AN INPUT TO INDONESIAN FUEL PRICE SYSTEM REFORMS

The report analyzes Indonesia's transition from ad hoc fuel subsidies to a new pricing system introduced in January 2015, which aims to reduce wasteful spending by passing through international price changes. It evaluates 'good practice' across four dimensions—subsidies, pass-through, transparency, and enforcement—and examines case studies from China, Mexico, India, the Philippines, South Africa, and Thailand. The document argues that while full deregulation is the international benchmark for fiscal sustainability, Indonesia's constitutional constraints necessitate a robust, government-led mechanism. It recommends adopting variable taxes, improving real-time monitoring, and investing in non-pricing measures such as energy efficiency and targeted social safety nets to protect vulnerable groups from price volatility.

• Indonesia historically maintained some of the lowest fuel prices globally; as of November 2012, no other Southeast Asian country or BRICS nation had gasoline and diesel prices as low as Indonesia's.
• The Indonesian government's January 2015 pricing reform resulted in significant fiscal savings, specifically IDR 195 trillion (US$ 15.6 billion) in the State Budget Revision 2015.
• Public awareness regarding fuel subsidies in Indonesia is low: only 44% of citizens knew fuel was subsidized and only 4% knew the amount of government expenditure allocated to these subsidies.
• A previous attempt at an automatic pricing mechanism in 2002 failed due to poor internal coordination, inadequate poverty reduction capacity, weak communication, and a period of structural appreciation in world oil markets.
• Indonesian constitutional rulings, specifically Case No. 002/PUU-I/2003, limit the use of pure market competition for fuel pricing, requiring the government to stipulate prices while considering 'specific community groups' to prevent 'the strong from preying on the weak'.
• International 'good practice' for fuel pricing involves ensuring prices cover production and distribution costs, adjusting domestic prices to reflect international market costs and exchange rates, and maintaining transparent, accessible information on price components.
• Case studies show diverse volatility management tools: China and India have used adjustable fuel taxes to smooth prices, while Mexico uses the Excise Tax on Products and Services (IEPS) as a 'negative tax' to lower prices during oil price spikes.
• The Philippines and Thailand have utilized non-pricing measures to manage volatility, such as targeted cash transfers (4P program in the Philippines) and providing free public services like bus and train rides for the poor (Thailand in 2008).
• South Africa manages its gasoline pricing through the Basic Fuel Price (BFP) based on import parity pricing, delegating the daily application of the formula to the independent Central Energy Fund (CEF) to depoliticize the process.
• To strengthen its system, Indonesia is advised to implement variable taxes, link price adjustments to absolute changes in world prices to reduce hoarding, and invest in real-time monitoring to tackle non-compliance.

APA

Beaton, C., Christensen, L. T., & Lontoh, L. (2015). AN INPUT TO INDONESIAN FUEL PRICE SYSTEM REFORMS. International Institute for Sustainable Development. https://www.iisd.org/sites/default/files/gsi/ffs_indonesia_pricing.pdf

Chicago

Beaton, Christopher, Lasse Toft Christensen, and Lucky Lontoh. AN INPUT TO INDONESIAN FUEL PRICE SYSTEM REFORMS. International Institute for Sustainable Development, 2015. https://www.iisd.org/sites/default/files/gsi/ffs_indonesia_pricing.pdf.

Wikipedia

{{cite report |last1=Beaton |first1=Christopher |last2=Christensen |first2=Lasse Toft |last3=Lontoh |first3=Lucky |title=AN INPUT TO INDONESIAN FUEL PRICE SYSTEM REFORMS |publisher=International Institute for Sustainable Development |date=March 2015 |url=https://www.iisd.org/sites/default/files/gsi/ffs_indonesia_pricing.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{beaton2015input, author = {Beaton, Christopher and Christensen, Lasse Toft and Lontoh, Lucky}, title = {{AN INPUT TO INDONESIAN FUEL PRICE SYSTEM REFORMS}}, institution = {International Institute for Sustainable Development}, year = {2015}, month = mar, url = {https://www.iisd.org/sites/default/files/gsi/ffs_indonesia_pricing.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }