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Today's Headlines Energy Subsidies

  • Rising Crude Oil Prices Cause Surging Energy Subsidy Bill

    The government of Indonesia needs to keep spending on energy subsidies under control. Looking at the latest data, released by the Finance Ministry on Wednesday (03/01), the government spent IDR 7.4 trillion (approx. USD $573 million) more on energy subsidies (fuel, LPN and electricity) throughout 2017 than it had targeted in the (revised) 2017 state budget.

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  • No Investment Grade Yet but S&P Positive about Indonesia

    Global credit rating agency Standard & Poor's (S&P) appreciates the policy reforms that have been conducted by the Indonesian government because these changes lead to more openness as well as to enhanced competitiveness. Apart from cutting costly energy subsidies (and redirecting a large chunk of available funds to infrastructure development) the government also unveiled 12 economic policy packages since September 2015 (while more packages are in the pipeline) that include matters such as tax incentives and deregulation (aimed at boosting investment).

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  • Statistics Indonesia: Electricity Subsidy Cut Raises Inflation & Poverty

    Statistics Indonesia (BPS) said the government's plan to cut electricity subsidies for 450 VA and 900 VA households (per 1 January 2016) is likely to lead to a higher inflation and poverty rate. Cutting the electricity subsidy bill is part of government efforts to reduce costly energy subsidies and redirect these funds to productive investments (for example infrastructure development or social welfare programs). Moreover, more than 20 million Indonesians are enjoying subsidized electricity, while they are not classified as (near) poor.

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  • Government of Indonesia Cuts Prices of Low-Octane Gasoline and Diesel

    Due to sharply fallen global crude oil prices the Indonesian government announced on Friday (16/01) that prices of fuels (low-octane gasoline and diesel) will be cut by an average of 14 percent, effective from Monday (19/01). The price of gasoline will drop 13 percent to IDR 6,600 (USD $0.53) per liter and diesel by 15 percent to IDR 6,400 (USD $0.51) per liter. Lastly, the government also reduced the price of Pertamina’s liquefied petroleum gas (LPG) by 4.2 percent to IDR 129,000 per 12-kilogram-cannister.

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  • Reforming the Subsidized Fuel Price Policy of Indonesia

    The Indonesian government has further reformed its decade-old fuel subsidy policy in a move to streamline - and make more structural use of - public spending. The latest change is effective from today (1 January 2015) and thus Indonesia moved a step closer to applying a market-based price mechanism. The government now uses a fixed diesel subsidy of IDR 1,000 (USD $0.08) per liter, while subsidy for low-octane gasoline is scrapped altogether (however the government will account for gasoline distribution costs outside Java, Madura and Bali).

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  • Bank Indonesia's Interest Rates Up to Combat Inflation after Fuel Price Hike

    The central bank of Indonesia decided to raise its key interest rate (BI rate) by 25 basis points from 7.50 percent to 7.75 percent on Tuesday (18/11) in a response to the subsidized fuel price hike. One day earlier, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by more than 30 percent starting from midnight in an effort to create more fiscal space for economic and social development. This move is expected to result in accelerated inflation in Southeast Asia’s largest economy.

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  • Jokowi Raises Indonesia’s Subsidized Fuel Prices by IDR 2,000/Liter

    After weeks of uncertainty, Indonesian President Joko Widodo announced on Monday (17/11) that prices of subsidized fuels (gasoline and diesel) are to be raised by IDR 2,000 (USD $0.16) per liter starting from midnight. Gasoline (premium) is to be raised from IDR 6,500 to IDR 8,500 per liter, while diesel will be raised from IDR 5,500 to IDR 7,500 per liter. Earlier it was speculated that an IDR 3,000 per liter price hike would be announced. However, as global oil prices have declined sharply, this was considered an unnecessary burden for the people.

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  • Jokowi & Brodjonegoro on Indonesia’s Subsidized Fuel Price Hike

    After speculation started to rise that Indonesia would perhaps not raise prices of subsidized fuels (gasoline and diesel) in November as recent declining global oil prices have managed to somewhat relieve the government’s budget deficit, Indonesian Finance Minister Bambang Brodjonegoro said over the weekend that the Indonesian government is still eager to raise these prices within a couple of weeks. However, he added that the price hike will be less than IDR 3,000 (USD $0.25) per liter.

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  • Bank Indonesia’s Governor Supports Higher Subsidized Fuel Prices

    Agus Martowardojo, Governor of Bank Indonesia, is highly supportive of president-elect Joko Widodo’s plan to increase prices of subsidized fuels before the end of the year as this move would help to diminish the country’s structural current account deficit as well as improve the trade balance. Widodo, who will assume office on 20 October 2014, is expected to raise prices of subsidized fuels by between IDR 1,000 and 3,000 per liter, and relocate state funds to social and economic development.

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Latest Columns Energy Subsidies

  • Actual Energy Subsidy Spending by Indonesian Government Well Below Target in 2022. Why?

    The Energy and Mineral Resources Ministry of Indonesia reported that government spending on energy subsidies in full-2022 reached IDR 157.6 trillion (or approx. USD $10.5 billion), well below the target that was set by the central government for 2022 (namely at IDR 211.1 trillion or approx. USD $14.1 billion). So, this certainly is good news for the government’s budget balance.

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  • Perennial Fuel Subsidy Dilemma; After Raising Prices, Indonesia Needs to Brace for High Inflation

    While one month ago we read (in Indonesian media) that Indonesian President Joko Widodo vowed no increase in prices of subsidized fuels before the end of 2022, the situation suddenly changed. Based on reports in Indonesian media in the second half of August 2022 there were growing signs that the government was busy preparing a significant increase in prices of subsidized fuels (involving Pertalite and Pertamax gasoline fuels as well as automotive diesel oil) to safeguard a healthy budget balance for the government.

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  • Indonesia's Energy Subsidy Spending Far Above Target in 2018

    Ahead of the legislative and presidential elections (scheduled for April 2019) the Indonesian government is unwilling to impose impopular measures. One of the side-effects is that subsidy spending has gone beyond the target that was set in the 2018 State Budget. Lets take a closer look at spending on energy subsidies in Indonesia so far this year.

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  • Indonesia's Infrastructure Spending Below Average, How Come?

    If we take a look at Indonesia's central government spending in the first four months of 2018, then we detect something interesting. Overall, government spending has grown in the January-April 2018 period (compared to the same period one year earlier). However, growth in government spending is led by rising social assistance spending and rising subsidy spending. Meanwhile, growth of infrastructure spending has been much less robust. Does this mean that the Indonesian government has curtailed infrastructure development spending in order to relieve rising pressures on the budget deficit?

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  • Indonesia's Intervention in Fuel Prices Thwarts Private Investment

    There is concern that the Indonesian government's plan to curb price increases of (non-subsidized) fuels in Indonesia will impact negatively on private investors' enthusiasm to invest in Indonesia's oil and gas industry. Earlier this week Arcandra Tahar, Deputy Minister at the Energy and Mineral Resources Ministry, informed that the government wants to regulate prices of fuels in order to keep inflation in check.

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  • Looking Back at 2017: Success & Failure of State Budget Targets

    Although realization of most components in Indonesia's state budget have improved in 2017, tax revenue realization and the management of energy subsidies remain the two big challenges for the Indonesian government. Southeast Asia's largest economy again failed to meet its tax revenue target last year. Per 31 December 2017 it collected IDR 1,151.5 trillion (approx. USD $85.3 billion) in tax revenue, only 89.74 percent of the target (excluding customs and excise).

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  • Inflation Indonesia: Administered Price Adjustments Form Challenge

    The central bank of Indonesia (Bank Indonesia) said it carefully monitors the impact of higher electricity tariffs on the nation's inflation pace in March 2017. This month the government implemented the second phase of its gradual electricity tariff increase program for 900-VA household customers. Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN) decided to raise the electricity price for 900-VA households three times this year in order to cut energy subsidies and ensure that these subsidies are indeed channeled to the right people.

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  • What are Joko Widodo's Economic & Social Development Targets?

    Last week, Indonesian President Joko Widodo introduced higher subsidized fuel prices in Southeast Asia’s largest economy in a bid to shift generous public spending from fuel consumption to productive and structural economic and social development. Prices of subsidized low-octane gasoline (premium) and diesel (solar) were raised by over 30 percent, or IDR 2,000 (USD $0.17) per liter, starting from 00:00 on Tuesday (18/11). Widodo aims to reallocate these funds to infrastructure, social welfare and the maritime sector.

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  • Performance of Indonesian Stocks Depends on Subsidized Fuel Policy

    Indonesia’s fuel subsidy policy is estimated to have a large influence on investors’ confidence in the financial or fiscal fundamentals of Southeast Asia’s largest economy and thus on the performance of the local stock index and currency. New president elect Joko Widodo (popularly known as Jokowi) is expected to raise prices of subsidized fuels after taking office in late October 2014 in an attempt to combat the country’s wide current account deficit (mainly caused by expensive oil imports to meet domestic fuel demand).

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  • Bank Indonesia: Current Account Deficit Eases Slightly in 2014

    The central bank of Indonesia (Bank Indonesia) expects that the country’s current account deficit will only ease slightly in 2014. Last year, the deficit reached 3.3 percent of Indonesia’s gross domestic product (GDP), a level which is generally considered unsustainable and leads to reduced investor confidence. Countries that have to cope with a wide current account deficit, such as Indonesia and India, are highly vulnerable in times of global shocks as investors will quickly withdraw their investments from assets in these countries.

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