T

he government has assured Pertamina that it will compensate the financial loss of around Rp 15 trillion (US$1 billion) the state oil and gas company suffered from fuel sales since early this year.

The Energy and Mineral Resources Ministry'€™s director for oil and gas, IGN Wiratmaja Puja, said in Jakarta on Wednesday that it was the government'€™s responsibility to cover the loss as it was the government that fixed the prices of fuel sold by the company.

'€œIn December, there will be a review from the BPK [Supreme Audit Agency]. If there is a negative [balance], the government will pay Pertamina,'€ Wiratmaja said after a meeting regarding the fuel price on Wednesday.

He said that the government would use other sources of funds because the government had yet to allocate the compensation funds in the state budget. '€œIt can be taken from the state capital injection (PMN) fund. Also, there is an option to use the energy security fund, that we is currently under proposal,'€ Wiratmaja said.

The ministry is planning to establish an energy security fund, which will be used to fill in price gaps. However, the plans remain unclear.

The compensation will be a setback for the government'€™s fuel subsidy policy. Early this year, the government removed trillions of rupiah of subsidies from the sales of Premium branded gasoline.

The government now only subsidizes diesel fuel at a fixed amount of Rp 1,000 per liter. Prices of both Premium and diesel fuels are fixed depending on the fluctuation of crude oil prices in the global market.

The policy went well, in the beginning, when the world oil price plunged due to a global glut of supply. However, when the oil price inched up slightly at the end of the first quarter of the year, the government chose the populist option of not increasing the fuel price. As the state budget has no more allocation for fuel subsidies, Pertamina had to bear the gap between the market price and the selling price set by the government.

Pertamina has reported Rp 15 trillion in losses, particularly from selling Premium below its market price during January to August period of the year. The current Premium-branded gasoline and diesel fuel prices have not changed since late March.

The losses will be higher as the government decided to set the Premium gasoline'€™s price below the market price this October.

The October price for Premium-branded gasoline will be maintained at Rp 7,300 per liter, while the subsidized diesel fuel will be sold at Rp 6,900 per liter.

'€œThe government wants to maintain economic stability and to give certainty for business players so that they can plan their activities,'€ Wiratmaja said after a meeting on the fuel price on Wednesday.

Wiratmaja revealed that the current gasoline price should be higher than Rp 7,300, as the sharp depreciation of the rupiah against the dollar has increased the fuel'€™s cost, despite the fall in world oil price. According to the oil and gas office'€™s calculations, which are based on one-month benchmark-price assumptions, the Premium-branded gasoline should be sold at Rp 7,450 per liter and subsidized diesel fuel at Rp 6,150 per liter. If, based on three-month-benchmark assumptions, the gasoline should be at Rp 7,900 per liter and diesel fuel at Rp 6,250 per liter. Based on six-month-benchmark assumptions, the price for October should be at Rp 8,300 per liter and diesel fuel at Rp 6,750 per liter.

Following an overhaul in the energy subsidy mechanism last year, the government has been testing various calculations to determine the selling price. Earlier this year, a change in the fuel prices was implemented in only two weeks.

The price would now only be adjusted every three months and the next adjustment would be in January, said Energy and Mineral Resources Minister Sudirman Said.
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