Pertamina president director Nicke Widyawati said on Monday that Pertamina was in consultation with the Foreign Ministry and Bank Indonesia (BI) regarding the plan, and had approached several Russian sellers to buy crude for testing at Pertamina's refineries.

"Amid this geopolitical situation, we see an opportunity to buy oil from Russia at a good price” she told members of House of Representatives Commission VI overseeing trade, industry and investment, referring to Russia’s invasion of Ukraine.

She added that Pertamina would only deal with Russian companies that were not facing sanctions, and it had discussed payment arrangements, which may go through India.

Russian benchmark oil grade Urals on March 1 was bid at a discount of more than US$18 below international crude benchmark Brent, a record for the post-Soviet era, following a raft of sanctions imposed on Moscow over the war in Ukraine, as reported by Reuters. The sanctions include those related to trade and financial transactions.

Pertamina's plan comes as surging global oil prices place fresh strains on the state budget as the government seeks to balance higher energy subsidy spending with fiscal-consolidation plans.

On one hand, the government is seeking to maintain domestic energy prices even as international oil benchmark Brent exceeded US$120 a barrel on March 6, double the $63-per-barrel assumption in the 2022 state budget. The assumption provided a baseline to set the energy subsidy budget at Rp 134 trillion ($9.34 billion) for this year.

On the other hand, prevailing legislation requires the government to reinstate a budget deficit cap of 3 percent of gross domestic product (GDP) by 2023 as the main part of its post-pandemic fiscal-consolidation plan.

Read also: Pertamina considers buying Russian crude oil: CEO

Pertamina mainly imports crude oil from Saudi Arabia, but also from African countries such as Nigeria, Angola and Gabon. The oil from Saudi Arabia is considered the most compatible with Pertamina’s refineries.

Russian Ambassador to Indonesia Lyudmila Vorobieva told The Jakarta Post on Tuesday: “We are ready to supply, but it’s up to every side to decide from whom they would like to buy.”

Indonesian Ambassador to Russia Jose Tavares said that Pertamina’s plan to purchase oil from Russia could be implemented considering Indonesia’s cooperation with Russia was proceeding well.

“Though the US banned oil and gas imports from Russia, several countries, including some EU member states, China and India are still importing oil from Russia,” Jose told the Post on Tuesday. “India has increased its oil and gas imports from Russia at [considerably] lower prices.”

Read also: High oil prices put new strains on state budget

BI did not immediately respond to a request for comment on the issue.

Strains on the state budget

High global commodity prices have helped Indonesia book a strong fiscal position, but the budget will face pressure from inflationary shocks in the coming months as the government keeps fuel prices steady, Finance Minister Sri Mulyani Indrawati said on Monday.

The government has instructed Pertamina to keep the prices of its most widely used fuels unchanged, despite surging global oil prices. The prices of Pertalite and Pertamax gasoline are capped at Rp 7,650 and Rp 9,000 per liter, respectively.

“Our budget now is looking quite positive, but it will have to work much harder to protect the people from commodity price shocks,” Sri Mulyani said, adding that spending, especially on subsidies, would rise.

The government spent Rp 21.7 trillion, 16.2 percent of the total energy subsidy budget, in January and February. On top of subsidies, the government typically compensates Pertamina and state-owned electricity company PLN for losses from certain types of sales. The government also owes Pertamina and PLN subsidy and compensation fees from last year.

Furthermore, Pertamina expects subsidized diesel demand to reach 16 million kiloliters this year, 14 percent above the allocated subsidy quota, due to improving economic activity and targeted subsidies amid widening price disparities.

State-owned Bank Mandiri industry analyst Ahmad Zuhdi Dwi Kusuma said the main objective of buying cheaper Russian oil was to reduce the possibility of increasing fuel oil prices.

“Currently the economic price of Pertalite, assuming the world price is at $112 a barrel, is around Rp 15,000 per liter. The gap between the economic prices and retail prices is getting wider, making it difficult for Pertamina and the government to maintain retail prices,” he said on Tuesday.

“If world oil prices continue to rise until the end of the year, energy-subsidy realization will exceed the budget.”

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