Fuel Subsidies

Dec 5th, 2007, in Business & Economy, by

Subsidies on fuel will be reduced, for some.

On 7th November 2007 president Susilo Bambang Yudhoyono said that the retail price of oil (BBM) in Indonesia, which is subsidised by the government, would not increase in spite of world oil prices remaining well over state budget calculations. antara

It is not an option [to reduce the state subsidies].

However on 4th December Coordinating minister for the Economy, Boediono, announced that subsidies for high demand products, such as premium octane 90 and Pertamax fuel, would be reduced in proportion to people’s ability to pay for them, on a localised basis.

Those who can afford it should pay more, that’s fair isn’t it.

Later, Hanung Budya, the Deputy Director of Niaga and Pemasaran PT Pertamina, said that subsidies would first be reduced in Jakarta, Banten, and West Java, these areas accounting for 30% of national consumption of premium fuel. Batam and Bali will follow next, these areas being considered wealthy enough to accommodate the extra costs.

He added that petrol/gas stations nearby high class housing estates would possibly see their subsidies reduced to zero.

A member of the Komite Badan Pengatur Kegiatan Hilir (BPH) Migas, Adi Subagyo, said that in future it was likely that all subsidies on premium fuel would be abolished, with subsidies remaining only on solar fuel and cooking oil. kompas

Meanwhile vice president Jusuf Kalla said on the same day that the reduction of premium subsidies, coming into effect in 2008 and approved by the president, would not harm the poor. kompas

President SBY has instructed that it must not hurt the little people. It won’t!


If you drive a Mercedes or a Volvo, you can pay, there’s no need for a subsidy.

Those who rode on motorbikes and drove public transport vehicles would not have to pay the same price as those in expensive cars, Kalla suggested, but it seems the price difference will be determined by the location of the petrol station, whether on a main road or not.

12 Comments on “Fuel Subsidies”

  1. iamisaid says:

    Hmmm, let’s see if that will be true.

    The flip side is despite such good intentions for the “little people” with regards to petrol and gas, will other essential products be spared from further price increases?

  2. Sputjam says:

    These subsidies only make smugglers rich.
    If the smugglers deposited their ill gotten gain in local banks, thne it would be easier to swallow. Instead, their ill gotten gains are deposited in banks in singapore, only the amount needed to pay for the subsidised fuel is sent back.
    Kerosene smuggled from indoensia are mixed with cheap diesel and sold as high-end diesel products by singapore bunker companies.
    This have been going on for decades. The govenrment thinks it is heping the poor, but the rich smugglers are earning huge dividends. Is it any wonder why the expensive properties in singapore are purchased by indonesian and indonesians are the main buyers at High end shops (LV, Chanel etc) in singapore?
    End result will be shortage of fuel as all these items are smuggled out.

  3. Dragonwall says:

    No wonder JK was suggesting to go Euro playing the buy low sell high tactics. With the subsidy..waduh..kiri masuk kanan masuk..cepat kaya..la.

  4. falcon says:

    With subsidies problems are never ending, besides the black market practitioners are always better and smarter. If one can ride a motorcycle or a car (no matter how old the vehicle is) it means their earnings is more than 1 dollar a day, thus subsidies must be stopped. The funds set aside for subsidies (fuel and electricity as well) should be allocated for educating the poor so they can be productive and have the capacity to establishing UKM retailing/production/manufacturing facility as a place for employment. Handing out cash for the poor is a stupid idea. Policy of subsidies are of the past and it is a no brainer policy.

  5. Dragonwall says:

    The idea of KUK was improvise by Adi Sasono that failed so badly giving credit to small business..(seperti air kucur ka bawah tanah..) No return. Total Loss.. The suggested idea will be (1) either it must be very big and very strong like wall mart (failed earlier in Jakarta) (2) diversified which is also needs to be very big.

    One disappointment. The Government cannot afford. They are more interested in fighting Malaysia and buying new arms…

  6. parvita says:

    I heard next year all private cars should use Pertamax. Premium is just for public transportation.

    Indonesia is oil importer now so no wonder it is a big issue with the high price of oil. Plus there is no additional resources for oil. Oil production is decreasing fast, probably we will have a major crisis in 2030 where we are not producing enough oil.

    Do DPRs pay for their fuel?

  7. raden says:

    how can Pertamina eventually control and ensure this Delivery Order (DO) which today the gas station operators must pay it first in the bank, then with the paid DO as a proof, they will approach the nearest depot to deliver the fuels?
    You know the Indonesian style, there will be second market jual beli (as we are familiar, Indon are very smart to look for haram money, money & money) at depot level, the station operator (pengusaha) who normally have more than 1 stations will always order on behalf of his station located in the suburb to get more subsidy (and there is no way Pertamina can control / detect it because they do not have on-line system) but eventually ‘damai’ ditempat with the Pertamina depot & truck drivers to redirect the subsidized fuels delivery to his Kemang or Permata Hijau gas stations ? We are talking Rp 6250 – Rp 4550 / litre difference here times 2 full load truck tanks means easily Rp 3.5 juta per short trip. Then u can count depot like Plumpang, how many trucks going out for delivery per day ? per month ?

    I smell money money …… Indon are really smart to look for ‘celah celah dalam kesempitan’ …. , indeed it is very unique here, you can not get easy money in other countries.

    Lets go apply for job in Pertamina depots, if there is one position, I also want it !

  8. Sputjam says:

    Raden Says

    Lets go apply for job in Pertamina depots, if there is one position, I also want it!

    Better still, open up a petrol station, or if big money you are after, an oil storage facility, preferably with a jetty. All transaction in cash.

    Many years ago subsidised diesel were sold to foreign fishing boats at market prices. The sellers used their own tankers and claim that fuel will be for local consumption and got the diesel at subsidised prices. Not sure if practise is still rampant.

    Pertamina foot the bill for fuel subsidise, supposedly for the poor. Yes the poor saved some money, but ultimately the super rich with their tankers and oil storage tanks made a killing. No wonder the income gap between the rich and the poor are getting bigger.

  9. Dragonwall says:

    Before the DO reaches Pertamina there are go betweens, no wonder they choose a place PLUMPANG where things goes plimplan..ha..ha..what a joke.

  10. Raden says:

    Ho Ho Ho … Fuels price will increase 30% again … don’t forget …
    when fuels premium was rp. 1100 / lt under $oeharto, rakyat miskin
    when fuels premium is rp. 4500 / lt under SBY-JK, rakyat makin miskin
    soon fuels premium will be rp 6000 / lt …., rakyat makin jarang makan
    … over 2 decades the fuels price increased 600% times … the only constant parameter was … rakyat tetap aja miskin ….. , while our hydrocarbon reserves depleting rate and it’s getting very deep that one day economically will not be justify for production.

    Fuels price increase will only temporarily solve the gov’t balance payment problems but never solve the fundamental problem of ‘rakyat jarang makan’.
    fuells increase at the expense of gov’t inefficiency & incompetency to produce more hydrocarbon reserves … is this rakyat’s faults ?

    Why NOT we consider to outsource the gov’t operation to Singapore, India or China gov’t ? .. maybe Indon is better being colonialized with other proven country, we hv changed presidents many many time .. the result just unseen at all …… s e d i h ….

  11. Petzie says:

    Hahh…Indonesia…indonesia…that’s my Indonesia…~~~ where there’s money, there’s way…

    i read this article to help me in my final exams..^^,, so please, if anyone here got another opinion abt BBM in indonesia, dun hesitate to tell me some..^^

  12. XPower says:

    Well, this article was made in 2007. Right now 209, about subsidies on fuel will be reduced, for some, it make a big effect. Some kind chain reaction and i think government of Indonesia know about this. So, if the result bad effect have more dominant, why they still reduce subsidies for citizens?

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