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Jakarta Post

Pertamina asked to cut fuel prices

  • Ina Parlina and Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Fri, October 2, 2015   /  06:05 pm

President Joko '€œJokowi'€ Widodo has asked state-owned oil and gas company Pertamina to weigh the possibility of lowering oil prices to ensure that people benefit from cheaper oil prices in the world market.

'€œPlease calculate again whether it is possible to lower the Premium [price] although it may only be a small cut,'€ Jokowi said during a Cabinet meeting held on Thursday to discuss the government'€™s preparations for the issuance of the third economic policy package.

The President'€™s call was made after the Energy and Mineral Resources Ministry decided on Wednesday to maintain the prices of the widely sold Premium gasoline and subsidized diesel at Rp 7,300 and Rp 6,900 per liter, respectively. The prices have not changed since late March, despite the continued decline in oil prices in the world market.

Cabinet Secretary Pramono Anung said, other than the price of Premium, the President also asked the finance minister, coordinating economic minister and state-owned electricity company PLN to explore the possibility of reducing electricity rates to help local industries.

Pramono said if possible, a cut in electricity rates would be part of the government'€™s measures in the upcoming economy policy package.

The Energy and Mineral Resources Ministry'€™s director for oil and gas, IGN Wiratmaja, said on Wednesday that fuel prices should have been lifted this October due to the weakening rupiah exchange rate. Although oil prices have continued to drop in the world market, domestic fuel prices remain below the market price on account of higher import costs resulting from the plunge in the value of the rupiah against the US dollar, he said.

According to the Energy and Mineral Resources Ministry, based on monthly benchmark-price assumptions, and the rupiah-dollar exchange rate, Premium should be sold slightly higher at Rp 7,450 per liter while subsidized diesel at Rp 6,150 per liter. If based on a three-month benchmark assumption, Premium should be sold higher at Rp 7,900 per liter and diesel at Rp 6,250 per liter.

In January, the government removed hefty subsidies for the sale of Premium and reduced subsidies for diesel to only Rp 1,000 per liter. However, the government did not adjust the prices when world oil prices began increasing at the end of the first quarter, resulting in massive losses for Pertamina, which distributed the larger part of Premium and diesel supplies in the country.

Pertamina said it had booked at least Rp 15 trillion (US$1 billion) in losses, particularly from selling Premium below its economical price from January until August. The losses will rise as the government decided not to increase the prices this month. Moreover, any reduction in the price of Premium will also create a bigger burden for Pertamina as the gasoline subsidy has been eliminated and there is no longer an allocation from the state budget to reimburse the company.

Wiratmaja said on Wednesday that the government would cover Pertamina'€™s losses but had not yet decided how.

Meanwhile, Pertamina'€™s president director, Dwi Soetjipto, who also attended Thursday'€™s Cabinet meeting, said that his office would evaluate the possibility of lowering fuel prices. '€œFrom our evaluation, current prices are still 2 percent below the market price,'€ he added.

According to Dwi, Pertamina would seek possible steps to make Pertamina more efficient so that it could lower the price of Premium.

Separately, Pertamina spokesperson Wianda Pusponegoro said it would have to discuss the President'€™s request with the Energy and Mineral Resources Ministry.

'€œThe order [from the President] is to review the price. Therefore we will review it and coordinate with the Energy and Mineral Resources Ministry,'€ Wianda said.

Oil prices jumped as much as 4 percent to $46 per barrel on Thursday, boosted by a rally in US gasoline on worries about potential damage to oil installations from a hurricane headed for the US east coast, traders said. But the prices were still 50 percent below the level recorded in November of last year.
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