The government might increase the price of certain fuel types sold by state-owned energy giant Pertamina to help ease the company’s financial burdens.
Since April 2016, the government has maintained the prices of Premium gasoline with a research octane number (RON) of 88 at Rp 6,450 (49 US cents) per liter and subsidized Solar diesel at Rp 5,150 per liter. This has forced Pertamina to bear the burden when the prices are below its real economic value.
Pertamina claims it lost $1.42 billion in potential revenues within the first nine months of 2017, because the Indonesian Crude Price (ICP) grew simultaneously by 28.9 percent year-on-year to $48.86 per barrel.
It has since sent a letter explaining its financial situation to the Energy and Mineral Resources Ministry, the Finance Ministry and the State- Owned Enterprises Ministry in hopes of some relief.
Commenting. on this matter, the Energy and Mineral Resources Ministry’s oil and gas director-general Ego Syahrial said the government initially decided to maintain the price of Premium and Solar in efforts to preserve people’s purchasing power.
“However, We’ll see the siniation prior to 2018. If the crude price surpasses $60 per barrel, we might have to adjust the prices, for instance, by increasing the price of Premium to Rp 6,750,” Ego said.
The ICP stood at around $59 per barrel in November, while the price of global benchmark Brent crude even reached $63.73 per barrel on Dec. 1. The ministry. along with Pertamina and the Supreme Audit Agency (BPK). is also currently reviewing the price formula for Premium and Solar. which should be subject to adjustment once every three months.
At present, the formula takes into account several components, including the distribution cost, the value-added tax (PPN) and the motor vehicle fuel tax (PBBKB).
“The formula was initially introduced in 2015. Some cost components might have to be adjusted in line with the current situation,” Pertamina finance director Arief Budiman said.
A price adjustment Will be a big boost for Pertamina, which saw its total liabilities climb by 1.08 percent year-on-year (yoy) to $26.36 billion in the first half of 2017. As of 2016, the government still owed Pertamina Rp 22 trillion in subsidies for the sale of subsidized 3-kilogram liquefied petroleum gas (LPG) canisters and subsidized Solar diesel.
Moreover, the government has yet to pay Rp 8.4 trillion for gasoline supplied by Pertamina to the Indonesian Military since 2014.
The government, however, has only committed to repay Rp 4 trillion of its military-related debts to Pertamina by the end of the year. Meanwhile, Pertamina president director Elia Massa Manik said it would be difficult for the company to accelerate its expansion efforts without any price adjustments.
Pertamina has estimated that it will need around $120 billion to support its business plans within the next decade, one-third of which will be used to finance various relinery projects.
The company has allocated 85.5 billion in capital expenditure in 2018, up from $4.5 billion this year. It has projected that the figure will reach around $10 billion a year in the 2019-2021 period following the start of the construction of its refinery projects.
“Yes, We can still make a profit in 2017. [...] But in the future, it all depends on the crude price. That’s why we have voiced our
concerns to the government,” Elia said.
The government has also ordered Pertamina to support the former’s policy to ensure fuel prices are uniform in all corners of the archipelago. Pertamina plans to establish fuel distribution agents in 150 remote locations by 2019 with a total investment of around Hp 3.8 trillion to support the government.
Once completed, Pertamina estimates it will need to disburse Rp 3 trillion annually to keep the program running. As of today, Pertamina has only been able to build 34 fuel agents nationwide, 6.2.9 percent of the total target of 54 before year-end.
Jakarta Post, Page-13, Tuesday, Dec 5, 2017
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