Revamping Subsidies: Prabowo Subianto’s Vision for Energy and Fuel Reforms
The Indonesian government, under the leadership of Prabowo Subianto, has embarked on a critical reform of fuel and electricity subsidies aimed at increasing the efficiency of state budget expenditures. For years, these subsidies have faced criticism for benefiting upper-middle-class households far more than the low-income groups they were designed to support. The current administration’s initiative seeks to rectify this imbalance and reduce the financial strain on the state budget resulting from inefficient subsidy distribution.
Understanding the Subsidy Landscape
Historically, fuel and electricity subsidies in Indonesia have primarily served wealthier households, particularly those in income deciles 8 to 10, who consume disproportionate amounts of energy. The Ministry of Finance, represented by Minister Purbaya Yudhi Sadewa, outlined a transformative plan during a recent working meeting, emphasizing the need to redirect these financial resources to lower-income households, specifically those within deciles 1 to 4. This restructuring intends to create a more equitable subsidy framework.
The National Integrated Social Economic Data (DTSEN) categorizes income levels, with deciles 1 to 5 encompassing individuals from extreme poverty to the middle-income bracket. The urgency to optimize spending on subsidies has intensified as government operations face rising costs from various programs. Thus, capably navigating this reform is critical for ensuring that public funds are used most effectively.
The Role of Ministries in Reform
The reform will involve collaboration among several key ministries, with the Finance Ministry at the forefront. A significant task ahead is fine-tuning the subsidy distribution strategy, mandated to be developed within six months and fully implemented within two years. The Energy and Mineral Resources Ministry has also outlined that this reform will specifically target subsidies for liquefied petroleum gas (LPG) and electricity.
A crucial element of the reform will be formalized through a new presidential regulation (Perpres) that seeks to amend existing frameworks. This includes updates to previous regulations regarding fuel provision, distribution, and pricing, ensuring that the reforms are codified within the legislative framework, allowing for smoother execution.
Financial Administration and Compensation Mechanisms
A noteworthy change lies in the financial administration of subsidies. The Ministry has introduced Ministerial Regulation No. 73/2025, which alters how compensation funds for companies like Pertamina and PLN related to fuel pricing and electricity tariffs are calculated and distributed. The previous practice of disbursing compensation quarterly or semi-annually has been modified. Now, up to 70% of the compensation for subsidized fuel and electricity may be received monthly, contingent upon a review by the Finance Ministry’s Inspector General.
This improvement is designed to enhance the cash flow of state-owned enterprises (SOEs), which are responsible for public service obligations. A more responsive compensation schedule can stabilize these enterprises financially, reducing bureaucratic delays that often hinder their operational efficiency.
Collaborative Efforts and Progressive Impact
Rosan Perkasa Roeslani, the CEO of Danantara, emphasizes that energy subsidy reform is a step toward bolstering the financial health of SOEs. Citing previous success in transitioning fertilizer subsidies to a market-based mechanism, he highlights the efficacy of cooperation between Danantara and the Finance Ministry. Their joint efforts in shifting subsidy frameworks demonstrate a commitment to economic reform that prioritizes efficiency and accountability.
Current Fiscal Context
As of October, the government has committed a significant sum to subsidies, amounting to Rp 314.9 trillion (approximately US$18.91 billion), which constitutes 66.3% of the 2025 state budget allocation. This figure includes Rp 194.9 trillion designated for direct subsidies and Rp 120 trillion for compensation payments. Remarkably, the distribution of subsidized fuel has already met 72% of its target, alongside substantial distribution figures for LPG and electricity subsidies, indicating a proactive approach in service delivery to the public.
In summation, the ongoing subsidy reform under Prabowo Subianto’s administration is a multifaceted initiative designed to reallocate resources more equitably within Indonesian society, address longstanding inefficiencies, and enhance the overall effectiveness of public spending. The interplay between various governmental bodies and the strategic emphasis on more direct support for the vulnerable signals a pivotal shift in Indonesia’s economic policy landscape.