Indonesia spent IDR164.7 trillion (US$18.1 billion) subsidizing fuel products in 2011, of which IDR76.5 trillion (US$8.4 billion) was spent subsidizing gasoline. The rising cost of subsidies is placing a huge burden on limited public resources and presents a fiscal liability, vulnerable to increases in the international price of oil. Fuel subsidies are also known to be regressive and a highly inefficient tool for reducing poverty and meeting the country’s development needs.
The government has made progress toward reform. It has significantly reduced kerosene subsidies with its kerosene-to-LPG conversion program. In January 2012, the government announced plans to reduce subsidies by restricting access to subsidized gasoline and developing gas-based alternative transport fuels, to be implemented by April 2012; and, as of March 2012, the government has announced a plan to raise the price of subsidized gasoline (“Premium”) by IDR1,500 per litre, which is equivalent to one third of the current price.
This report is an output from a project whose objective was to assist the Indonesian government to implement fossil-fuel subsidy reform and create a sustainable network to support it. The project mapped the positions of major stakeholder groups based on consultations and surveys conducted in 2011. It also provided new analysis of the practical challenges facing the government’s specific implementation plans to reduce gasoline subsidies, as announced in January 2012. Finally, the action plan draws on both research and consultations to provide a set of recommended actions for progressing fuel subsidy reform.