US$216 Million for Energy Security: How Long Will Timor-Leste Rely on Imported Fuel?

JurnalPost.com - When global oil prices fluctuate, the impact is felt far beyond just motorists or transport businesses. For a nation heavily dependent on fuel imports, rising oil prices can become a much larger issue as they affect the country's economic and financial stability.

This is the situation facing Timor-Leste in 2026. The government must take several steps to ensure fuel supplies remain available, energy prices do not burden the public, and electricity services can continue to operate.

To address these conditions, the government has allocated US$174.3 million for the establishment of a National Strategic Fuel Reserve . Additionally, a budget of US$42 million has been provided for a fuel subsidy program.

Combined, these two allocations reach US$216.3 million. This is a significant amount, signaling that energy issues are no longer just a matter of supply and consumption, but have become a critical component of Timor-Leste's public financial management.

On one hand, government intervention is necessary to protect the public from rising energy prices. However, on the other hand, policies that remain dependent on subsidies and the provision of fuel reserves have the potential to create fiscal pressure if not accompanied by changes in the national energy system.

The question is, how long must Timor-Leste rely on the state budget to manage its dependence on imported fuel?

Imported Fuel Dependency as an Economic Issue

Timor-Leste's dependence on imported fuel is one of the challenges in maintaining national economic stability.

Based on 2025 trade data referenced from the Central Bank of Timor-Leste (BCTL), the value of Timor-Leste's goods imports reached approximately US$960 million. Of that amount, mineral fuel imports were recorded at US$207.8 million, or about 21.6 percent of total imports.

This means more than one-fifth of the value of Timor-Leste's goods imports comes from mineral fuel commodities.

The magnitude of this proportion shows that domestic energy needs are still heavily influenced by international trade conditions and energy prices.

When global oil prices rise, the cost of fuel imports potentially increases as well. Such increases can drive up the costs of transportation, goods distribution, production activities, and the operations of various business sectors.

The impact can then ripple through to the public via rising prices for goods and services.

In the 2026 state budget amendment proposal, the Timor-Leste government also acknowledged that high dependence on imported goods, including fuel and food, makes the domestic economy vulnerable to external pressures.

This issue becomes increasingly complex because Timor-Leste requires fuel not only for transportation and industrial activities but also to operate its power generation system.

Consequently, supply disruptions or fuel price hikes have the potential to affect various economic activities simultaneously.

When Electricity Supply Depends on Diesel

One of the biggest challenges in Timor-Leste's energy sector lies in the high dependence of the electricity system on diesel-powered plants.

The Asian Development Bank (ADB) notes that diesel plants dominate the country's power generation capacity.

Two main facilities, the Hera Diesel Power Plant and the Betano Diesel Power Plant, have capacities of approximately 119.5 megawatts (MW) and 136.6 MW, respectively.

The existence of these two plants demonstrates the significant role of diesel in supporting the national electricity supply.

This condition creates its own set of problems. When international diesel prices rise, the operational costs of the plants also potentially increase. The government then faces the difficult choice between keeping electricity tariffs affordable and bearing the additional financing requirements.

Nevertheless, this dependency should be read with caution. Data on generation capacity cannot be directly used to conclude the exact percentage of actual electricity production sourced from diesel in 2026.

However, the dominance of diesel plants in installed capacity still shows that Timor-Leste's electricity system has a strong link to the availability of imported fuel.

This situation makes energy security an issue that cannot be separated from the sustainability of the government budget.

US$216.3 Million for Fuel Reserves and Subsidies

The Timor-Leste government is attempting to respond to energy pressures through fiscal policy.

On June 2, 2026, the National Parliament approved the amendment to the General State Budget (GSB) 2026.

One of the important components of this policy is the allocation of US$174.3 million to establish the National Strategic Fuel Reserve.

This strategic reserve is designed to meet the fuel needs for power generation for approximately seven months.

In addition, the government has provided US$42 million for fuel subsidies to reduce the impact of rising international fuel prices on households and businesses.

These two policies have different functions but complement each other.

The strategic reserve aims to maintain supply availability during market disruptions, while the subsidy is used to help maintain price affordability for the public.

This step can be understood as a response to urgent energy risks. However, from a public finance perspective, the size of the budget allocation also shows the consequences for the use of state resources.

Public funds allocated to maintain energy stability have opportunity costs, as the government simultaneously requires budget for education, health, infrastructure, and other public services.

Interestingly, the government explained that the 2026 budget amendment increased the consolidated GSB value from approximately US$2.291 billion to US$2.392 billion, an increase of about US$101.1 million.

This increase did not come from additional transfers from the Petroleum Fund, but rather through a combination of financing reallocation, the use of available balances, and increased domestic revenue.

This indicates that the government is attempting to provide fiscal space to face energy pressures without increasing transfers from the Petroleum Fund in this budget amendment.

However, fiscal resilience is not just measured by the ability to provide a budget when a crisis emerges. More importantly, it is about how the government reduces the likelihood of similar financing needs arising in the future.

Fuel Price Caps to Protect the Public

In addition to preparing fuel reserves and subsidies, the Timor-Leste government has also implemented a price stabilization policy.

Through Decree-Law No. 13/2026 on temporary measures for price stabilization and fuel supply security, the government has set a number of maximum price caps.

The price of gasoline (gasoline) is capped at US$1.50 per liter, while diesel is capped at US$1.65 per liter. For jet fuel (jet fuel), the price cap is set at US$2.50 per liter, while LPG is set at US$4.20 per kilogram.

Under this mechanism, importers are required to report actual import costs, which serve as the basis for calculating subsidies through the state budget.

The policy, which has a legal basis dated March 25, 2026, is temporary and is planned to be in effect until the end of 2026, with the possibility of evaluation following developments in international market conditions.

In terms of consumer protection, price caps can help reduce the direct impact of energy volatility on the public.

However, price stabilization also carries fiscal consequences.

If the gap between import prices and government-set prices widens, the need for subsidies potentially increases. If this persists for a long time, this condition could increase pressure on state expenditures.

Therefore, the price stabilization policy needs to be accompanied by oversight, periodic evaluation, and a strategy to reduce energy dependence gradually.

Electricity Subsidies Add to the State's Financial Burden

Timor-Leste's energy issues do not stop at fuel policy. The electricity supply system also requires significant government budget support.

The state electricity company, Electricidade de Timor-Leste (EDTL), plays a crucial role in providing electricity services to the public.

In the Budget Strategy Statement FY2026, the Timor-Leste Ministry of Finance explained that more than two-thirds of EDTL's expenditures are financed through government subsidies to maintain relatively affordable electricity tariffs.

One of the largest cost components for the company is the purchase of imported diesel for power generation.

Historical ADB data shows the significant gap between EDTL's revenue and operational expenditures.

In 2023, revenue from customers was recorded at approximately US$52.6 million, while operational expenditures reached approximately US$196.1 million.

Thus, customer revenue in that year was only able to cover about 27 percent of operational expenditures.

It should be emphasized that these figures are 2023 data, not an exact picture of EDTL's financial condition in 2026. However, this historical data helps explain why fiscal support plays an important role in the sustainability of electricity services.

In February 2026, the government also authorized a transfer of US$121.9 million to EDTL through the “802 Electricity” program to ensure the sustainability of public electricity services.

This allocation shows the extent of government involvement in ensuring that the public continues to have access to electricity.

If dependence on imported diesel continues, the risk of rising generation costs will remain a challenge.

In such a situation, the issue is not merely how the government provides subsidies, but how to create an energy system capable of reducing the need for such subsidies gradually.

Subsidies Are Important, but Cannot Be the Answer Forever

In my view, fuel subsidies and the establishment of strategic fuel reserves are justifiable steps when the government faces energy pressures that could potentially disrupt the economy.

Without intervention, spikes in fuel prices could increase the cost of living for the public, disrupt transportation, and raise production costs across various business sectors.

However, subsidies should be viewed as a temporary protection instrument, not as the primary solution to address structural issues.

As long as energy needs remain heavily dependent on fuel imports, the government will continue to face the same vulnerability when international oil prices rise again.

Therefore, short-term fiscal policy needs to run in parallel with efforts to improve the national energy supply structure.

In the Budget Strategy Statement 2026, the government itself has identified the acceleration of renewable energy use, including solar panels, as one of the steps to reduce EDTL's operational costs.

Developing alternative energy sources can help suppress the need for imported diesel while potentially reducing the amount of government transfers to the electricity company in the medium and long term.

In addition to power plant investment, improving the efficiency of the electricity system also needs attention, ranging from operational management and infrastructure maintenance to reducing energy losses in the distribution network.

With this approach, energy policy is no longer oriented solely toward controlling the impact of price hikes, but also toward reducing the root causes of economic vulnerability.

Solar Energy Paves the Way for Change

Hope for reducing dependence on diesel is beginning to emerge through the development of renewable energy projects in Timor-Leste.

In 2026, the country began developing a solar power project or solar photovoltaic combined with a battery energy storage system in Laleia, Manatuto.

The Timor-Leste government stated that the project has a capacity of approximately 72 MW and is designed to connect to the national electricity grid.

Meanwhile, project documents supported by the ADB, World Bank, the Government of Canada, and the Japan International Cooperation Agency (JICA) list a technical capacity of approximately 73.7 MWac for the solar plant and 80.2 megawatt-hours (MWh) for the battery storage system.

This project is an important step as it is the first utility-scale solar power and battery storage development in Timor-Leste.

According to the World Bank, the electricity expected to be generated from the project is equivalent to the typical consumption of about 80,000 households or approximately 400,000 residents.

The ADB also explained that this project supports Timor-Leste's target to meet 50 percent of its energy needs from renewable sources by 2030.

Of course, the success of the project cannot be measured solely by the capacity built.

The government also needs to ensure the readiness of the electricity grid, facility maintenance, the technical capabilities of the workforce, and the management of investment costs so that the benefits can be felt in the long term.

However, if the project succeeds in lowering the use of imported diesel, the impact could extend to the management of state finances.

Reducing fuel import costs can help suppress electricity generation costs and open opportunities to reduce the need for government subsidies.

This means that the benefits of energy transition are not only related to emission reduction and environmental protection but also to improving fiscal resilience.

Energy Security Must Be Built for the Long Term

Timor-Leste's energy policy in 2026 highlights the dilemma faced by developing countries when they must maintain public needs amidst limited resources and import dependence.

On one hand, the government cannot allow the public to face oil price volatility without protection. On the other hand, expenditures continuously used for subsidies and supply security can limit fiscal space for other development needs.

The allocation of US$42 million for fuel subsidies and US$174.3 million for strategic fuel reserves shows the significant resources required to respond to energy risks.

Beyond these two allocations, support for the electricity sector also shows that energy issues have a broad impact on public budget management.

In my view, the most important step for Timor-Leste is not to stop subsidies abruptly, but to build a strategy so that dependence on subsidies can be reduced gradually.

Protection for the public remains necessary, especially for low-income groups and businesses vulnerable to rising energy costs.

However, such protection needs to go hand-in-hand with renewable energy investment, improvements in power generation efficiency, and the strengthening of energy sector governance.

The solar power and battery storage project in Laleia can be one of the steps toward that change.

If renewable energy development can suppress the use of imported diesel, Timor-Leste has the opportunity to reduce risks to oil price volatility while strengthening its fiscal management.

Ultimately, the success of energy policy is not measured solely by the government's ability to keep fuel prices affordable or ensure electricity supply is not interrupted in 2026.

The more fundamental success is when Timor-Leste is able to build an energy system that is increasingly independent, efficient, and does not constantly require large-scale budget intervention.

Because true energy security is not just about having enough fuel reserves for today, but also about the country's ability to reduce dependence on imported fuel in the future.