International Experiences with LPG Subsidy Reform v.2 27 01 2016
A Review of International
Experience with
LPG Subsidy Reforms
Christopher Beaton and Lucky Lontoh
Global Subsidies Initiative (GSI, www.iisd.org/gsi)
January 2016
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• www.iisd.org/gsi
• Part of independent, non-profit policy research institute International Institute for Sustainable Development (IISD)
• Aim: Provide research and dialogue on understanding and improving subsidy policies—particularly for fossil fuels • GSI’s scope: International fora (WTO,
UNFCCC, G-20, SDGs); and ongoing work in a number of countries, incl. Indonesia, India, Nigeria, Vietnam, Egypt, Thailand and Bangladesh
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This Review: LPG Subsidy Reforms
1.
Aim
: Indonesia is considering LPG subsidy
reform; identify experience on LPG
subsidies relevant to Indonesia’s needs—
share “lessons learned” from other countries
2.
Method:
o
Review of literature on LPG subsidies
o
Detailed case studies on
Mexico
,
Peru
,
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LPG Pricing Internationally
End-User Prices of LPG in July 2012
Source: GSI, based on price data from Kojima (2013).
Average US$ 1.17/kg
Average for low middle-income, US$ 0.8/kg
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Q1
(lowest-income HH)
4%
Q2
8%
Q3
13%
Q4
21%
Q5
(highest-income HH)
54%
Benefit Distribution Internationally
Average Distribu?on of LPG Subsidy Benefits Across Income Quin?les (19 countries)
Source: del Granado et al., 2012. EsRmates based on a summary of 19 countrystudies, including in 7 from Africa; 4 from South and Central America; 5 from Asia and Pacific; and 2from the Middle East and Central Asia; using household surveys and input-output matrices ranging from 1993 to 2007.
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MXN bn 4.7 5.1 10.3 26.2 6.7 24.2 40 20.9 4.8 4.8
USD bn 0.4 0.5 0.9 2.4 0.5 1.9 3.2 1.6 0.4 0.36
% GDP 0.0% 0.1% 0.1% 0.2% 0.1% 0.2% 0.3% 0.1% 0.0% 0.0%
20kg &
30kg
Use by 80%
of HH (2008)
Form of subsidy:
Fixed prices, adjusted
monthly
LPG Subsidies in Mexico, 2005–2014
Source: OECD, 2015. Converted into US dollars using average annual exchange rates from www.oanda.com; percentage GDP calculated by the authors, based on World Development Indicators
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Mexico – Reform Strategies
•
Gradualism
: Since 2010, average increases of 7-8%
•
No targeting or associated welfare support
…
BUT comprehensive welfare
system including transfer for HH energy needs (
Oportunidades
)
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Peru
•
Picture & subsidies
Form of subsidy:
Fuel Price
Stabilization Fund with upper
price band, first introduced to
help cope with rising fuel
prices in 2004
2011: LPG
subsidies
equal
0.15%
GDP
(9)
Peru – Reform Strategies
•
Improved targeting using vouchers
:
o Fondo de Inclusión Social Energético (FISE)
o Focus: HH with low electricity consumption (≥30 kWh p.m.), low
income & poor housing
o Monthly voucher worth 16 soles (roughly US$ 5.70): enough to
support for the first LPG refill every month
o Provided via electricity bill, redeemed through mobile phones
o Must purchase LPG from an authorized agent
o By 2014: reaching over 700,000 households (3.5 million people)
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Thailand
•
Picture + subsidies
4, 7, 11.5, 13.5, 15 & 48kg
cylinders by HH,
industry Use & automoRve
Form of subsidy:
Different
,
fixed
prices for 4 user groups:
households, automobiles, industry
and petrochemicals; administered
through Price Stabilization Fund
LPG Subsidies in Thailand, 2005–2012
2005 2006 2007 2008 2009 2010 2011 2012
THB bn 17.5 25.5 29.6 55.8 21.8 44.1 60.0 68.0
USD bn 0.4 0.7 0.9 1.7 0.6 1.4 2.0 2.2
% GDP 0.2% 0.3% 0.4% 0.6% 0.2% 0.4% 0.6% 0.6%
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Thailand – Reform Strategies
•
Gradualism:
from 2011, attempts to slowly increase prices
•
Improved targeting
:
~2014 introduce targeted subsidy for low-income HH & SMEs;in 2015, remove subsidies for all other LPG users
o Focus: HH consuming low electricity (>90 kWh p.m.), no more than 18kg every
three months; businesses with small sales area (> 50 m2) and using small kg cyl.
o For SMEs & households without electricity, created new registry via survey
o Administrated by mobile phones: beneficiaries and vendors register with mobiles;
vendors reimbursed electronically when selling LPG to eligible beneficiaries
o BUT – problems; as of 2015, only 400,000 beneficiaries registered out of ~8 million
eligible… thought to be due to problems with registry & perceived complexity of
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El Salvador
•
Picture + subsidies
4.5kg, 9kg, 11kg & 16kg
cylinders Used by 70% of HH
Form of subsidy:
Fixed price
ceiling for LPG
LPG Subsidies in El Salvador, 2004–2012
Source: IADB, 2010; World Bank, 2014.
2004 2005 2006 2007 2008 2009 2010 2011 2012
IADB data E x p e n d i t u r e
(US$ mn) 46.2 55.6 94.5 104.3 136.8 83.4 -- --
--% GDP 0.3 0.3 0.5 0.5 0.6 0.4 -- --
--World Bank data
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El Salvador – Reform Strategies
•
Shift to income transfer:
US$ 8.50 p.m. for HH consumed >200 kWh p.m.
•
Shift to targeted to LPG subsidy with mobile phone technology
:
Beneficiaries given PIN, enter on vendor’s mobile phone, subsidy is
transferred to vendor; successfully introduced, providing benefits to 74% HH
•
Political acceptance,
Calvo-Gonzalez et al. (2015)
note importance of
:
o Information
o But more importantly…
good implementation
Source: UN Global Pulse, 2015. Green is posiRve; yellow, neutral; and red, negaRve.
Social Media AZtudes to El Salvador’s 2011
LPG Subsidy Reforms
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Key Trends
1.
“Get the prices right”
—Selling the same LPG at two different prices is
very difficult, tends to result in large and inefficient (=unfair) subsidies. Shift
to target LPG purchase assistance directly to beneficiaries, not embedded
in price; a variety of methods are in use, many using new technology
2.
Countries using registries as a starting point for improving LPG
subsidies
—A system to register and identify beneficiaries is the foundation
for being able to i) prevent abuse of the system (non-beneficiaries
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Lessons Learned?
1. Many countries subsidizing LPG and considering or implementing reform—Not a unique challenge though many possible solutions.
2. Need up-to-date, strong registries and low policy complexity for users—Otherwise vulnerable beneficiaries may lose out.
3. Use what you already have, when possible—Some new capacity often needed. But many countries effectively link assistance into existing registries and systems. This is part of a shift to the larger, better, formal social protection system.
4. New technology is a powerful tool for targeting LPG subsidies…. Allows for
excellent management and validation of payments—BUT—“new tech” does not
automatically guarantee success. All policies reliant on thorough planning, piloting and testing. Strong delivery essential for political acceptability.
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Thank You
For any questions or queries about the GSI, energy subsidies or this report,
contact cbeaton@iisd.org or lucky.lontoh@iisd.org
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Thailand – Reform Strategies
•
Gradualism:
from 2011, attempts to slowly increase prices
•
Improved targeting
: ~2014 introduce targeted subsidy for low-income HH & SMEs;
in 2015, remove subsidies for all other LPG userso Focus: HH consuming low electricity (>90 kWh p.m.), no more than 18kg every three months; businesses with small sales area (> 50 m2) and using small kg cyl.
o For SMEs & households without electricity, created new registry via survey
o Administrated by mobile phones: beneficiaries and vendors register with mobiles; vendors reimbursed electronically when selling LPG to eligible beneficiaries
o BUT – problems; as of 2015, only 400,000 beneficiaries registered out of ~8 million eligible… thought to be due to problems with registry & perceived complexity of registering… not adequately piloted before implementation?
(2)
El Salvador
•
Picture + subsidies
4.5kg, 9kg, 11kg & 16kg
cylinders
Used by 70% of HH
Form of subsidy:
Fixed price
ceiling for LPG
LPG Subsidies in El Salvador, 2004–2012
Source: IADB, 2010; World Bank, 2014.
2004 2005 2006 2007 2008 2009 2010 2011 2012
IADB data E x p e n d i t u r e
(US$ mn) 46.2 55.6 94.5 104.3 136.8 83.4 -- --
--% GDP 0.3 0.3 0.5 0.5 0.6 0.4 -- --
--World Bank data
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El Salvador – Reform Strategies
•
Shift to income transfer:
US$ 8.50 p.m. for HH consumed >200 kWh p.m.
•
Shift to targeted to LPG subsidy with mobile phone technology
:
Beneficiaries given PIN, enter on vendor’s mobile phone, subsidy is
transferred to vendor; successfully introduced, providing benefits to 74% HH
•
Political acceptance,
Calvo-Gonzalez et al. (2015)
note importance of
:
o Informationo But more importantly…
good implementation
Source: UN Global Pulse, 2015. Green is posiRve; yellow, neutral; and red, negaRve.
Social Media AZtudes to El Salvador’s 2011
LPG Subsidy Reforms
(4)
Key Trends
1.
“Get the prices right”
—Selling the same LPG at two different prices is
very difficult, tends to result in large and inefficient (=unfair) subsidies. Shift
to target LPG purchase assistance directly to beneficiaries, not embedded
in price; a variety of methods are in use, many using new technology
2.
Countries using registries as a starting point for improving LPG
subsidies
—A system to register and identify beneficiaries is the foundation
for being able to i) prevent abuse of the system (non-beneficiaries
(5)
Lessons Learned?
1. Many countries subsidizing LPG and considering or implementing reform—Not a unique challenge though many possible solutions.
2. Need up-to-date, strong registries and low policy complexity for users—Otherwise vulnerable beneficiaries may lose out.
3. Use what you already have, when possible—Some new capacity often needed. But many countries effectively link assistance into existing registries and systems. This is part of a shift to the larger, better, formal social protection system.
4. New technology is a powerful tool for targeting LPG subsidies…. Allows for
excellent management and validation of payments—BUT—“new tech” does not
automatically guarantee success. All policies reliant on thorough planning, piloting and testing. Strong delivery essential for political acceptability.
(6)