Indonesia considering hiking fuel prices as much as 40% -lawmakers

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JAKARTA — Indonesia may raise fuel prices by 30% to 40% to manage fiscal pressure from a ballooning subsidy budget, three lawmakers from parliament’s energy committee told Reuters on Friday.

The information came from a closed-door meeting with state oil company Pertamina earlier this week, they said.

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Southeast Asia’s largest economy has already tripled its 2022 energy subsidy allocation from its original budget to 502 trillion rupiah ($33.90 billion) – about 16% of total spending plans – amid rising global oil prices and a depreciating rupiah.

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The government has said even more money would be needed for subsidies this year if fuel prices were not increased.

The option Pertamina preferred was to raise 90-octane gasoline prices to 10,000 rupiah (67.5 U.S. cents) per liter from 7,650 rupiah; 92-octane gasoline to 16,000 rupiah per liter from 12,500 rupiah; and diesel to 7,200 rupiah per liter from 5,150 rupiah, deputy chair of the energy committee, Eddy Soeparno, said in an interview on Friday.

Pertamina also backed introducing some sales restrictions such as banning some vehicles from purchasing subsidized fuels, he said.

“We see this (raising prices and restricting sales) as having the least detrimental effects for the people,” Eddy said.

The price increase is estimated to add around 1.9 percentage points to the 2022 inflation rate, Eddy said.

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Indonesia’s inflation reached 4.94% in July, its highest in seven years, holding well-below rates seen in more advanced countries largely due to its fuel subsidies.

“We seek to maintain inflation at 7% until the end of the year,” chair of the energy committee, Sugeng Suparwoto, said. Cash handouts would be provided to cushion the impact of any fuel price increases on the purchasing power of Indonesia’s poor, he added.

Irto Ginting, corporate secretary of Pertamina’s retail distribution unit, declined to comment about the proposed price hikes, saying pricing decisions are the government’s to make.

Energy Minister Arifin Tasrif told a separate news conference the government is still studying the potential fuel price policy changes.

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“The president is asking us to calculate carefully to pick the best alternative,” he said, declining to provide details on any proposed hikes and saying a decision was unlikely to be taken this week.

Indonesia’s relatively low inflation has allowed the central bank to delay raising interest rates until this week, well behind its peers.

Some economists said Bank Indonesia’s 25-bp rate hike, its first since 2018, was to front-run the announcement of the fuel price increase.

Other options being considered for price increases include setting 90-octane gasoline – Indonesia’s most popular fuel – at 9,500 rupiah a liter and the other fuels also below Pertamina’s preferred price points, Eddy said.

The price levels under consideration remain below refinery production costs, implying some level of subsidies.

Arifin also said on Friday the 90-octane fuel production and delivery costs were around 17,200 rupiah, more than double the current subsidized price, and that diesel fuel costs were at 17,600 rupiah, more than triple the subsidized price.

($1 = 14,810.0000 rupiah) (Reporting by Ananda Teresia; Additional reporting by Bernadette Christina Munthe, Stefanno Sulaiman, Stanley Widianto and Fransiska Nangoy; Writing by Gayatri Suroyo; Editing by Tom Hogue)



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