Lessons Learned from Indonesia’s Attempts to Reform Fossil-Fuel Subsidies

The report analyzes Indonesia's long-term struggle to reform fossil-fuel subsidies, focusing on the period from 1998 to 2010. It examines the rationale for reform—primarily relieving budgetary pressure and improving social welfare efficiency—and evaluates two specific strategies: the Bantuan Langsung Tunai (BLT) unconditional cash transfer program and the Kerosene to LPG Conversion Program. The document concludes that while targeted cash transfers and fuel-switching programs can effectively reduce political opposition and budgetary burdens, they require rigorous preparation and monitoring to avoid social conflict and implementation failures.

• Fossil-fuel subsidies in Indonesia have historically created significant budgetary pressure, with the World Bank estimating they ranged from 10 to 28 per cent of the national budget between 2001 and 2008.
• Traditional fuel subsidies in Indonesia were inefficient at targeting the poor; the wealthiest 40 per cent of households captured between 60 and 70 per cent of the subsidy spending.
• The Bantuan Langsung Tunai (BLT) program, launched in 2005, is considered a success in reducing social and political opposition to fuel-price hikes, contrasting with the 1998 reforms that triggered violent riots and the resignation of President Suharto.
• While the BLT effectively reached many poor households, it caused intra-community conflict, leading some village officials in East Java to resign due to blame from non-qualifying families.
• The Kerosene to LPG Conversion Program, started in 2007, aimed to convert 20 million families to LPG by 2010 to reduce the high cost of kerosene subsidies.
• By February 2010, the LPG conversion program reported distributing starter packs to 44 million households, resulting in a net saving of US$1.47 billion, although implementation was limited to western provinces due to distribution complexities in eastern Indonesia.
• Indonesia's electricity sector has seen limited reform progress; the state utility PT PLN continues to use a complex tariff structure that fails to cover costs, with subsidies estimated at US$1.6 billion in 2005 and predicted to reach US$6.4 billion by May 2008.
• The government's 2007 National Action Plan for Addressing Climate Change identifies fossil-fuel subsidy cuts as a means to increase the competitiveness of alternative energy sources and promote energy diversification.

APA

Beaton, C., & Lontoh, L. (2010). Lessons Learned from Indonesia’s Attempts to Reform Fossil-Fuel Subsidies. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/lessons_indonesia_fossil_fuel_reform.pdf

Chicago

Beaton, Christopher, and Lucky Lontoh. Lessons Learned from Indonesia’s Attempts to Reform Fossil-Fuel Subsidies. International Institute for Sustainable Development, 2010. https://www.iisd.org/system/files/publications/lessons_indonesia_fossil_fuel_reform.pdf.

Wikipedia

{{cite report |last1=Beaton |first1=Christopher |last2=Lontoh |first2=Lucky |title=Lessons Learned from Indonesia’s Attempts to Reform Fossil-Fuel Subsidies |publisher=International Institute for Sustainable Development |date=October 2010 |url=https://www.iisd.org/system/files/publications/lessons_indonesia_fossil_fuel_reform.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{beaton2010lessons, author = {Beaton, Christopher and Lontoh, Lucky}, title = {{Lessons Learned from Indonesia’s Attempts to Reform Fossil-Fuel Subsidies}}, institution = {International Institute for Sustainable Development}, year = {2010}, month = oct, url = {https://www.iisd.org/system/files/publications/lessons_indonesia_fossil_fuel_reform.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }