Fossil-Fuel Subsidy Reform and Small and Medium-Sized Enterprises (SMEs): The impacts and possible responses

The document examines how fuel subsidy reforms in Indonesia affect SMEs, noting that while these businesses are generally less energy-intensive than large enterprises, they are more vulnerable to price shocks. It highlights that indirect impacts—such as increased transportation costs and reduced purchasing power of low-income consumers—are often more severe than direct energy cost increases. The author recommends government support through improved credit access, infrastructure investment, and technical assistance for energy efficiency and alternative energy adoption.

• SMEs in Indonesia are highly numerous and critical for employment and poverty reduction, with 56.5 million SMEs recorded in 2012. Approximately 99 per cent of these are micro enterprises, often unregistered, operating in the informal sector, and located in rural areas.
• While energy costs are not typically the primary constraint for most SMEs, they vary by industry and region. In 2010, energy was most frequently cited as the main constraint for SMEs in tobacco-processing, and the problem was most acute in provinces such as West Kalimantan, Kepulauan Riau, West Nusa Tenggara, Gorontalo, and Banten.
• Energy costs represent a significant but variable portion of production costs, ranging from 10 per cent to over 65 per cent. For example, fuel costs account for 42.4 per cent of operation costs in the food and beverage industry, where boilers are commonly used.
• Indirect impacts of fuel price increases are generally more significant than direct impacts. These include rising costs for raw materials, increased transportation fares, and a decline in demand as the purchasing power of low-income households—the primary customers for SMEs—decreases.
• Historical and recent fuel price reforms have led to severe financial distress for some SMEs. Anecdotal reports from June 2013 indicate potential bankruptcies in Malang and Sukabumi, while a 2006 survey of 37,950 SMEs found that production costs increased by an average of 28.1 per cent and net income dropped by 18.37 per cent following 2005 reforms.
• The document recommends that the Indonesian government reallocate subsidy savings toward infrastructure, public transportation in rural areas, and technical assistance to help SMEs transition to alternative energies like wind, solar, micro-hydro, or sustainable biofuels.

APA

Tambunan, T. (2013). Fossil-Fuel Subsidy Reform and Small and Medium-Sized Enterprises (SMEs): The impacts and possible responses. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/ffs_indonesia_briefing_SMEs.pdf

Chicago

Tambunan, Tulus. Fossil-Fuel Subsidy Reform and Small and Medium-Sized Enterprises (SMEs): The impacts and possible responses. International Institute for Sustainable Development, 2013. https://www.iisd.org/gsi/sites/default/files/ffs_indonesia_briefing_SMEs.pdf.

Wikipedia

{{cite report |last1=Tambunan |first1=Tulus |title=Fossil-Fuel Subsidy Reform and Small and Medium-Sized Enterprises (SMEs): The impacts and possible responses |publisher=International Institute for Sustainable Development |date=November 2013 |url=https://www.iisd.org/gsi/sites/default/files/ffs_indonesia_briefing_SMEs.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tambunan2013fossilfuel, author = {Tambunan, Tulus}, title = {{Fossil-Fuel Subsidy Reform and Small and Medium-Sized Enterprises (SMEs): The impacts and possible responses}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = nov, url = {https://www.iisd.org/gsi/sites/default/files/ffs_indonesia_briefing_SMEs.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }