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Explainer: How Indonesian government ‘subsidizes’ unsubsidized fuel
After the recent fuel price hikes, some wonder why even supposedly unsubsidized gasoline in Indonesia is still priced far below global standards despite the high cost of oil imported to the country. And it has a lot to do with definitions.
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A worker of state-owned oil company Pertamina changes the fuel prices displayed at a gas station in Bekasi, West Java, on Sept. 3. (Reuters/Ajeng Dinar Ulfiana)
T
he government recently increased fuel prices to prevent an excessive burden on the state budget from subsidies aimed at keeping domestic fuel prices low despite high oil prices. However, some may wonder why even supposedly unsubsidized gasoline in Indonesia is still priced far below global standards. And it has a lot to do with definitions.
Earlier this month, the government decided in the face of ballooning energy subsidies to increase the price of fuels, including the unsubsidized Pertamax gasoline, so as to close the gap between retail prices and the economic prices and thereby alleviate the pressure on state coffers.
The move, which lifted the prices of state-owned oil and gas company Pertamina’s subsidized Pertalite gasoline and Solar diesel to Rp 10,000 and Rp 6,800 per liter, respectively, was announced by President Joko “Jokowi” Widodo on Sept. 3.
The price of the company’s high-grade RON-92 fuel Pertamax, meanwhile, rose to Rp 14,500 per liter.
Despite the increases, the gap between the retail prices and economic prices of Pertalite, Solar and Pertamax remains at Rp 3,150, Rp 7,950 and Rp 924, respectively, or 23.9, 53.9 and 6 percent of its economic price, Finance Ministry Fiscal Policy Agency (BKF) head Febrio Kacaribu explained during a hearing with the House of Representatives budget committee on Monday.
Pertamax is unsubsidized, according to law
Pertamax gasoline is categorized by Indonesian authorities as a General Fuel Type (JBU). Fuels in this category are not subsidized by the government, according to Presidential Regulation No. 191/2014 on fuel distribution, retail pricing and eligibility criteria for the purchase of subsidized fuel.
