GOV’T RAISES FUEL PRICES BY 30% A choice between National Budget, Pertamina Finances and Market Price

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Pertamina increasing subsidized fuel price 3
(IO/Muhammad Hidayat)

Jakarta, IO – After having gone through long discussions and sparking controversy in the public sphere, the government finally took the decision to increase the price of subsidized fuel. The price of subsidized diesel fuel (Solar) went up from Rp5,150 to Rp6,800 per liter. Meanwhile, Pertalite-branded gasoline increased from Rp7,650 to Rp10,000 per liter. 

The government said there were at least two reasons for the hike. First, as the President has mentioned several times, the energy subsidies and compensation budget in 2022 is projected to hit Rp502 trillion, exerting an immense pressure on the National Budget (APBN). Second, the government argues that the fuel subsidy policy is flawed as it is not “on target,” meaning it is mostly (80% according to the government’s claim) enjoyed by the middle and upper class, those who can actually afford it at non-subsidized rates, instead of the poor or the working class. 

In 2020, consumption of Pertalite reached 29,074,314,000 liters (70 percent by four-wheelers and 30 percent by two-wheelers). Of the four-wheelers, about 98.70 percent or 20,087,443,000 liters were consumed by private vehicles. Official data shows that public transportation only accounted for 0.4 percent (81,408,000 liters), yellow-plate (conventional) taxis 0.3 percent (61,056,000 liters), and online (app-based) taxis 0.6 percent (122,112,000 liters). The distribution of subsidized fuel consumption for diesel fuel in the same period is more or less similar in trend. 

The State of the 2022 Budget 

Even before the fuel price hike, the 2022 Budget has been under tremendous pressure. State revenue is targeted at Rp1,846.10 trillion, while government spending amounts to Rp 2,714.20 trillion, so there is a deficit of Rp868.10 trillion. The revised budget (APBNP) failed to plug the deficit gap, as it still leaves a deficit of Rp 840 trillion. 

The 2022 APBNP was submitted by Finance Minister Sri Mulyani Indrawati via Letter S-141/MK.02/2022, asking for the House’s approval for additional budget needs in response to rising global energy and commodity prices. The House replied through Letter B/9349/ AG.06.03/05/2022 inviting the Finance Minister to a working meeting with the House Budget Committee. 

The meeting resulted in several agreements. First, the government and the House conclude that the criteria for state of emergency according to Article 42(1) of Law 6/2021 on 2022 National Budget has been met. Budget 2022 is considered unable to maintain purchasing power and sustain economic recovery because there is not enough fiscal room to accommodate the additional needs for fuel and electricity subsidies and compensation as well as a social safety net. 

Second, supply chain upheaval and geopolitical conflict (Russia-Ukraine war) have led to rising commodity prices and tightening global monetary policies and liquidity, posing a threat to Indonesia’s economic recovery from the impact of the Covid-19 pandemic. One of the consequences is the need to revise the Indonesian Crude Price (ICP) assumption from US$63 to US$100 per barrel. 

Third, the change in ICP assumption has exerted an impact on the posture of Budget 2022. The House Budget Committee and the government agreed to change the APBN posture by increasing state revenue by Rp420.1 trillion from Rp1,846.1 trillion to Rp2,266.2 trillion. Meanwhile, government spending surged by Rp392.3 trillion from Rp2,714.2 trillion to Rp3,106.4 trillion. 

Fourth, the high price of energy commodities will not be imposed on domestic consumers, but efforts will be made to secure the domestic supply of energy, including the health of the energy SOEs, in this case state-run electricity firm PLN and oil-andgas company Pertamina. In this regard, the government and the House agreed on an additional allocation of Rp74.9 trillion for energy subsidies and an additional Rp275 trillion for fuel and electricity compensation (Rp234 trillion for fuel and Rp41 trillion for electricity, to be precise).

Fuel prices and Pertamina finances 

Currently, the fuel price policy in Indonesia refers to Presidential Regulation (Perpres) 191/2014 in conjunction with Perpres 43/2018, Perpres 69/2021, Perpres 117/2021 on the supply, distribution and retail selling price of fuel. The regulations divide fuel into three types, namely, certain types of fuel (JBT), special assignment fuel (JBKP) and general fuels. 

JBT includes kerosene and diesel fuel. JBKP refers to gasoline with a minimum RON of 88. General fuel is the other types of fuel other than JBT and JBKP. 

The Presidential Regulations stipulate that the authority to determine the retail selling price of JBT and JBKP rests with the government; while price of general fuel is with the business entity. General fuel prices are calculated at the delivery point, based on the highest price formula consisting of the base price plus value-added tax (VAT) and fuel tax.