Indonesian consumers are paying the price of the government’s market distortions. It needs to stop.

Photo from instagram/shellselamba1

Fuel shortages at private retailers such as Shell, Vivo, and BP-AKR in recent weeks has caught public attention. Premium products disappeared from private refuelling stations and long queues frustrated drivers. For ordinary consumers, fuel problems are never isolated because they quickly affect transport costs, logistics and daily spending.

The government’s quick fix was to suggest that private retailers buy their fuel supplies from Pertamina, the state-owned fuel giant. On the surface, this looked like a reasonable rescue measure. But, in reality, it suggests a more sinister agenda:  bolstering the government’s monopoly over fuel.

Our analysis reveals the troubling reality behind such shortages. Import licensing under the Neraca Komoditas (Commodity Balance) system, along with  heightened state control efforts through state-owned enterprises (SOEs), have combined to create market distortions that ultimately hurt consumers.

‘Commodity Balance’:  a misguided policy?

The Commodity Balance is a new quota system in Indonesia’s trade bureaucracy that uses supply and demand forecasts to determine how much firms are allowed to import or export each year.

It was introduced to stabilise key commodities like fuel, salt, garlic, rice, sugar, and corn by matching supply with demand through quotas. In theory, imports will be allowed as long as anticipated demand exceeds the forecasted domestic supply. Once the import is approved, quotas and import permits will be valid for one year.

This annual quota aims to provide business certainty for firms that rely on intermediate input imports. Firms no longer need to repeatedly apply for permits throughout the year, reducing their administrative burden.

While this one-year quota system is a step forward, it often falls short in practice because actual demand can exceed the government’s projections. Firms may request additional quotas, but in the commodity balance system, the revision process is riddled with uncertainty—both in terms of timing and the amount that will eventually be approved.

When quota revisions fail businesses

This uncertainty depends on when the technical ministries decide to process firms’ applications, which can take more than two months, and whether the coordinating ministries choose to approve the quota revision at all. This means that the urgency surrounding revision is higher than the original quota bidding process.

In the case of fuel imports, the Ministry of Energy and Mineral Resources shortened the quota period in early 2025 from one year to six months. The intent may have been to improve responsiveness to market changes. But it inadvertently shrinks the import quotas in every approval cycle. That means that when consumer demand spikes, shortages may be unavoidable.

In this situation, companies like Shell, Vivo, or BP AKR are required to apply for a quota revision to the Ministry of Energy. However, under the commodity balance system, the ministry holds full authority over whether such applications will be processed and approved or not.

Our analysis suggests that, in practice, the ministry is reluctant to process these revisions because its underlying goal is to push private retailers to source fuel from Pertamina, Indonesia’s state-owned enterprise, which dominates fuel distribution. This seems to be working: already one private retailer has caved in to the pressure.

Other problems from Commodity Balance

Another problem is that government supply data is also too general to match industry demand data. While industry demand data is detailed into ‘Harmonized System (HS) code’ – an international trade classification system that specifies goods down to their grades and uses – government supply data is not. This often creates a hidden shortage situation, where domestic supply is abundant, but is the wrong type for industrial use.

While premium fuel is a recent case, other commodity balance commodities, such as corn and rice, have also suffered from this problem. Domestically grown corn is only suitable for direct consumption, not industrial use. So, corn production may be statistically sufficient, but the processed food industry still faces an industrial-grade corn shortage.  This detail mismatch leaves businesses struggling to secure the inputs they need in a timely manner.

At the consumer level, perceived scarcity may encourage hoarding, which worsens shortages and drives up prices. Yet, even when production is abundant and quality mismatch is not an issue, Commodity Balance still does not address distribution problems. This phenomenon is clear to see from  rice price increases due to the stockpiling mandate of rice SOE Bulog despite record harvests.

These weaknesses already make commodity balance a blunt instrument for ensuring availability and stabilising prices. But when this inflexible system is combined with SOE behaviour, distortions are produced  that directly hit consumer pockets.

Systemic price volatility

The ongoing corruption probe at Pertamina underscores the risks of leaning too heavily on an SOE monopoly. The Attorney General’s Office has estimated state losses from alleged corruption in Pertamina’s fuel imports between 2013 and 2018 at around USD 12 billion. Executives were accused of mispricing, improper imports, and selling lower-quality fuel as higher-octane products.

These revelations have damaged public trust. Many consumers, sceptical of the quality of Pertamina’s premium fuel, shifted to Shell, Vivo, and BP-AKR. But since Commodity Balance quotas had not anticipated a big shift in demand from the loss of trust, private retailers ran out of stock much earlier than they had estimated.

The government’s solution of asking private retailers to restock from Pertamina makes little policy sense. Why push consumers back toward the very supplier whose credibility is in doubt? Considering widespread public doubt over Pertamina, the plan to make it a single fuel import gateway may heighten public perceptions that policymakers are of out-of-touch.

Commodity Balance and SOEs were supposed to shield Indonesians from volatility. Instead, they often amplify it. The dual role of SOEs as both competitor and supplier distorts competition, discourages private investment, and leaves consumers footing the bill.

What can be done?

First, Commodity Balance should shift from being a rigid quota system to a supply database that corrects information asymmetry. Rather than using it as a tool to control imports, it should be a tool for companies to locate and source domestic supplies as and when they need them.

Second, SOEs’ dual roles need to be limited. Pertamina and Bulog should act primarily as strategic reserve managers, not as default market suppliers. Danantara (as the new SOE superholding company) or the Ministry of SOE should give a clear mandate for their businesses to be a market catalyst for broader private involvement, instead of a replacement.

Third, transparency and accountability must improve. Continuing corruption investigations involving SOEs, and publishing Commodity Balance data openly, will be key to restoring trust.

Finally, investment in logistics and distribution should become the priority. Abundant production means little if goods cannot reach consumers in a timely and efficient manner.

Quotas and SOEs give the illusion of control, but they carry hidden costs in scarcity, inflation, and consumer frustration. Policymakers should be very careful not to make policies that are seen as supporting the growth of state businesses at the expense of the public’s freedom to choose. The choice for policymakers is clear: continue patching up problems with temporary fixes; or design a system that is flexible, transparent, and genuinely protective of the public.

Until then, consumers will keep paying for distortions that the state creates.