Can Indonesia’s policy of reconfiguring its energy mix by increasing natural gas usage support its initiatives to reform subsidies?

Against a backdrop of rapidly growing oil and gas production and exports, the Indonesian government introduced fuel subsidies in the late 1950s to stimulate economic development. However, since the country ceased to be a net exporter of oil in 2004, increasing demand for oil products and political pressure to maintain subsidies has meant that government expenditure on subsidies has steadily escalated. Despite the various energy policy reforms implemented since 1998 to cut fuel subsidies and adapt to the evolution of the country’s energy landscape, it is now clear that oil subsidies are no longer the stabilizers that once helped a young nation find its balance. Indonesia’s dependence on subsidies is, instead, now weighing down a country pedalling hard towards the goal of economic success. This paper argues that increasing the production and consumption of natural gas will provide the much-needed momentum to cut Indonesia’s reliance on oil and empower the incoming Widodo administration to tackle the challenges of reconfiguring its energy mix and establishing sustainable energy policies.

By: Siew Hua Seah

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