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**Figure 16: Regulated vs. calculated gasoline prices in Indonesia**

<!-- Start of picture text --> 14,000<br>12,000 Estimated market‐based price<br>10,000<br>8,000<br>Announced price<br>6,000<br>4,000<br>Implied price gap<br>2,000<br>0<br>‐2,000<br>Rp/liter<br>Jan‐14 Apr‐14 Jul‐14 Oct‐14 Jan‐15 Apr‐15<br><!-- End of picture text --> _Source:_ Adapted from World Bank 2015b.

In announcing the decision not to change prices on September 1, 2015, the Ministry of Energy and Mineral Resources for the first time referred to averaging world prices over three, four, and six months. On September 30, 2015, the ministry announced several policy changes, apart from the decision to maintain the same prices. While stating that the new (but unchanged) prices are based on the three‐ month average international prices from June 25 to September 24, the retail prices were lower for gasoline and higher for diesel (after netting out the unit subsidy) than the calculated prices. Starting in January 2016, prices would be adjusted only once every three months. The net deficit/surplus would be calculated at the end of the fiscal year and reconciled. If there is a surplus, it would be transferred to the Energy Security Fund, and the government would find “a solution” in the event of a deficit (Indonesia 2015). On December 23, 2015, the Minister of Energy and Mineral Resources announced that, effective January 5, 2016, the gasoline price would be lowered from Rp 7,300 (US$0.52) to Rp 7,150 (US$0.51) per liter, and the diesel price from Rp 6,700 (US$0.50) to Rp 5,950 (US$0.43) per liter. The new fuel prices would include Energy Security Fund levies of Rp 200 (US$0.014) per liter for gasoline and Rp 300 (US$0.022) per liter for diesel—to finance renewable energy and energy security—and a subsidy of up to Rp 1,000 (US$0.07) per liter of diesel. However, on January 4, 2016, the government announced that it would postpone the imposition of the levies and lower the gasoline and diesel prices by the corresponding amounts to Rp 6,950 (US$0.50) and Rp 5,650 (US$41) per liter, respectively.

Against the backdrop of uneven implementation of the government’s announced petroleum product pricing policy, there is another source of potentially large fuel subsidies: mandatory biofuel blending coupled with unit subsidies for ethanol and biodiesel. Energy Regulation 20 of 2014 sets ambitious targets for mandatory blending of biodiesel in petroleum diesel: 10 percent biodiesel by January 2015, 20 percent by January 2016, and 30 percent by January 2020. Palm oil is the feedstock for biodiesel. For blending ethanol in gasoline, depending on the user, the targets are 1 or 2 percent in 2015, 2 or 5 percent in 2016, 5 or 10 percent in 2020, and 20 percent in 2025. Because biofuels are not competitive with petroleum products much (if not most) of the time (see figure 2 in Kojima 2013a), the Government of Indonesia has agreed to pay unit price subsidies. The parliament in 2015 approved subsidies of up to Rp 4,000 (US$0.30) per liter of biodiesel and Rp 3,000 (US$0.23) per liter of ethanol (OFI 2015), both of which are high by any standards. Presidential decree 61/2015 issued in May 2015 set up a palm oil