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Curbing fuel subsidies is only the first step out of energy crisis
The government needs to establish a clear road map to gradually phase out fossil fuel subsidies and should communicate the benefits clearly.
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An attendant walks through a gas station belonging to state-owned energy company Pertamina in Kuningan, South Jakarta, on Dec. 4, 2018. (JP/Seto Wardhana)
I
ndonesia’s fuel subsidies have been a recurring problem for the country’s economy. For years, they have been weighing on the state budget, providing unjust support for fossil fuels and slowing the much-awaited clean energy transition.
But skyrocketing global energy prices could require the country to allocate a colossal Rp 700 trillion (US$46.6 billion) for energy subsidies this year – more than four times the budgeted amount.
The government’s decision to increase the subsidized gasoline price by 31 percent to Rp 10,000 and the diesel price by 32 percent to Rp 6,800 per liter was, therefore, a necessary step to limit the ballooning subsidies – but it needs to come with other measures to cushion the price hike for the most vulnerable population and create an environment that will avert such crises in the future.
Here are three things the government can do to carve the way out of the current energy crisis and build a more sustainable energy system.
First, it must establish a road map to phase out fossil fuel subsidies.
Soaring global energy prices have pressured the government to inject Rp 502 trillion into energy subsidies so far in 2022 – including a Rp 275 trillion compensation for state energy firm Pertamina and utility PLN – to shield consumers from price spikes. But ever rising energy subsidies are not sustainable and could result in reduced spending in other important development areas.
To avoid that, the government needs to establish a clear road map – including short-term and medium-term measures – to gradually phase out fossil fuel subsidies and communicate effectively about it to explain the benefits of reform and build support.
