Fossil Fuels – At What Cost?

This report, published by the International Institute for Sustainable Development (IISD) in October 2010, identifies and quantifies government subsidies provided to upstream oil and gas producers in Indonesia. It establishes a framework for analyzing producer subsidies—which are generally less transparent than consumer subsidies—by categorizing them into direct transfers, foregone revenue, provision of goods/services below market value, and price supports. The study finds that while some incentives effectively encourage exploration in new geological plays, others create significant benefits for state-owned enterprises.

• In 2008, the total estimated value of identified producer subsidies in Indonesia's upstream oil and gas sector was US$ 1.799 billion. This total comprises the Oil Domestic Market Obligation (DMO) at US$ 1,554 million, tax incentives for imported goods and services at US$ 130 million, and the Investment Credit Allowance at US$ 115 million.
• The Oil Domestic Market Obligation (DMO) functions as a de facto tax on production sharing contractors (PSCos) and a subsidy for Pertamina's refineries. Pertamina benefits because it purchases crude oil at heavily discounted prices while being reimbursed by the government for subsidized oil products based on market prices (MOPS plus 8 percent), without an offset for the DMO discount.
• Tax incentives for imported goods and services, specifically exemptions from Import Duty and Value Added Tax (VAT), are used by the government to combat declining national oil production and increase gas production for the domestic market. In 2008, the VAT and levies exemption was valued at US$ 130 million.
• The Investment Credit Allowance provides an incentive for PSCos to develop new fields and geological plays by allowing a credit based on capital expenditures for production facilities. In 2008, the net amount of this subsidy after tax was US$ 115 million.
• The report identifies several areas where subsidies likely exist but require further research for quantification, including bank financing support for projects with below-standard internal rates of return (IRR), preferential access to expired Production Sharing Contracts (PSCs) for Pertamina and regional business entities (BUMDs), and the environmental cost of allowing oil and gas operations in forested areas.
• The study concludes that certain upstream activities are not subsidized, including the restoration and rehabilitation of depleted fields, year-end reconciliation of overlifting and underlifting, access to new acreage, farm-ins to existing PSCs, and bonuses paid by industry.
• Indonesia's oil production has declined since 1996 at an average rate of approximately 4.5 percent. While investment in oil and gas increased from US$ 5.9 billion in 2004 to over US$ 12 billion in 2008, exploration expenditure has dropped to only 5 percent of total annual program expenditure, down from 10 percent.

APA

Braithwaite, D., Soelaiman, S., Wiroyudo, G. K., Trimurdadi, H., Soeleman, S., Utomo, S. P., & Rakhmanto, P. A. (2010). Fossil Fuels – At What Cost? International Institute for Sustainable Development. https://www.iisd.org/system/files/2020-12/ffs_awc_indonesia.pdf

Chicago

Braithwaite, David, Soepraptono Soelaiman, Gatot K Wiroyudo, Herucokro Trimurdadi, Sugiharto Soeleman, Sutadi Pudjo Utomo, and Pri Agung Rakhmanto. Fossil Fuels – At What Cost? International Institute for Sustainable Development, 2010. https://www.iisd.org/system/files/2020-12/ffs_awc_indonesia.pdf.

Wikipedia

{{cite report |last1=Braithwaite |first1=David |last2=Soelaiman |first2=Soepraptono |last3=Wiroyudo |first3=Gatot K |last4=Trimurdadi |first4=Herucokro |last5=Soeleman |first5=Sugiharto |last6=Utomo |first6=Sutadi Pudjo |last7=Rakhmanto |first7=Pri Agung |title=Fossil Fuels – At What Cost? |publisher=International Institute for Sustainable Development |date=October 2010 |url=https://www.iisd.org/system/files/2020-12/ffs_awc_indonesia.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{braithwaite2010fossil, author = {Braithwaite, David and Soelaiman, Soepraptono and Wiroyudo, Gatot K and Trimurdadi, Herucokro and Soeleman, Sugiharto and Utomo, Sutadi Pudjo and Rakhmanto, Pri Agung}, title = {{Fossil Fuels – At What Cost?}}, institution = {International Institute for Sustainable Development}, year = {2010}, month = oct, url = {https://www.iisd.org/system/files/2020-12/ffs_awc_indonesia.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }