State-owned oil and gas firm Pertamina is facing pressure as the government has decided to maintain until March the same fuel price it has set over the past two years, despite the rising global oil price.
The government will review the price after April 1 but there is speculation that an increase in the fuel price is unlikely, given objection from the ruling party ahead of the regional elections in June and presidential election next year.
By keeping the fuel price unchanged, the government is trying to keep inflation in check and sustain its populist approach. The rising global oil price brought the Indonesian Crude Price (ICP) to US$65 per barrel on Wednesday, much higher than the $48 per barrel set in the state budget and the $52 per barrel average ICP in 2017.
While the government acknowledged Pertamina would see a decline in revenue, it is of the opinion that profits will still be “good”.
“Pertamina will still book a good profit, though there’s [potential] for a decline in revenue,” said Ego Syahrial, acting oil and gas director general at the Energy and Mineral Resources Ministry during a six-hour meeting with House of Representatives Commission VII overseeing energy Regarding the fuel price beyond April 1, Ego Syahrial said the government would closely monitor fluctuations in the global oil price.
Pertamina- finance director Arif Budiman, meanwhile, predicted that net profit would remain stagnant this year at $2.4 billion. The decision means the prices of Premium gasoline and Solar diesel, the two fuels popular among low-income people, will remain at Rp 6,450 (47.8 US cents) per liter and Rp 5,150 per liter, respectively.
Pertamina president director Elia Massa Manik once said Pertamina’s fuel prices were lower than fuel prices in Singapore and Japan, which range from Rp 10,000 to Rp 50,000 per liter. Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance (INDEF), said it would be unlikely for the government to make the unpopular decision to increase Premium and Solar prices ahead ofthe regional and presidential elections as it had to carefully maintain the inHation rate; Hence. he said the government might be forced to let energy subsidies soar amid increasing crude prices, while trying to limit spending in areas such as infrastructure.
“However, it is also possible that the government will sacrifice Pertamina once again by forcing the company to bear the subsidy burdens itself. Then, the government will repay its debts to Pertamina later in the future,” Bhima said.
The last option, if chosen by the government, will further weigh on Pertamina’s financial state amid the company’s mounting tasks in the upstream and downstream oil and gas sectors. Pertamina has estimated 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 refinery projects.
The company has allocated $5.5 billion in capital expenditure in 2018, up from $4.5 billion last year. It has projected that the figure will reach around $10 billion ayear in the 2019-2021 period following the start of the construction of refinery projects.
The government has also ordered Pertamina to support the former’s one fuel-price policy, which aims to ensure fuel prices are uniform throughout the entire archipelago. Under the policy Pertamina is tasked with establishing fuel distribution agents in 150 remote locations in the 2017-2019 period with a total investment of around Rp 3.8 trillion.
Once completed, Pertamina estimates it will need to disburse Rp 3 trillion annually to keep the program running.
Jakarta Post, Page-1, Friday, Jan 19, 2018
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