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tate-owned oil and gas holding firm Pertamina is preparing for lower profitability following the government’s decision to pass onto the company’s shoulders burdens stemming from a global crude price increase.

The government has ordered Pertamina to maintain the price of Premium gasoline and subsidized diesel Solar at Rp 6,450 (47 US cents) and Rp 5,150 per liter, respectively, until 2019. These figures have been in place since April 2016, though actual economy prices averaged at Rp 7,250 and Rp 6,600 per liter throughout last year.

Subsequently, Pertamina lost potential revenues of around $2.05 billion in 2017, leading to a 24 percent annual decrease in its net profit to $2.41 billion.

The firm has also calculated that with the Indonesian Crude Price (ICP) maintained at $60 per barrel, its net profit would plummet to $1.7 billion this year and $1 billion in 2019. The ICP, used as a benchmark to calculate non-tax income in the state budget, averaged at $63 per barrel in the first quarter of 2018.

“In January-February alone, our losses from sales of Premium and Solar reached Rp 5.5 trillion. However, if we take into account revenue from the sale of other types of fuel, the figure would be Rp 3.9 trillion,” Pertamina marketing director Muchamad Iskandar told reporters recently.

Furthermore, the Energy and Mineral Resources Ministry recently announced its plan to tightly control the prices of almost all types of gasoline to keep inflation in check.

Consequently, all gasoline distributors in the country, including Pertamina, must gain approval from the ministry before increasing the prices of gasoline grouped under the general fuel type (JBU) category, except jet fuel and industrial fuel.

This includes Pertamina’s Pertalite, which has a research octane number (RON) of 90, as well as Pertamax and Pertamax Turbo, with a RON of 92 and 98, respectively. The firm previously relied on them to make up of for losses from Premium and Solar sales. Therefore, the ministry’s new policy could force Pertamina to bear bigger financial burdens.

“However, we will comply with the government’s policy. If we suffer from huge losses, we will just report it and ask our shareholders [for leeway]. But if they refuse, we will have no choice but to bear the burden,” Iskandar said. “There would be consequences, such as a limited cash flow to develop our refinery projects.”

Pertamina is upgrading its four existing refineries and building two new ones, all with a combined investment of around $46 billion.

Djoko Siswanto, the Energy and Mineral Resources Ministry’s oil and gas director general, added that Pertamina must comply with all government policies, especially considering its status as a state-owned enterprise (SOE).

“The most important thing is, the company does not suffer losses from its operations. It will still be able to book a profit, but not as big as before,” Djoko said.

Energy and Mineral Resources Minister Ignasius Jonan has also repeatedly stated that all of Pertamina’s losses in the downstream sector would be compensated by earnings from its upstream operations.

For this reason, the ministry has granted Pertamina several upstream oil and gas blocks, including the Offshore Northwest Java (ONWJ) block, the Mahakam block in East Kalimantan and eight other blocks that will see their contracts with existing operators expire in 2018.

According to the ministry’s calculations, Pertamina’s after-tax income from ONWJ and Mahakam could reach around $150 million and $600 million per year, respectively.

Meanwhile, combined income from the eight expiring blocks is estimated to stand at some $100 million annually.

Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance (INDEF), said the government had made several SOEs, including Pertamina, a source of contingent liabilities by putting significant burdens on them.

“It seems like the country is able to maintain a healthy budget deficit, but, in fact, the real burdens are on the shoulders of its SOEs. This will eventually hamper the performance of those SOEs, while their risk of default looms,” Bhima said, adding that the government had yet to repay its mounting debts to Pertamina.