Gas network infrastructure and energy subsidy reform
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Antara News - Infrastruktur jaringan gas dan reformasi subsidi energi
11 February 2025
By Hanni Sofia
A few days ago, there was a shortage of 3-kg LPG cylinders in green tanks, leading to long queues at official LPG outlets.
The situation has now returned to normal after retailers were permitted to sell directly to the public.
However, even though retailers are now permitted to sell 3-kg LPG cylinders, long queues might recur due to the high consumer demand.
One reason for the high demand for 3-kg LPG cylinders is the subsidy, which allows consumers to purchase them below their economic value.
Initially, subsidised LPG was intended for the poor, as indicated on the tank. However, since distribution is carried out through retailers and sold freely, individuals who are not classified as poor also benefit from the subsidy. This is why energy subsidies will continue to rise.
This situation highlights the urgent need for energy subsidy reform in Indonesia, particularly concerning the 3-kg LPG cylinders.
According to 2024 data, the energy subsidy allocation reached Rp189.1 trillion, with Rp87.4 trillion specifically for the 3-kg LPG cylinders.
The subsidy for 3-kg LPG cylinders is the largest compared to other energy subsidies, such as those for certain types of oil fuel (JBT) and electricity.
Energy subsidy reform
Indonesia's energy subsidy policy aims to keep energy prices stable and affordable for everyone.
By keeping energy prices below market levels, low-income households can access energy that would otherwise be unaffordable for them.
One of the issues in Indonesia is that wealthy individuals also benefit from the subsidised 3-kg LPG cylinders, due to a weak target group database system.
Subsidised LPG that can be accessed by all, including ones who can actually afford it, will arise several issues.
Universal subsidies will encourage overconsumption by high-income households and large-scale businesses.
Subsidy reform is essential because the stagnant pricing scheme over the past decade has significantly increased the government's financial burden.
Since 2009, the price of 3-kg LPG has been set at Rp5,000 per kg. Currently, the retail price for 3-kg LPG cylinders in Greater Jakarta is around Rp22,000, indicating that the price has not increased significantly and remains below the market rate.
The subsidy, which is sourced from the State Budget (APBN) and primarily funded by taxes, must be utilised for public welfare.
Therefore, the government must implement subsidy reforms to ensure that energy subsidies are directed towards the public, particularly benefiting the lower-income groups.
The government needs to enhance its energy subsidy policy to ensure that subsidies are effectively targeted.
Energy subsidy reform must be accompanied by alternatives for the affected sectors. These alternatives include developing urban gas networks, renewable energy power plants, and electric vehicles.
This policy will also motivate people to understand actual energy prices and adjust their lifestyles to use energy more sparingly.
Simultaneously, industries must adopt energy-efficient practices to ensure that changes in energy subsidies have minimal impact on their business activities.
Additionally, people need to be educated about the urgency of reducing subsidies. Demonstrating how redirecting subsidy funds to more impactful development programmes, such as education, healthcare, or social aid, can be more effective and targeted will help convey this message.
The public needs to understand that LPG subsidy reform is not only about improving the government's fiscal efficiency but also about upholding principles of justice and promoting energy sustainability.
Every rupiah spent on misdirected subsidies represents an injustice to those who genuinely need them.
Strengthen gas network infrastructure
The government is targeting to suppress energy subsidies and imports. The strategy is to massively develop household gas networks.
Developing gas network infrastructure can indeed help reduce energy subsidies and imports. By implementing gas networks, energy subsidies can be more accurately targeted, ensuring that they reach those who truly need them.
Ultimately, Indonesia will enhance its balance sheet. Additionally, the development of gas networks can stimulate economic growth and increase workforce absorption during the construction phase.
Gas networks can also reduce imports, which have consistently burdened the state. The business chain for gas network development is extensive, necessitating synergy to ensure that the gas networks optimally benefit the people.
In addition, gas network development aligns with President Prabowo’s Asta Cita programme, particularly in achieving energy self-sufficiency. This is why sustainability projects are continuously pursued.
Natural gas is a key energy source in the energy transition era, necessitating integrated infrastructure to distribute gas from source areas to beneficiaries, including industrial estates and households.
Developing gas network infrastructure offers several benefits, including making gas prices more affordable by reducing toll fees. This helps meet the gas needs of industries, power plants, and households.
Phase 1 of the Cirebon-Semarang (Cisem) gas pipe network, with an investment of Rp1.13 trillion, is one of the large-scale gas networks ready for operation. The construction of phase 2 in 2024 required an investment of Rp1.33 trillion. In 2025, the project will need an investment of Rp12.01 trillion due to the increased pipe length, making it a larger investment.
The Cisem project is a National Strategic Project (PSN) and forms part of the transmission pipe interconnection plan linking Sumatra, western Java, and eastern Java.
The pipe interconnection strengthens the natural gas supply chain, making it more affordable and sustainable. This is particularly beneficial for existing industrial sectors along the pipeline and for new industrial estates that will soon begin operations in various areas.
For instance, the Batang Integrated Industrial Estate and the Kendal Special Economic Zone (SEZ), along with other industrial estates currently under development, will benefit from the pipe interconnection.
The government, through the Energy and Mineral Resources Ministry, has reaffirmed its support for the construction of the Cisem gas pipe network.
The Energy and Mineral Resources Ministry fully supports the timely completion of phases 1 and 2 of the Cisem gas pipe network. The Ministry has identified gas sources that can be distributed through the pipeline to meet the needs of industries and the public.
The construction of natural gas transmission pipelines, like the Cisem project, aims to enhance gas access for both the public and industries.
The transmission pipeline is expected to enhance natural gas accessibility, primarily from gas fields in East Java, to reach Central Java and meet the needs of developing industries.
To meet domestic needs, particularly for industries and power plants, the government is continuously advancing infrastructure and gas pipeline transmission development.
In addition to the Cisem pipeline, there are also the West Natuna Transportation System (WNTS)-Pemping and the Mangkei-Dumai segment of the Sei pipelines.
Additionally, the development of small-scale LNG pipelines is necessary to secure energy supply in areas hindered by geographical factors, such as small islands in eastern Indonesia.
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