Actual Energy Subsidy Spending by Indonesian Government Well Below Target in 2022. Why?

As is widely known, the Indonesian government engages in generous energy subsidy spending, aimed at supporting the poorer households, thereby encouraging social development. This is a program that started under the Suharto regime (1966-1998) when Indonesia was still a considerable oil producer, hence it was relatively easy to provide society with cheap fuel.

However, due to a lack of investment in exploration and exploitation, Indonesia’s oil production has been in a structural state of decline since the mid-1990s (while at the same time the country’s demand for fuel and electricity has jumped structurally – and significantly – amid robust economic growth over the past decades). And so, the country now has to import a substantial amount of oil and fuels from abroad.

The chart below shows that Indonesia’s crude oil production fell from a record level of around 1.6 million barrels per day (bpd) in the mid-1990s to around 600,000 bpd in the present. And, while the Indonesian government still targets to raise its crude oil production rate to one million bpd by 2030, many doubt that this target can be achieved. Moreover, focus also seems to have shifted to renewable energy sources amid a high degree of foreign pressure.

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