With global oil prices having fallen below USD $30 per barrel - the lowest level since 2003 - it may seem a positive matter for a net oil importer such as Indonesia. However, in the case of Indonesia there are few reasons to become excited about low oil prices.

Read Further: Analysis of Indonesia's Declining Oil Production

Firstly, the Indonesian government already drastically reduced public spending on energy subsidies since Joko Widodo became Indonesia's seventh president. In November 2014 subsidized fuel prices were raised in order to relieve pressure on the government budget balance and at the start of 2016 subsidy for gasoline fuel was basically scrapped altogether while a fixed IDR 1,000 per liter subsidy was put in place on diesel. This means that current low oil prices have a relatively small positive effect on the government's budget balance. In fact, given that Indonesia also still exports oil (although being a net oil importer), government revenue from the oil & gas sector has weakened. Indonesia's upstream oil & gas regulator SKK Migas said revenue from the upstream oil & gas sector of Indonesia is estimated to fall 16 percent to USD $10.77 billion in 2016 from USD $12.86 billion in 2015.

Meanwhile, being a net oil importer (and oil still being the most important energy source in the country's energy mix), Indonesia has difficulty to lower fuel and electricity prices due to the weaker rupiah exchange rate. Therefore low global oil prices cannot really improve people's purchasing power in Indonesia (yet). Over the the past three years, the Indonesian rupiah has depreciated a staggering 41 percent against the US dollar.

In the 2016 State Budget, the Indonesian government set its oil price target at USD $50 per barrel. However, this seems an unrealistic target (as it would imply oil has to peak toward USD $75 per barrel later this year in order to achieve the target). Komaidi Notonegoro, researcher at the Reforminer Institute, said Indonesia's crude oil price may reach a maximum USD $40 per barrel in 2016 due to the sluggish global economic context and persistently high oil output in the OPEC member countries as well as in the USA. The USD $10 per barrel difference (between the government target and expected realization at the year-end) may lead to a IDR 8 trillion (approx. USD $575 million) slide in the government's tax collection and a IDR 27 trillion (approx. USD $1.9 billion) decline in government revenue from non-tax revenue, according to Notonegoro.

State Revenue from Oil & Gas and Macroeconomic Assumptions:

      2011     2012     2013     2014       2015
State Budget
State Budget
Income Tax Oil & Gas
(in billion rupiah)
 73,095.5  83,460.9  88,747.4  87,445.7    49,534.8    41,441.5
Non-Tax Revenue Oil & Gas
(in billion rupiah)
193,490.6 205,823.5 203.629.4 216,876.1    81,364.9    78,617.4
Indonesia Crude Oil
(in US dollar per barrel)
   111.5    112.7     106      97        60        50
Oil Lifting
(in thousand bpd)
    898     861     825     794       825       830
Rupiah Exchange Rate
   8,779    9,380   10,451   11,878     12,500     13,900

Source: Kontan

Secondly, low oil prices give rise to declining prices of other commodities. For example, crude palm oil (CPO) and coal. As crude oil has become cheap, demand for CPO and coal (both are also energy sources) declines accordingly. Indonesia is the world's largest producer and exporter of CPO, while the country is also a leading producer and exporter of coal (especially low grade thermal coal) hence collecting valuable foreign exchange through the CPO and coal business.

In 2016 Indonesia is expected to collect USD $18.6 billion from its CPO exports, down from a peak of USD $21.6 billion in 2012. Although this decline may seem relatively limited, one has to take into account that in 2016 Indonesia is expected to export 27 million tons of CPO, whereas in 2012 it exported 18.2 million tons of CPO. As such, a simple calculation shows that per ton of exported CPO, foreign exchange earnings have dropped significantly.

Similarly, Indonesia currently generates little from its coal export compared to a few years ago. Indonesia's benchmark thermal coal reference price (in Indonesian: Harga Batubara Acuan, or HBA), a monthly rate set by the Energy Ministry, fell to a record low of USD $53.20 per metric ton (FOB) in January 2016. In January 2012 the HBA rate was at USD $109.29 per metric ton.

Indonesian Palm Oil Production & Export Statistics:

   2008  2009  2010  2011  2012  2013  2014  2015   2016
(million tons)
  19.2   19.4   21.8   23.5  26.5   30.0   31.5   32.5   32.0¹
(million tons)
  15.1   17.1   17.1   17.6  18.2   22.4   21.7   26.4   27.0¹
(in USD billion)
  15.6   10.0   16.4   20.2  21.6   20.6   21.1   18.6   18.6¹

¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture

Indonesian Production, Export, Consumption & Price of Coal:

  2007 2008 2009 2010 2011 2012 2013 2014 2015
(in million tons)
 217  240  254  275  353  412  474  458  392
(in million tons)
 163  191  198  210  287  345  402  382  295
(in million tons)
  61   49   56   65   66   67   72   76   87
Price (HBA)
(in USD/ton)
  n.a   n.a  70.7  91.7 118.4  95.5  82.9  72.6  60.1

Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources