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tate-owned oil and gas firm PT Pertamina will gradually increase the net price of its non-subsidized 12 kilogram liquefied petroleum gas (LPG) by Rp 7,000 (59 US cents) per kg.

The move will offset losses amid objection from the government, the company'€™s senior officer has said.

'€œWe have informed the state-owned enterprises minister and the energy and mineral resources minister about the matter [under consideration],'€ Pertamina business and marketing director Hanung Budya Yuktyanta said on Wednesday.

Hanung said Pertamina was aware of possible objections from the government and the public, adding the company had prepared '€œa set of scenarios'€ to reduce public outcry.

Under one scenario, according to Hanung, Pertamina would increase the net price of the 12-kg LPG
canisters by Rp 1,000 per kg in July from the current net price of Rp 6,850 per kg.

The energy company would then raise the new net price by Rp 1,500 per kg in early January next year and, again, in July. An increase of Rp 1,500 per kg would be imposed again in January and July in 2016.

According to the company'€™s calculation, every Rp 1,000 per kg price hike would potentially reduce
Pertamina'€™s potential loss by around Rp 1 trillion.

The price hike scenario will make the net price of a 12-kg LPG Rp 166,200 per canister (Rp 13,850 per kg) by July 2016 from the current net price of Rp 82,200 per canister.

'€œWe have to take the step so we do not suffer more losses. In addition, setting the price of non-subsidized LPG is our [Pertamina and State-Owned Enterprises Ministry] authority,'€ he said, adding that a gradual price hike was the best solution, in accordance with an audit report and recommendation from the Supreme Audit Agency (BPK).

According to the BPK, the firm suffered Rp 7.73 trillion in losses from its LPG business in the period of 2011 to 2012. The agency recommended Pertamina increase the price of 12-kg LPG while considering people'€™s purchasing power at the same time.

Pertamina has tried to raise the net price of its 12-kg LPG since 2009, but the plan had always been quashed during shareholders meetings on consideration that the price hike would burden the public.

The company abruptly raised the net price of its 12-kg LPG canister from Rp 70,200 to Rp 112,200 per canister on Jan. 1, but it eventually revised the hike to only Rp 1,000 per kg due to the government'€™s
demands.

Contacted separately, Satya W. Yudha, a member of House of Representatives Commission VII overseeing energy and mineral resources, said that he suggested the government [the Energy and Mineral Resources Ministry] carefully observe its policy, which imposes different treatment on Pertamina'€™s 3-kg LPG and 12-kg LPG canisters.

The government subsidizes the 3-kg LPG canister because it is considered to be mostly consumed by the lower-middle class.

'€œIt is better if the government reduces its subsidy for 3-kg LPG to avoid more problems in the future if the 12-kg LPG price rises,'€ he said over the phone.

Satya said that if the 12-kg LPG price rose too high, '€œbad'€ sellers would mix together 3-kg LPG to be 12-kg LPG canister so that they could sell it at a higher price, he said.

Another possibility was that a lot of people would migrate to use the subsidized 3-kg LPG because it was much cheaper, he said.

According to data from Pertamina, total demand for LPG last year hit 5.6 million tons, of which 4.4 million tons were fulfilled by the subsidized 3-kg LPG canisters. (koi)