Working Paper

The retail fuels market in Indonesia

As this working paper describes, fuels sold in Indonesia can have high levels of sulfur and other additives. RON 88 gasoline can have up to 500 parts per million (ppm) sulfur content and there is no limit on benzene or aromatics. CN 48 diesel is allowed up to 2,500 ppm sulfur and there is no limit on polycyclic aromatic hydrocarbons. Fuel consumption trends are partially reflective of fuel prices, and the gasoline and diesel grades that have dominated in Indonesia have historically been subsidized. While the government ended subsidies for RON 88 gasoline in 2015, there remains a “one price” policy that ensures it is sold by state-owned Pertamina and by PT AKR Corporindo Tbk at the same discounted price across the country. Moreover, CN 48 diesel sold by Pertamina continues to be subsidized at a fixed price of 5,150 Indonesian Rupiah per liter, which is less than half the price of the next highest diesel fuel grade.

The authors explain how reforms to fuel quality standards and to current pricing mechanisms could help shape the market in the direction of cleaner fuels. Ending subsidies and/or fixed prices for dirty fuels would favor both the purchase of low-sulfur fuels and the infrastructure upgrades to allow for domestic production of higher quality fuel. Indonesia would also benefit from revised national fuel quality regulations that establish a timeline for the nationwide availability of gasoline and diesel fuels containing no greater than 10 ppm sulfur by 2023. This would support implementation of soot-free Euro 6/VI vehicle emission standards. Importantly, improved fuel quality standards and fuel price programs would help reduce air pollution and transportation-related greenhouse gas emissions.