T

he eleventh-hour cancellation by state-owned oil company Pertamina of the market-price adjustment of its high-octane fuels bearing the Pertamax brand with a research octane number (RON ) of 92-95 scheduled for May 15 will damage the credibility of the policy-making capability of both the oil firm and the government.

The blame-game through the mass media over the fuel price controversy has exacerbated the perception that the government seems to have become overwhelmed by populist measures at the expense of sound economic fundamentals.

Energy and Mineral Resources Minister Sudirman Said confirmed to Kompas newspaper that the last-minute cancellation of the fuel price adjustment was made as a result of government intervention.

But Coordinating Economic Minister Sofyan Djalil denied there had been any government intervention, pointing out that Presidential Regulation No. 191/2014 on the fuel price policy did not include high-octane fuels in the government fuel-subsidy scheme.

Indeed, even before the government, in an internationally praised reform measure, decided late last year to curb the wasteful spending on fuel subsidies by fixing the price subsidy, high-octane fuels had always been fully within Pertamina'€™s authority to fix, based on market developments.

Only RON-88 gasoline has always been subsidized and this subsidy has been controlled since the issuance of the latest ruling last December. This regulation also includes kerosene, diesel fuel for fishermen and liquefied petroleum gas in 3-kilograms container in the subsidy scheme.

The government raised the subsidized low-octane gasoline price last month to only Rp 7,400 (US$ 57 Cents ) per liter, Rp 600 below the level required by the movements in the global oil price and rupiah exchange rate.

Even though this fuel price adjustment was inconsistent with fiscal reform, as the adjustment did not reflect fully the latest market-price developments, the market could still understand that measure because it was the first adjustment based on the market price.

Curbing the fuel price increase in April at just about

7 percent or only half the level required by market developments could prevent inordinately steep rises in the prices of other basic commodities and services.

By continuing to adjust, though not on a full scale, fuel prices to market developments, the government is still demonstrating its commitment to implementing the managed floating fuel price system.

But Pertamina'€™s decision last Friday to cancel the price adjustment of its high-octane fuels to Rp 9,600 for RON-92 and Rp 12,200 for RON-95 reflects a flip-flop in corporate policy that will damage the market'€™s perception of the company'€™s competence and integrity in policy making.

The last-minute cancellation might have been prompted by personal lobbying from some adviser in President Jokowi Widodo'€™s office who may have strongly argued that the planned rise could again raise the specter of inflation.

But this inconsistency will nonetheless adversely affect the credibility of the fuel price policy of the government and Pertamina'€™s corporate autonomy.

This inconsistency could also put into question the government campaign to increase the share of renewable energy in its total energy mix that is still miserably low at 5 percent.