Indonesia’s Fuel Price Strategy: Subsidies for the Poor and Adjustments for Non-Subsidized Fuel

The Indonesian government is currently reviewing the pricing of non-subsidized fuels, with Energy Minister Bahlil Lahadalia stating that price adjustments are expected. The ministry is coordinating with the state-owned energy company Pertamina to recalculate the pricing structures for various non-subsidized fuel products.

This review encompasses a range of non-subsidized products, including Pertamax, Pertamax Green, Pertamax Turbo, Dexlite, and Pertamina Dex. The adjustments are being considered as part of a broader strategy to manage energy costs and align fuel pricing with market conditions.

Government Stance on Subsidized Fuel

While non-subsidized fuels face potential price changes, President Prabowo Subianto has emphasized that subsidized fuel prices will remain stable. The administration intends to maintain current pricing for subsidized fuels to protect low-income citizens.

President Prabowo has explicitly stated that wealthy individuals who wish to use fuel should purchase the more expensive, non-subsidized options, reinforcing the policy of directing subsidies toward those who need them most.

In addition to price stability for the poor, President Prabowo has urged Bahlil Lahadalia to ensure that fuel stocks remain secure, warning that while current supplies are safe, the government must not become complacent in its management of energy reserves.

Long-Term Subsidy Reform and Fiscal Goals

The current pricing discussions occur within the context of a larger national effort to reform fuel subsidies. Indonesia has established a goal to phase out these subsidies by 2027 to improve fiscal efficiency and environmental sustainability.

As part of this transition, the government aims to reduce subsidized fuel volumes in 2025 by 0.17 million kiloliters, targeting a total of 19.41 million kiloliters for kerosene, and diesel. This shift is intended to redirect government resources away from broad fuel subsidies and toward direct cash transfers for low-income households.

To ensure these subsidies reach the intended recipients and to limit pollution, the state is introducing stricter eligibility criteria and the use of QR code tracking systems.

Economic and Market Context

The World Bank has noted that the Indonesian economy has remained resilient despite fluctuations and increases in energy prices. This stability provides a backdrop for the government’s attempts to rebalance public spending.

Market trends indicate that consumers are increasingly adopting non-subsidized fuels, despite the volatility of their prices. However, the energy retail market faces challenges regarding competition. Pertamina’s market dominance and regulatory asymmetry have led to investigations by the KPPU into potential anticompetitive practices that may disadvantage private retailers.

Beyond retail fuel, Indonesia is navigating a complex energy transition. Coal continues to provide 63% of the power supply, which complicates the integration of renewable energy sources, even as the country targets 44% renewable integration by 2030. Opportunities for investment are emerging in biofuel mandates and decentralized solar projects, although these are often tempered by high financing costs and regulatory uncertainty.

Recommendations for Future Policy

International guidance suggests that Indonesia should continue developing a national plan to phase out fossil fuel subsidies. Recommendations include:

• Evaluating major subsidies and support measures to align with long-term fiscal, energy, and climate goals.
• Strengthening the institutional framework to manage the transition.
• Gradually shifting public spending away from fossil fuel subsidies to prioritize support for sustainable energy and social safety nets.

The current coordination between Minister Bahlil and Pertamina represents the immediate operational step in managing the volatility of non-subsidized fuel prices while the government pursues its broader 2027 phase-out objective.