How Indonesia's electricity subsidy reforms led to improved efficiency

Indonesia has been home to some of the world’s largest subsidies for electricity use. Electricity prices have been set at low levels, with the government making transfers to Indonesia’s electricity utility, Perusahaan Listrik Negara (PLN), to cover its losses. In 2012, electricity subsidies cost the government US$10 billion.

In an ambitious reform program, since 2013 Indonesia has taken major strides to reduce this subsidy bill. The reforms have involved raising electricity prices to levels that reflect costs, with exemptions for customers with small electricity connections, including the poor. Subsidies for road transport fuels were also reduced.

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