Indonesia: Energy Minister signals more price hikes for fuel, electricity

  • The Energy and Mineral Resources Ministry has revealed plans to raise the prices of subsidized energy commodities to minimize fiscal strains amid surging international oil prices induced by the Russian invasion on Ukraine.
  • Energy Minister Arifin Tasrif said that the “adjustments” would apply to Pertalite gasoline, Solar diesel, kerosene and 3-kilogram liquefied petroleum gas (LPG) cylinders.
  • These subsidized fuels are widely used by lower-income homes and businesses. “We will keep an eye on the developments in the geopolitical conflict. If it keeps going on, it could trigger further hikes in oil prices, which the state budget may not be able to cover. Therefore, we need to recalculate prices again,” Arifin told lawmakers.
  • The government will also raise electricity prices through a tariff-adjustment mechanism that will allow state-owned electricity company PLN to set prices based on global market conditions.
  • Regulations have barred PLN from exercising the policy since 2018. “In the short term, the plan to have a tariff adjustment in 2022 [on electricity] could save the state budget IDR7tr to IDR16tr in compensation,” he said.
  • Compensation is used to cover the difference between government-set energy prices and market prices. The funds are disbursed to state-owned enterprises in the months after the year ends.
  • When asked to confirm whether the government would hike prices, Arifin said, “we are still evaluating the situation. It is still being studied”.
  • The energy ministry reiterated that subsidized fuel supplies were running thin as more consumers were buying such fuels after the government raised the prices of nonsubsidized fuels.
  • State-owned oil and gas company Pertamina, the country’s top fuel distributor, has raised the prices of Pertamax and Pertamax Turbo gasoline as well as Pertamina Dex and Dex Lite diesel.
  • Furthermore, drivers of trucks used to carry coal and crude palm oil have reportedly been buying subsidized diesel even though regulations state they are not eligible to purchase such fuels. The diesel shortage has led to long lines of trucks in some regions and delivery delays.
  • Arifin said that subsidized Pertalite and diesel consumption had exceeded the annual quota by 9.5% and 14%, respectively, as of 1Q22. In response, the government will top up the quota to ensure adequate supplies until year-end.
  • The quota for Pertalite has been raised to 28.5 million kiloliters (kl) from 23.05 million kl, and for subsidized diesel to 17.39 million kl, from 15.1 million kl.
  • In the mid- to long-term, the government has vowed to increase the use of renewables to avoid such shortages in the future.
  • The ministry will also tighten supervision of subsidized fuel distribution, increase the use of biodiesel, increase domestic oil production and improve its subsidy distribution mechanism.

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