Indonesia to Regulate Prices of Non-subidized Fuels to Contain Inflation

Fuel Retail of Pertamina

JAKARTA (TheInsiderStories)— The government plans to regulate prices of non-subsidized fuels as it seeks to regulate inflation as well as maintain people’s purchasing power, a government official said.

Inodnesia still subsidizes some fuels, like diesel, and in March officials said the government to keep some fuel and electricity prices unchanged until 2019. Meanwhile, the price of non-subsidized fuel is set by retailers, including state-owned energy company Pertamina, and other players like Shell, Total, AKR Corporindo.

Deputy to Energy and Mineral Resources Minister Arcandra Tahar told reporters on Monday (09/04) the government plans to regulate the price of non-subsidized fuels through revision of a ministerial regulation.

He said the president gave directions that fuel price increases, including nonsubsidized gasoline must take into inflation going forward.

“We also consider the consumer purchasing index,” said Tahar, as quoted from the official website of Energy and Mineral Resources Ministry,

The ministry to summon retailers with regards to this matter.

Pertamina increased the fuel price of Pertamax, Pertamax Turbo, Pertamina Dex, and Dexlite last month as global oil price slowly increases.

Despite the price change will be handed over to the government, the ministry said the government is committed to maintain retailers’ margin at the range of 5-10 per cent.

Single Price Policy

Meanwhile, Widodo’s administration policy that force single price of gasoline in everywhere in the country has been worried to harm Pertamina, which controls the biggest distribution network in the country.

President Director of Pertamina Elia Massa Manik on January said ideally the fuel price sold at domestic market should fluectuate with global oil price. He said by imposing a single price policy will cause Pertamina to face difficulties in making a long-term investment.

Pertamina’s net income shrank 24 per cent last year to US$3.15 billion with profits from selling fuels declined significantly.

The company already suffered negative growth on the fuel business profit last year of US$2.41 billion because of the stagnant fuel price. The profit significantly shrinks 24% from 2016 to US$3.15 billion.

Pertamina recorded poor financial performance last year. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) slumped 16.79 per cent last year, from US$7.56 billion in 2016 to US46.29 billion in 2017.

The operating profit also declined by 22 per cent from US$6.19 billion to US$4.84 billion.

Thanks to its crude oil exports, which helped offset the loss from selling gasoline at home, Pertamina recorded positive revenue growth in overall business. Last year’s revenue was booked at US$42.86 billion, increasing 17.5% from 2016.

This calculation is based on average Indonesia’s oil price of US$51.17 per barrel, rising from Indonesia’s oil price basis of 2016 of US$40.16 per barrel.