Indonesia’s Fuel Subsidies: Action plan for reform

This 2012 report provides an action plan for reforming fuel subsidies in Indonesia, specifically targeting the subsidized gasoline 'Premium'. It highlights the fiscal burden of these subsidies (US$18.1 billion in 2011) and analyzes the government's plans to restrict consumption and introduce alternative fuels like CNG and LGV. The report identifies significant infrastructure gaps in refineries and filling stations, political risks associated with the 2014 elections, and a lack of effective public communication. It recommends transitioning from ad-hoc pricing to an automated, market-based pricing mechanism and improving social safety nets to mitigate the impact on vulnerable populations.

• In 2011, Indonesia spent IDR164.7 trillion (US$18.1 billion) on fuel subsidies, with IDR76.5 trillion (US$8.4 billion) specifically allocated to gasoline. These subsidies are described as regressive and an inefficient tool for poverty reduction, creating a fiscal liability sensitive to international oil price fluctuations.
• The Indonesian government announced a plan in January 2012 to reduce Premium gasoline subsidies by April 2012. This plan involved prohibiting Premium consumption for official vehicles in Java and Bali and private four-wheel vehicles in Greater Jakarta, while targeting the conversion of 46,000 vehicles to Compressed Natural Gas (CNG) and 250,000 to Liquid Gas for Vehicles (LGV) in the Java-Bali area by the end of 2012.
• The government proposed raising the price of Premium gasoline by IDR1,500 per litre (one third of its price at the time) in April 2012. However, this plan was delayed due to public protests. The report argues that simply raising prices to a fixed level is insufficient; the ultimate goal should be market-based prices to avoid the re-emergence of subsidies when international prices peak.
• Significant infrastructure gaps hinder the transition from subsidized Premium to non-subsidized Pertamax. Approximately 2,000 filling stations nationwide lack the capacity to supply increased Pertamax volumes, with 295 stations in Java-Bali requiring new investments. Additionally, only two of Pertamina's six refineries produce Pertamax, necessitating increased imports until capacity is expanded by 2017.
• The deployment of CNG and LGV as alternative fuels faces several practical challenges: a limited number of filling stations causing long queues, poor CNG quality leading to engine damage in TransJakarta buses, and high costs for converter kits (IDR10 million to IDR13 million), which are prohibitive for most private car owners.
• The report identifies critical 'windows of opportunity' for reform before the 2014 elections. The first was April 2012, and a second is suggested between September 2012 and April 2013. After the second half of 2013, the government is expected to enter 'campaign mode,' making policy decisions more difficult due to concerns over popularity.
• The government's communication and consultation efforts have been widely criticized. A survey of 250 public transport drivers in Jakarta found that 25% were unaware of the plan to limit subsidized gasoline. The report recommends a coordinated communications strategy and deeper consultations to design effective support measures for the poor and vulnerable.
• To transition away from ad-hoc pricing, the report recommends introducing an independent, automated pricing mechanism based on a formula linked to international prices (import parity). This would reduce the need for the government to expend political capital for every price adjustment.

APA

Braithwaite, D., Prasetyaning, A. C., Indriyanto, D. R. L. A., Lang, K., Lontoh, L., Siahaan, N., Vis-Dunbar, D., Wattimena, B. A., Widhiantoro, U., & Wooders, P. (2012). Indonesia’s Fuel Subsidies: Action plan for reform. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/ffs_actionplan_indonesia.pdf

Chicago

Braithwaite, David, Alexander Chandra Prasetyaning, Diah R. L. Ami Indriyanto, Kerryn Lang, Lucky Lontoh, Nataliawati Siahaan, Damon Vis-Dunbar, et al. Indonesia’s Fuel Subsidies: Action plan for reform. International Institute for Sustainable Development, 2012. https://www.iisd.org/gsi/sites/default/files/ffs_actionplan_indonesia.pdf.

Wikipedia

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BibTeX

@techreport{braithwaite2012indonesias, author = {Braithwaite, David and Prasetyaning, Alexander Chandra and Indriyanto, Diah R. L. Ami and Lang, Kerryn and Lontoh, Lucky and Siahaan, Nataliawati and Vis-Dunbar, Damon and Wattimena, Bobby A. and Widhiantoro, Unggung and Wooders, Peter}, title = {{Indonesia’s Fuel Subsidies: Action plan for reform}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = mar, url = {https://www.iisd.org/gsi/sites/default/files/ffs_actionplan_indonesia.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }