Indonesian plan to cut fuel prices spurs debate

An observer has warned that the policy, which was set to be announced on Monday, would hit state oil and gas firm Pertamina’s revenues, while another analyst said impacts from the price cut would be tolerable.

Reforminer Institute director Komaidi Notonegoro said on Sunday that the normal price of premium – a low-specification petrol – was 6,500 rupiah (Bt16.50) per litre and that a lower retail price could eat into Pertamina’s earnings, as fuel production costs had been rising this year.

"Most of our premium is imported, while the rupiah has continued to decline against the US dollar," Komaidi was quoted as saying by the Kontan news service.

However, an oil and gas observer from the University of Gadjah Mada, Fahmi Radhi, said Pertamina’s main problem would not be lower premium prices but a lack of efficiency in its management.

He said the fuel price should have been cut right after Pertamina’s Singapore-based trading arm, Pertamina Energy Trading Ltd, was dissolved.

"The fuel price should be cut because Pertamina now buys crude oil and the fuel directly from the market, resulting in a shorter supply chain," Fahmi argued.

Fahmi, who is a member of Indonesia’s reform team for oil and gas governance, estimated that a tolerable premium price decrease would be 500-1,000 rupiah per litre from the existing price of 7,400 rupiah per litre.

He rejected Pertamina’s claim that it had maintained a stagnant fuel price to offset accumulated losses in the past.

"This is not fair. [The cost of] Pertamina’s mismanagement in the past is now burdening the public as fuel consumers."

Pertamina corporate communications vice president Wianda Pusponegoro said the state-owned oil and gas company had its own estimation on the viable premium price.

"All of the estimations have been reported to the Energy and Mineral Resources Ministry as the regulator before it delivers them to the president," she said.

Wianda said Pertamina had conducted efficiency programmes such as crude-oil import centralisation, refinery operation efficiency and loss reduction.

Pertamina recorded US$21.78 billion (Bt792 billion) in operating revenues and sales in the first half of this year, significantly less than in the same half last year, which amounted to $36.27 billion.

The company’s net profit dropped from $1.13 billion in the first half of 2014 to $579.1 million in the same half this year.