Policy Update: Indonesia Will Raises Diesel Subsidy in 2019

President Joko Widodo along with Vice President Jusuf Kalla and Finance Minister Sri Mulyani Indrawati hold press conference in Monday (30/4).

JAKARTA (TheInsiderStories)—Indonesian government will raise diesel subsidy from Rp500 per liter to Rp2,000 per liter in 2018’s State budget to support people’s purchasing power and save the state-owned energy company PT Pertamina financial performance, said senior official on Tuesday (05/06).

Finance Minister Sri Mulyani Indrawati said the government has agreed on the Ministry of Energy and Mineral Resource (MEMR) proposal to lift diesel subsidy from Rp500 per liter to Rp2,000 per liter. The additional subsidized diesel was jointly calculated by the MEMR Minister Ignasius Jonan, State-Owned Enterprises Minister Rini Soemarno, Pertamina, and state-owned power company PT Perusahaan Listrik Negara.

“On the one hand, keeping people [purchasing power], the condition of the company [Pertamina], and so that the state budget remains healthy,” she said.

Indonesia suffers low people’s purchasing power during recent years indicated by the low household consumption in the gross domestic product (GDP) growth.

The household consumption, the backbone of Indonesia’s economy, grew below 5 per cent in 2017, according to the Indonesia Statistics data, first since 2010. The household consumption also grew only 4.95 per cent in the first quarter of 2018.

The increase in diesel subsidy is inevitable as the oil price continues to hike at US$74,38 per barrel for Brent on May, 6. The Indonesia Crude Price (ICP) for May 2018 reached $72.46, much higher than oil price assumption in the state budget at $48 per barrel.

If the government did not raise the diesel subsidy, Pertamina must pay the price gap between subsidy and the real price. The oil and gas holding company on March 2018 calculated a potential loss of Rp3.9 trillion (US$280.58 million) due to selling fuel at below market price.

Furthermore, the minister said, government is also increased the electricity subsidy budget due to an addition of 1 million of 450 VA customers and 900 VA customers. The two consumers group are considered as low-income families that can receive power subsidy.

The Energy Ministry’s Electricity Director General Andy Noorsaman Sommeng earlier said an addition of a million costumers will increase electricity subsidy by around Rp5 trillion.

The additional of diesel and electricity subsidies proposal has submitted to the House of Representative Commission VII. The Finance Ministry will convey this to the Commission XI.


The additional subsidies plan faced much criticism as this move is suspected to improve President Joko Widodo electability to win next year presidential election.  Fuel price hike is often to be ammunition for the opposition to attack the ruling government.

Even though the additional subsidy will be increasingly burdensome for the State budget, considering the budget deficit has reached Rp85.8 trillion in the first quarter of 2018 or 0.58 per cent of gross domestic product (GDP) in the first quarter of 2018. The government set a deficit of 2.19 per cent in 2018 state budget or Rp325.9 trillion.

The government set Rp46.3 trillion in fuel subsidy in 2018 state budget, of which Rp7.8 trillion is for diesel subsidy.

US$1: Rp13,900

Email: fauzulmuna@theinsiderstories.com