Increased sales of vehicles in Indonesia have resulted in increased consumption of subsidized fuel, which in turn has led to a surge in demand that oil suppliers could not meet. Consequently, the country underwent a period of turmoil lasting several weeks as motorists were stuck in line for hours trying to purchase the subsidized fuel.
Violence erupted in some regions due to the lack of fuel, but the tensions eased when Pertamina rushed additional fuel to the stations, following President Susilo Bambang Yudhoyono’s call for a solution to the fuel shortage.
Indonesia has provided fuel subsidies since the 1960s to keep the commodity affordable for everyone. Although the subsidy scheme makes the price of petrol in Indonesia the cheapest in the region, it has also become a perennial headache for the government, costing them approximately 20% of the annual budget.
In 2013, the government will spend Rp193 trillion (US$3.5 billion) as subsidy for a quota of 46 million kiloliters of fuel. The subsidy eats up a big chunk of the annual budget: it is higher than the combined national budgets for education, health care and public works. However, it is becoming increasingly difficult for the government to keep up with consumer demand.
Because the government’s focus has been on fuel subsidies, there have been no incentives for the development of alternative energy fuel sources, which is a cause for concern, considering that Indonesia’s oil and gas reserves are being depleted. Cheap fuel has also resulted in more cars on the road, resulting in extra costs for traffic management. Smuggling of subsidized petrol has also become prevalent across the borders between Indonesia’s East Nusa Tenggara and neighboring Timor Leste where the price of petrol is higher.
Studies have shown that the direct beneficiaries of the fuel subsidies are not the lower-income groups who rely on public transport. Majority of the consumers of subsidized petrol or diesel fuel come from the high-income groups, who own private cars. As such, the government has been repeatedly asked to rethink the fuel subsidy scheme. (December 10, 2012)