Future of Indonesia’s Energy
Independency:
Review on Fuel Subsidies Reform of
Joko Widodo’s Government
Research Paper

AuthorAruni Larasati
51-138207
Research Paper Advisor
Prof. Kazumasa Kusaka
Date of Submission
21 May 2015
Revised as of
11 September 2015

Future of Indonesia’s Energy Independency

Research Paper

Graduate School of Public Policy, the University of TokyoEXECUTIVE SUMMARY
Indonesian government introduced fuel subsidies in the late 1950s to stimulate economic
development. However, since the country ceased to be a net exporter of oil in 2004,
increasing demand for oil products and political pressure to maintain subsidies has meantthat government expenditure on subsidies has steadily escalated. Despite the various
energy policy reforms implemented since 1998 to cut fuel subsidies and adapt to theevolution of the country’s energy landscape, it is now clear that oil subsidies are no longer
the stabilizers that once helped Indonesia to find its balance. Indonesia’s dependence on
subsidies is now weighing down the country’s efforts to reach economic success.
Several efforts have been taken since a decade ago, to slowly cutting down fuel subsidies.
However, every time the government tried to cut down fuel subsidies, public’s response
was always negative and often times create instability to domestic’s affair. Because of thisinstability created by public’s reaction, the government was forced to stabilize it rightback by, ironically, putting back the subsidies. Only in 2013 that the former President
Susilo Bambang Yudhoyono tried to compensate it with social assistance fund that goesto poorest society to ensure that relocation of fuel subsidy goes to the need ones. Even so,
Indonesia’s state-budget still suffers the burden of huge fuel subsidy allocation of around
18% of state budget in 2014 (Oxford, 2014).
In 2014, the new elected President Joko Widodo put the fuel subsidy reform as his toppriority during his first days of administration. Soon after he was elected and before hetook office, he announced that fuel subsidy would be cutting down gradually. The result
is, as of January 2015, Indonesia’s fuel subsidy has been cutting down entirely with very
little exceptions for distribution cost throughout rural part of Indonesia. His priority fromcutting off fuel subsidy is to channel the money to other productive sectors, mainly
investment for infrastructure, economic, health, and education. As reform in any energy
sector’s policy would affect to energy consumption in a country, this paper would like todiscuss the relation, or the possibilities, between the cutting off of subsidy, to the effort inboosting alternative energy other than fossil fuel in the country. Indonesia still need a lotof energy reserve to suffice its needs for electricity and transportation, therefore
government’s effort especially under President Joko Widodo’s administration is important2

Future of Indonesia’s Energy Independency

Research Paper

to be observed—since in the long run, it will determine Indonesia’s independency orreadiness to fulfill its energy demand.
LIST OF ABBREVIATIONS
BOE—

Barrel of oil equivalent

BOI—Bank of Indonesia (Indonesia’s central bank)

BPPT

—

Badan Pengkajian dan Penerapan Teknologi(Agency for Technology Assessment and Application)

GWe—

Gigawatt of electrical output

LPG—

Liquefied Petroleum Gas

MW—

Megawatt

MWe—

Megawatt of electrical output

OPEC

—

Organization of the Petroleum Exporting Countries

3Future of Indonesia’s Energy Independency

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Table of Contents
I.

Introduction .................................................................................................................. 6

I.1. Indonesia’s Energy Consumption ................................................................................ 7
I.2. Indonesia’s Energy Resources Potential ...................................................................... 8I.3. Current Energy Issues ................................................................................................ 10
II.

Recent Energy Policies .............................................................................................. 11II.1. Fuel Subsidy .............................................................................................................. 12II.2. Efforts for Fuel Subsidy Reform................................................................................ 13
III. New Elected President Joko Widodo’s Policy on Fuel Subsidies ............................. 13
III.1.Public Reaction to Fuel Subsidy Reform ................................................................... 14
III.2.Impact Analyses on Fuel Subsidy Reform................................................................. 16
III.3.Future of Renewable Energy and Indonesia’s Energy Independency ....................... 16
III.4.Comparison with Malaysia ........................................................................................ 18
IV. Policy Recommendation ............................................................................................ 18
V.

	
  
	
  

Conclusion ................................................................................................................. 19	
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Future of Indonesia’s Energy Independency

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LIST OF FIGURES
Figure 1: Final energy consumption by sector ………………………………… 7
Figure 2: Final energy consumption by type …………………………………... 8
Figure 3: Oil and oil products trade deficit ……………………………………. 11
Figure 4: Indonesia’s fuel subsidies during New Order government ………… 12
Figure 5: Global oil prices 2014 …………………………………………………. 16
Table 1: Fossil energy potential in Indonesia (2011-2012) …………………….. 9

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Future of Indonesia’s Energy Independency

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I.   Introduction
Indonesian government has introduced fuel subsidies in the late 1950s to stimulate
development. However, since Indonesia’s withdrawal from OPEC in 2004, increasing
demand for oil products and political pressure to maintain subsidies has caused thegovernment expenditure on subsidies steadily escalated. It is now clear that oil subsidies
is no longer the stabilizers that once helped Indonesia to find its balance. Indonesia’s
dependence on subsidies is now weighing down the country’s efforts on achieving
economic success. Several efforts have been taken by the previous administrations ofIndonesia since early 2000s. However, political pressure and public protests caused such
efforts to drawn back and fuel subsidies to be reinstated.
The recent presidential election brings new hope for Indonesia in many aspects. The newelected President of Indonesia, Joko Widodo (or Jokowi), has taken a bold step within his
early months’ administration—he cut down energy subsidies and subsequently scrapping
off entire subsidies for fuel. This reform on fuel subsidies is desperately needed in orderto give fiscal room to fund another bigger program to benefit the people. It was said thataround 240 trillion rupiah (18 billion USD) might be redirected for vital infrastructure,
health, and education.
President Jokowi’s subsidy reform is said to be the kick-start to cut down Indonesia’s
reliance on oil and other fossil fuels. Vital infrastructure that will be financed is including
renewable energy sector to decrease the country’s dependence on fossil fuel fortransportation, as well as to support Indonesia’s demand of electricity.
This paper will be discussing the past efforts of fuel subsidy reform, with introduction toIndonesia’s energy condition and issues in general. Furthermore, we will enter into thediscussion on the reform took by President Jokowi’s administration, and how the reform
benefits from the declining price of global oil price. Lastly, we will be discussing on how
this fuel subsidy reform will finally trigger efforts of renewable energy development
further, as this country seemed to have started but have not proven significant results.
Investment and most importantly the government commitment in energy reform as awhole will surely contribute to Indonsia’s energy sustainability and independency in the
future.

6Future of Indonesia’s Energy Independency

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I.1.  Indonesia’s Energy Consumption
Final energy consumption in the period of 2000-2012 increases from 764 million BOE to
1,079 million BOE or grow an average of 2.91% per year. This final energy consumption
does not take into account of other petroleum products such as lubricant, asphalt, etc. used
in industry sector. If we take a look at the final energy consumption share, as of 2012, thelargest share of demand is industry sector (38.8%), followed by household (30.7%),transportation (28.8%), commercial (3.3%) and other sector (2.4%). During the period of
2000-2012, the transportation sector experienced the largest growth reached 6.92% per
year, and then followed by commercial sector (4.58%), and industry sector (2.51%). Thishigh rate growth in transportation sector was caused by the rapid growth of vehicles
during the time span of 2000-2012, which reached 14.3% per year. On the other hand,households have the smallest growth during 2000-2012 because the households had
shifted their usage of equipment and technologies to be more modern and efficient.
Figure 1: Final energy consumption by sector (in million BOE)

Others	  Commercial	
  Transportation	
  Industry	
  Household	
  Total	
  Source: Indonesia Energy Outlook 2014, BPPT

If we look from the type of consumption, final consumption of energy in Indonesia is still
dominated by petroleum fuel (avtur, avgas, gasoline, kerosene, diesel oil, and fuel oil).
During 2000-2012 periods, total fuel consumption increased from 315 million BOE to
398 million BOE – an increase of 1.9% per year in average.

7

Future of Indonesia’s Energy Independency

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Figure 2: Final energy consumption by type (in million BOE)

Fuel	
  
Coal	
  
Gas	
  
LPG	
  
Electricity	
  Biomass	  Total	
  Source: Indonesia Energy Outlook 2014, BPPT

Patterns change on fuel consumption are due to the high rate consumption of gasoline byprivate cars, the high rate consumption of avtur or avgas by aircraft, diversification energy
in industry sector, and kerosene substitution program with LPG in household sector. Coal
consumption increased from 36.1 million BOE to 123 million BOE in 2012, rose in an
average 9.9% per year. The entire consumption of coal is used for energy demand inindustry sector. Natural gas consumption increased from 87.2 million BOE in 2000 to
125.3 million BOE in 2012 – a rise of average 2.8% per year. However, limited
infrastructure and distribution of natural gas limits the supply of this industry to satisfy its
demand. In electricity consumption, from 2000 to 2012 it has grown in average of 6.2%
per year. This number is lower than coal and LPG consumption as we can see from Figure
2, indicating the low level of electrification ratio of Indonesia, especially in comparison toother South East Asian countries.1

I.2.  Indonesia’s Energy Resources Potential	
  Indonesia’s energy resources discussion may be divided into two main parts, fossil energy
resources and renewable energy resources. Since Indonesia still rely mainly on fossil
energy, it seems impossible to get rid of fossil energy entirely from calculation whentalking about energy resources potential.

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
1

Indonesia has the electrification ratio of 75.8% in 2012, while Singapore, Malaysia, Philippines, andVietnam have 100%, 99.4%, 89.7%, and 97.6% ratios respectively.

8

Future of Indonesia’s Energy Independency

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Fossil energy consists of coal, oil, and gas is the main energy resource in Indonesia. Mostof the energy reserves, including mineable coal, are located in Sumatera and Kalimantan
islands of Indonesia.
Table 1: Fossil energy potential in Indonesia (2011-2012)

Source: Indonesia Energy Outlook 2014, BPPT

Based on Table 1 above, it was calculated that the ratio of reserves to production of coal
dropped from 79 years in 2011 to 75 years in 2012. As for oil, the reserve to production
ratio is about 12 years in both 2011 and 2012. Natural gas experienced an increase ofreserve to production ratio to become 33 years in 2012. Based on the calculation ofreserve to production ratio of fossil energy, coal has the biggest potential with a lifetimeof 75 years, while gas potential would be finished in the next 33 years. Oil is the smallest
potential of fossil energy resources with potential last only until the next 12 years, if no
new reserves are found.
Besides fossil energy, other energy potential in Indonesia is the renewable energy, such ashydropower, geothermal, wind, solar, ocean, and biomass. Its potential location isadequate but scattered in various parts of Indonesia. Based on the data from Ministry ofEnergy and Mineral Resources in 2013, Indonesian geothermal reserves amounted to
16,484 MW of about 28,617 MW potential. Up to September 2013, the installed capacityof geothermal power plant is 1,242 MW. As for biomass, its potential for electricity
reached 49.8 GWe with installed generating capacity connected to the grid at 445 MWe.
The potential of solar power in Indonesia is quite high with an intensity of 4.8
kWh/m2/day and with utilization of 12.1 MWe. For new wind power, the installedcapacity generation is about 1.1 MWe of 9,290 MWe potential.
As for hydropower potential, a recent study in 2011 by Nippon Koei (BPPT, 2014) statedthat large scale hydropower potential in Indonesia is 26 GW, consists of 4 GW from9Future of Indonesia’s Energy Independency

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projects that are already in operation, 6 GW from the project being planned andstructured, and new potential of 16 GW. In regard to the mini or micro hydropower,Indonesia has the potential of 500 MWe. Based on the data from Indonesia Nuclear
Energy Agency, total reserve or uranium in Indonesia is amounted up to 59,200 tons –equivalent to 6.5 GWe, while total reserve of thorium was recorded at 1,500 tons –equivalent to 1,850 MWe for 30 years operation.
Other resources of renewable energy that are not widely known, but already being
developed in other parts of the world, are ocean waves, tidal energy, ocean currents, ocean
thermal energy, and ocean salinity. Indonesia is an archipelagic country, with water as its
territory more dominant than land. This is a big potential of renewable energy resources
for Indonesia if in the future they can develop renewable energy derived from ocean.

I.3.  Current Energy Issues
Energy sector in Indonesia is currently facing tough challenges in both global and national
scopes. Some actual problems are:-­‐‑   Population growth of an average 1.31% per year, reached 241 million in 2012;-­‐‑   Continuous decline of oil production while demand for energy is growing
continuously, which led the increase in import of crude oil and petroleum products
shown by the increase of deficit at oil account in second quarter of 2014;-­‐‑   Limited utilization of natural gas, despite the huge potential in the country, due to theinadequate infrastructure as well as the long-term contract of large gas export;-­‐‑   Small utilization of renewable energy potential due to the high cost of investment,
bureaucracy, incentives or subsidies, the high final selling price of renewable energy
compared to fossil energy, lack of knowledge in adapting the clean energy facilities,
and the scattered location of renewable energy resources; and-­‐‑   Export of coal exceeds domestic consumption that in the long run will deplete thecoal resource potential in Indonesia, leading to energy supply problem for future
generations.
Other than problems mentioned above, Indonesia is now facing serious problem intransportation sector and electricity issues. In transportation sector, the growth of roadinfrastructure is not proportionate with the growth of vehicles that reached an average of10

Future of Indonesia’s Energy Independency

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14.3% per year with only 3.1% growth of road per year. It causes traffic jam especially in
big cities, resulting to the loss of time and money, increase in vehicle operating costs,
energy waste, severe air pollution, not to mention the immaterial loss of stress level of its
people. Main cause of the rapid growth of motor vehicles and fuel consumption is thesubsidized rates price of gasoline and diesel oil set by the government.
In electricity sector, problems occur in the management of national electricity system,
such as high cost of electricity production compared to the sale price, supply uncertainty –especially for natural gas, as oil-fired power is still the main source of energy, and thearchipelagic nature of Indonesia that complicates the transmission and distribution ofelectricity. Electricity supply is also facing difficulties especially from the growth ofdemand that is higher than its supply, also the construction of power plant’s problems –absence of basic standard in licensing process and the financing, as well as landacquisition difficulties.

II.   Recent Energy Policies
Some part of energy use in Indonesia is still subsidized, and its realization in 2013reached 199 trillion rupiah (16 billion USD), rose by 5.2 trillion rupiah (400 million USD)
from its fuel subsidy budget. The condition of 2014 budget year was not far from the2013’s. Central Bank of Indonesia’s statistics shows that in the second quarter of 2014 thedeficit in oil and gas trade balance rose to 3.2 billion USD, increased by 2.1 billion USD
from the same period a year earlier. Meanwhile, in non-oil and gas trade balance,
Indonesia posted a surplus of 2.7 billion USD in the second quarter, higher than theprevious year by 1.5 billion USD.
Figure 3: Oil and oil products trade deficit

Source: Indonesia Energy Outlook 2014, BPPT

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Future of Indonesia’s Energy Independency

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Energy subsidies increased continuously from over the few years. Somehow, it isinteresting to see that the spending on energy subsidies are always larger than the
allocated budget. It can be estimated that by the end of 2014 the total energy subsidies
will rise to more than 300 million rupiah, which will further burden the state budget. Thiscondition has been the main consideration on the reduction of fuel subsidy to achieve a

Briefonallocation
Indonesia’s
less 2.0
restrictive
fiscalBackgroundspace for the funds
on moreFuel
usefulSubsidies
development program.

Indonesia has subsidized fuel since the the country’s independence in 1949 (Beaton & Lontoh, 2010, p. 2).
1960s, fuel subsidies accounted for about 20 per cent of the state budget (Hidayatullah, 2010). While the New
II.1.  Fuel Subsidy
Government (1966–1998) took steps to adjust the price of fuels, the reforms were temporary. Since the mid-1
fuel subsidies have significantly increased.

	  Indonesia has subsidized fuel shortly after the nationalization of Dutch enterprises in
FIGURE 2: FUEL SUBSIDIES DURING THE NEW ORDER GOVERNMENT

1957. Under President Soekarno regime, the country began subsidizing oil products used

Fuel subsidy (in billion Rp.)in the transportation, industrial, and power generation sectors in a bid to stimulate andprotect45000
citizens from inflation (Oxford, 2014). In 1960s, fuel subsidies accounted forabout 40000
20 per cent of the state budget (Global Subsidies Initiatives, 2014). There was once
35000

30000 during the New Order era (1966-1998), but the reforms were temporary.
an adjustment
25000

Such 20000
adjustment was needed following the Asian Financial Crisis in 1998, and the15000 then need to comply with IMF requirement in exchange for 43 billion USD
administration
10000

rescue 5000
package. The government need to cutting down fuel subsidies to reduce01977-1978
1978-1979
1979-1980
1980-1981
1981-1982
1982-1983
1983-1984
1984-1985
1985-1986
1986-1987
1987-1988
1988-1989
1989-1990
1990-1991
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000

government expenditure and improve the country’s fiscal deficit (IEA, 2014). However,such effort did not smoothly rescued Indonesia, and instead since mid-1990s, the fuelsubsidies have significantly increased.

Figure 4: Indonesia’s fuel subsidies during New Order government

Fuel subsidy(in billion(inUSD)billion US$)

1977-1978
1978-1979
1979-1980
1980-1981
1981-1982
1982-1983
1983-1984
1984-1985
1985-1986
1986-1987
1987-1988
1988-1989
1989-1990
1990-1991
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000

7
6
5
4
3
2
1
0

Source:Subsidies
Initiatives
Research
Report, 2012
Source:(2007:Global32), Lestyowati(2011),and Antweiler(2009)© 2012 The International Institute for Sustainable Development
RESEARCH REPORT MARCH 201212
Indonesia’s Fuel Subsidies: Action plan for reformFuture of Indonesia’s Energy Independency

II.2.  

Research Paper

Efforts for Fuel Subsidy Reform

Up until 2012, there are three major efforts in fuel subsidies reform in Indonesia, whichwere undertaken in 2003, 2005, and 2008. The first one followed the launch of National
Energy Policy of 2003-2020 (Kebijakan Energi Nasional 2003-2020), when thegovernment under President Megawati Soekarnoputri raised fuel and electricity prices.
However, these reforms were met with widespread protests and ended as government
eventually reinstated the subsidies.
President Susilo Bambang Yudhoyono (took office in 2004-2014) has been more
successful at reforming fuel subsidies. Such effort was a part of broader effort to improveenergy conservation and diversification. In 2006, President Yudhoyono issued
Presidential Decree No. 5 of 2006, which committed the government to reaching the “fuelmarket price in a gradual manner”. The decree was also established the Blueprint for
National Energy Management 2006-2025, which further emphasized the government’s
commitment to fuel subsidy reform.

In line to the said blueprint, Yudhoyono’s

administration reformed energy subsidies in 2005 and 2008. Two rationales were used tojustify such reforms; first, is that a significant increase in the global price of oil had forced
it to reduce subsidies; and second, that rising cost for fuel subsidies were undermining thegovernment’s ability to fund vital public services, such as health, education, andinfrastructure development.
Despite these reform efforts, fuel subsidies remain high in Indonesia, as rising global oil
prices and increased demand for oil products has offset progress on subsidy reform.

III.   New Elected President Joko Widodo’s Policy on Fuel
Subsidies
New elected president of Indonesia, Joko Widodo or Jokowi, had planning on reducing
fuel subsidies over the next few years since he was running for presidency. This plan got
criticized a lot by the opposing candidate at that time, since it was deemed not benefitting
the people and simply will not be easily implemented—recalling back in 1998 when
protests over fuel price increases contributed to the downfall of President Soeharto.
However, Jokowi was bold with this plan.

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Future of Indonesia’s Energy Independency

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Right after he took office in October, he started to raise fuel price in November by 30% of
the current fuel price at that time. Approaching the day of increase of fuel price on
November 18, 2014, there was an increase in the currency’s exchange rate to US Dollar,
as well as Great Britain’s Pound Sterling, Europe’s Euro, Japanese Yen, and Chinese
Yuan. This was a positive signal considering that it was a sensitive decision and many
people expecting another negative reaction like it was in the past. At the same time,increase of fuel price in November caused the increase of life cost both directly andindirectly. BOI predicted that annual inflation in 2014 would reach 7.9%, which is still at
the acceptable range—being 7.7%-8.1%, with the increase of fuel price contributed asaddition to annual inflation of 2.6% to 3%. Recent data from Statistics Bureau Agency isthat the actual annual inflation in 2014 resulted from the increase of fuel price inNovember 2014 reached 8.36%, which was 0.26% higher than the upper limit predicted
by BOI. In order to moderating this inflation, on November 18, BOI increase its
benchmark interest rate from 7.5% to become 7.75% and increased lending facility of
0.5% to become 8% (New York Times, 2014). Such anticipating policies were not shown
during the previous fuel price increase back in July 2013
Following the first reform in November 2014, at the end of December 2014, President
Jokowi announced another fuel subsidy reform in continuation with his plan, and inadjustment to the global oil price. He announced that the subsidy for fuel will beeliminated entirely, and impose a fixed subsidy to diesel fuel—this resulted to a decreasein domestic fuel price as the global fuel price is also declining. The decrease in oil prices
this time was also affecting the exchange rate and stock market. Even though theexchange rate was stagnant, such decrease of fuel prices has been seen as a positivechange. This time, the impact on inflation due to the change of fuel price was considered
to be moderate compared to the increase of fuel price back in November 2014 (Global
Subsidies Initiatives, 2014).

III.1.  

Public Reaction to Fuel Subsidy Reform

Any changes to domestic fuel price have always been popular policies in Indonesia. Fuelprice increase back in November 2014 and its decrease in January 2015 were notexception. One critic towards the government on these policies was the price stickiness
effect on price, whereas the decrease of fuel price in January 2015 was not followed by
the decrease of other prices. This price stickiness was because the government did not
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Future of Indonesia’s Energy Independency

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have other policy to control market price anymore, since it has been surrendered entirely
to the market mechanism (Establishment Post, 2015).
On the other hand, increase on fuel price is seen as one of policy that has disturbing effect,
like what happened to public response on price increase in November 2014. Following
the announcement, before the new price was effectively imposed, people wereimmediately rushing to buy fuel at gas stations throughout the country. This caused longqueue for hundreds of meters in several places. It caused mild tension at several gas
stations since armed police guarded those places (Republika, 2014). The panic-buying
phenomenon was ended once the new price announced.
Prior to the day of announcement, many protest and actions were happened throughout
Indonesia. Most of the times, these protest ended with anarchist behavior. Most of theprotesters were university students claimed to be speaking up on behalf of the people.
Sometimes those protest lead to discomfort felt by ordinary people, who sometimes fightback once the protesters turned to be anarchists. These behavior cause instability andinsecurity by the people, especially when armed police or army steps in.
From transportation sector, public transportation workers, especially drivers, protested
about the increased on fuel price. They tried to negotiate to delay the effective imposingof new price to public transportation vehicles since it will affect the transportation fare as
well. Aside from transportation workers who got affected directly, protests also camefrom labor unions. They demanded for cancellation of price increase plan and increase on
their minimum wage, which they have been fought over for sometime.
However, public reaction towards the increase of fuel price was not entirely negative.
Indonesian Consumers Organization (Yayasan Lembaga Konsumen Indonesia) for
example, supported the plan to cut off fuel subsidy. Their only note was the government
had to prepare a detailed scheme for budget relocation, and to make sure that thetransportation facilities will be taken care. Two notable university student organizations
from top notable universities were also taking stand to support this fuel subsidy cut off.

15

Dua minggu kemudian – Jumat, 16 Januari –pemerintah mengumumkan bahwa harga bahan bakar
kendaraan sekali lagi turun mulai Senin 19 Januari.
Future of Indonesia’s
Energy Independency
Harga premium
turun dari Rp 7.600 menjadi Rp 6.600
per liter (US$ 0,61 menjadi US$ 0,53 per liter) dan harga
solar dari Rp 7.250 menjadi Rp 6400 per liter (US$ 0,6
III.2.  
ImpactAnalyses
Fuel Subsidy
menjadiUS$ 0,51
per liter)on(Liputan6,2015a).Reformreformasi
BensinPremium

6.500

8.500

Solar
5.500
Research Paper

7.500

Minyak
Tanah

2.500

2.500

Pada bulan November, Preside
akrab dipanggil Jokowi, menjel
telah berhasil
penghapusan
IndonesiaIndonesia
has successfully
scrappedmelakukan
off fuel subsidy
entirely by January 2015, at the same
untuk mereformasi subsidi mer
subsidi bensin pada saat yang sama dengan penurunan
mengalihkan
time as thedeclining price of global oil prices since July 2014. Duringuntuk
the timeof first subsidi dar
harga bahan bakar ini karena adanya penurunan
produktif, khususnya untuk infr
tajam
harga minyak
internasional
sejak
Juli 2014
fuel subsidy
decreasein November
2014, thedomesticfuel(lihat
price increased,since(lihat
the Kotak 1).
pendidikan
Gambar 1), yang pada akhirnya menurunkan hargainternational
oil price
was still above
the domestic
price—with
subsidy.
minyakinternasionaldi bawahtingkat fuel
harga
yang
Saat ini masih sulit untuk memp
diregulasi di tingkat domestik.
dampak dari perubahan terseb

menunjukkan bahwa pemerinta
serius untuk mereformasi subsi
satu sasaran yang ia tekankan plalu dan pada saat pelantikan. F
harga baru-baru ini amat mengIndonesia, yang hingga Novemb
perubahan harga bensin dan so
2005. Di sisi lain, masih harus ditanggapan pemerintah jika harg
kembali. Keputusan untuk kemlevel sebelum November adalanamun hal itu juga berarti akandalam skala yang lebih besar disituasi politik yang terjadi saat isulit bagi pemerintah untuk meyang tidak populer, khususnya b
Sumber: World Bank, 2015.
yang tidak terbiasa dengan peru
Source: Chart by Global Subsidies Initiatives, 2015 (data from World Bank, 2015)setelah harga minyak dunia me
Upaya untuk menghapus subsidi juga terjadi padaterjebak di antara kebijakan me2014, namun berdampak sebaliknya, ketika pada 17
yangtidak populer,
The scrapping
off
of
fuel
subsidywasintended
so
that
the
budgetinitially
for subsidy
may atau mengg
November diumumkan bahwa harga domestik akan
membangkitkan
kembali subsid
dinaikkan untuk memotong pengeluaran subsidi. Pada
Figure 5: Global crude oil prices 2014
Gambar 1. Harga Minyak
Mentah 2014

be allocated from consumptive sectors to other productive sectors, especiallysaat itu, harga minyak internasional masih lebih tinggi

infrastructure,
health,domestik.
and education.
dari harga
Pemerintah meningkatkan harga

Skema Subsidi Baru

premium dari Rp 6.500 ke Rp 8.500 per liter (US$ 0,52
Pengumuman pemerintah padmenjadihasUS$0,7 perliter) dan Solar
5.500 being Specified Fuel, FuelNow, Indonesia
threeclassifications
to its darifuel Rp
products,
tidak hanya terkait perubahan
menjadi Rp 7.500 per liter (US$ 0,44 menjadi US$ 0,62
memperkenalkan skema subsid
for Special
GeneralFuel.
Specified
Fuelpada
is a category tersebut
for fuel products
perAssignment,
liter). Hargaandbaru
tersebutsegeraberlaku
memperkenalkan tiga
18 November 2014, pada pukul 00:00 WIB, sekaligus
that are still receiving subsidies, such as kerosene and diesel fuel—in thebakar,
future yaitu
dieselBBM
fuel tertentu, BBM
mengakhiri spekulasi yang berlangsung berbulan-bulan
BBM umum.
kemungkinan
perubahanbahan
will get atentang
fixed subsidy,
and kerosene
will getharga
a fixedprice.bakar
Fuel for Special Assignment
setelah Pemilu Presiden.
4Kategori pertama, “BBM terten
is fuel to suffice rural and small areas of Indonesia. The fuel here is without
subsidy, thedan minyak tanah, yaitu produksame as General Fuel, but the government will still bear the cost of distribution to such
rural areas so that the fuel price there will bear the same as the ones in big cities.

III.3.  Future of Renewable Energy and Indonesia’s Energy
Independency
At APEC Forum in Beijing last November 2014, President Jokowi mentioned that themain cause driven fuel subsidy relocation is to relocate the budget from consumptive

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sector to productive sectors (GSI, 2015). However, to relocate the national budget is notan easy task. The fund could not be relocated instantly after scrapping off the fuel price. It
should be scrutinized by observing changes in Amendment to National Budget posts thatshould be finished by mid 2015.
Nevertheless, President Jokowi’s government has shown some indication how the savingof fuel subsidy would be used. In several statements, the government mentioned that thescrapping off of fuel subsidy enables government to increase its contribution to StateOwned Enterprises (SOEs). A report said that the government is planning to inject thefund in the amount of 48 trillion Rupiah (3.8 billion USD) to various SOEs, especiallythose who engage in construction and transportation sectors. One of the SOEs targeted is
PT PLN (SOE in electricity), and expected to finish their electricity plant worth of
120,000 MW out of 350,000 MW within five years.
Other sector predicted to be part of the 200 trillion Rupiah (16 billion USD) relocation
fund from scrapping off fuel subsidies are fund for poor people, energy, and environment,
where government’s budget will be directed for infrastructure development in the future.
Indonesian government just recently announced that they will boost ‘green investment’ tosupport effort of acceleration to reach renewable energy utilization by 25% in 2025
(Tempo, 2015). As stated by the Minister of Energy and Mineral Resources of Indonesia,
investment in energy sector will prioritizing to the development of renewable energy,
which currently still 7% from the total energy utilization in Indonesia. The government
said that they would raise the budget for investment in renewable energy development andinclude such initiation in the Amendment of State Budget 2015. Various incentives, bothfiscal and non-fiscal, will be implemented as well to boost such investment. The Minister
also stated that up until recently, there are a lot of investors wanting to invest in green
energy because the potential is still huge. He said that the identified hydro energy
potential is reaching 75 GW, solar energy potential is 112 GW, biofuels of 32 GW, windenergy of 0.95 GW, biomass of 32 GW, geothermal of 28.8 GW, and ocean power of 60
GW.
From investment side, the Head of Indonesian Investment Coordinating Board stated thatseveral incentives have already implemented to boost investment climate, such as tax
holiday, tax allowance, as well as import duties for electricity component, in addition to17

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the perfected One-Stop Service of investment permit. One of the recent update inrenewable energy investment is an investment commitment worth 4.01 billion USD
through a forum held in coordination with Scottish Development International in
Glasgow, United Kingdom (Republika, 2015). Investment’s focus will be on solar energy
sector over 10 MW and offshore tidal energy.
Indonesia has been purchasing electricity due to the increase of electricity demand—
which in the other hand is a good sign of development, but the supply generated is only
sufficient to fulfill 87.43% of demand (CEIC, 2014). If the above mechanisms ofimproving development of renewable energy to substitute fossil fuel go well, Indonesia
will be able to fulfill its energy demand, especially electricity, which has been weighing
down the country for several years.

III.4.  Comparison with Malaysia
In addition to the discussion above, we can see the similar case is happening inIndonesia’s neighboring country, Malaysia. In December, Malaysia abolishes the fuelsubsidy due to the declining of global oil price (Bloomberg, 2014). Fuel subsidy issue has
been burdening Malaysia for some time as well, with contribution up to 10% of
government’s operating expenditure (IISD, 2014). As Malaysia is still a net exporter ofoil, the declining of global oil price will not benefit them as much as it benefits Indonesia.
Researchers calculated that the net effect of a sustained fall in crude oil prices on theeconomy would likely be a bigger drag than the fuel subsidy savings, given thecontribution of oil and gas sector revenue contribution to Malaysia’s GDP ratio was 6.6%
versus the fuel subsidy to GDP ratio of 2.3% in 2013 (The Star, 2014).

IV.   Policy Recommendation
After a comprehensive discussion and assessment to the issue above, there are still a lot ofthings that Jokowi’s government should prepare and address. Policy recommendations thewriter wishes to initiate the government are the following:-­‐‑   The government, through its respective bodies and ministries, has to conduct strict
supervision to the spending of budget relocation so that the plan of channeling fuelsubsidy budget to other sector may actually be attained. This is in relation to the18Future of Indonesia’s Energy Independency

Research Paper

government restructuring that are happening now in major ministries and government
agencies to eliminate corruption and in-transparency of public officials in Indonesia;-­‐‑   We note that there is a price stickiness happening from the first decrease of fuelsubsidy, that made the fuel price increase in November 2014 and did not going downeven though the global fuel price is declining nowadays. Due to this phenomenon, thegovernment needs to work in fast pace to improve public infrastructure and social
prosperity, so that if one day the global fuel price increasing, the public will not facethat much burden—which in the past public protests and force pushed thegovernment to re-imposed fuel subsidy back;-­‐‑   Government through its relevant agencies should overcome the obstacles that hinder
investors to invest, especially for crucial sectors such as energy and infrastructure.
Most investors currently experiencing land acquisition problem that are happening inmany part of Indonesia. The government must immediately address and escort theland acquisition issue so that it will smoothen investment activities and developmentof infrastructure.

V.  Conclusion	
  This paper has discussing from the beginning, the overall condition of Indonesia’s energy
consumption and energy issues that the country is facing for the past 10 years. Fuelsubsidies, which were intended to guard Indonesia’s people, became a weigh down for thecountry to develop. President Jokowi, and his predecessors, have tried to overcome suchburden in the state budget derived from fuel subsidies. As good faith as it is, cutting off
fuel subsidies has not been a favorable policy of the people, since it almost always raised
the fuel price—until recently. President Jokowi has the good timing when the global oil
price is declining, so his recent policy to entirely scrapping off fuel subsidy resulted to adecrease in domestic fuel price. Many speculation was thrown out on how President
Jokowi would relocate the fuel subsidy budget to other productive sector. Through recent
indication and signals, such budget will be allocated—among other sector as well, to buildand continue to develop several energy infrastructure projects, especially renewableenergy, which has been delayed for some time. This brings hope on the future ofIndonesia’s energy sustainability, since they cannot rely on fossil fuels forever, in fact theprediction on fossil fuel reserves in the country will not be sufficient for a long time. The
country must build and secure new alternative energy sources to guarantee their energy

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independency in the future. However, the process up to this day is still facing several
obstacles and it is government’s responsibility to overcome, along with private sectors
support, me and guard the sustainability of their scrapping off fuel subsidy policy.

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