Gas prices set to drop with market

The Jakarta Post ,  Jakarta   |  Thu, 11/09/2006 11:48 AM  |  Business

The Jakarta Post, Jakarta

The government plans to adjust the price of subsidized Premium gasoline periodically, in line with the movement of oil prices at global markets, an official says.

""If crude prices are on the decrease like they are now, then the government will consequently lower the price of subsidized fuel as well,"" said Energy and Mineral Resources Ministry director general for oil and gas Luluk Sumiarso as reported by Antara.

Luluk was speaking a workshop on fuel pricing systems Wednesday in Jakarta.

Crude oil has lately been trading at around US$59 a barrel on the New York and London markets, well down from its mid-year price levels of $70.

This means the global market price of gasoline equivalent to the subsidized medium-octane Premium type sold here has also dropped to Rp 4,740 a liter, nearing Premium's price cap of Rp 4,500 a liter.

""If the market price goes below Rp 4,500, then the domestic selling price will follow, and the government will not have to subsidize it anymore,"" Luluk said.

The government will continue to cap gasoline at the Rp 4,500 ceiling should crude oil prices rise again, subsidizing the difference.

The price decreases will not apply to automotive diesel or kerosene, which are subsidized at levels far lower than current market rates, Luluk added.

In its revised 2006 state budget, the government has assumed oil prices averaging at $64 a barrel for its Rp 64.2 trillion fuel subsidy spending, and $63 for 2007's Rp 61.9 trillion subsidy. The average rupiah exchange rate for the two years is assumed at Rp 9,300 to the dollar.

Indonesia bases its subsidized fuel and oil export prices on the Middle Oil Platts Singapore (MOPS) price, adding 14 percent in distribution and margin costs, which is paid to state oil and gas company PT Pertamina.

Pertamina was ready to cut prices in its gas stations if oil prices dropped further, company vice president Iin Arifin Takhyan said.

The unsubsidized Pertamax and PertamaxPlus gasoline and fuel sold to industry will also drop.

Indonesian Consumers Association director Tulus Abadi said tying Premium to the market rate would be a boon to consumers as long as price decreases were implemented in a timely manner.

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