove subsidy of 900 VA; remove subsidy of 900 VA and 450 VA and give compensation for the poor for both users; remove subsidy of 900 VA and 450 VA, and give compensation only for 450 VA users which are categorized as the poor. This paper found that electricity subsidy removal with sufficient compensation given only to the poor is potent to mitigate the impact on economic growth, poverty and inequality. This study is expected to provide inputs on improving basic services in the adjustment of electricity tariffs in an effective way to reduce economic turmoil.