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Govt hints at Premium fuel price increase in September
The government has hinted at an increase in fuel prices within the next two months as the current prices have been well below their economic levels, causing massive losses to Pertamina as the main distributor of the fuels
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The government has hinted at an increase in fuel prices within the next two months as the current prices have been well below their economic levels, causing massive losses to Pertamina as the main distributor of the fuels.
IGN Wiratmaja Puja, the director general of oil and gas at the Energy and Mineral Resources Ministry, said in Jakarta on Monday that the increase would be needed to reduce Pertamina's financial losses in its fuel distribution business.
However, he added that the government would be unlikely to adjust the price in August. 'The increase will not necessarily be in August, but can be in September or October, depending on the decision maker,' he said.
Moreover, he said, any new price level should be maintained for a certain period, although world crude oil prices are expected to decline further so that could compensate for the losses suffered by Pertamina in the past several months.
'If it is decided, the price should be maintained for four months or six months. If we only apply it for a month, it won't be able to cover the losses,' Wiratmaja said.
Currently, the Premium-branded gasoline price is set at Rp 7,300 (54 US cents) per liter for outside Java and Bali, while for Java and Bali, the price is Rp 7,400 per liter. Diesel fuel sells for Rp 6,900 per liter.
The government has kept the prices steady since it removed fuel subsidies late in March, despite a surge in the crude oil prices on the world market, on the grounds that the increase would further worsen the people's buying power amid the country's economic slowdown.
The pricing policy has caused losses to Pertamina as the main distributor of the fuels because the government will no longer provide subsidies to bolster gas prices.
The surge in world crude prices has widened the price gap from Rp 750 per liter in April to Rp 1,950 per liter in July, according to figures from the oil and gas office. This has caused Pertamina to suffer losses of at least Rp 12 trillion in its fuel distribution business.
Based on the fluctuation of the world oil prices from late June to late July, the current Premium fuel price should be increased to Rp 8,500 per liter.
For diesel fuel, the current price is still within acceptable levels because diesel prices in the global market have also declined because of an oversupply, Wiratmaja, said,
Indonesia, which is currently trying to rejoin the Organization of the Petroleum Exporting Countries (OPEC) as an observer as part of an attempt to secure crude oil supplies, has been severely hurt by the sharp fluctuation of oil prices.
Contrary to Wiratmaja's view, analysts said that the government should instead lower the fuel prices because crude oil prices have shown a significant decline in recent weeks.
However, Energy and Mineral Resources Minister Sudirman Said stated last week that the government would be unlikely to cut the price as the gap in prices has been in place for several months and caused losses to Pertamina.
'We need to increase the price to compensate for losses suffered by Pertamina,' Sudirman said.
Oil hit four-month lows on Monday after a steep drop cause by more evidence of a global supply glut that has halved prices over the past year. Front-month Brent crude LCOc1 fell to its lowest in four months at US$53.63 a barrel, down 99 cents in morning trade.
