AsiaOne: Plan to cut fuel prices in Indonesia sparks polemic

Image source: Wikimedia Commons (CC BY-SA 3.0) | Credit to: by Uploader's mother, digitally altered by Mr.choppers

Image source: Wikimedia Commons (CC BY-SA 3.0) | Credit to: by Uploader’s mother, digitally altered by Mr.choppers

President Joko “Jokowi” Widodo’s plan to cut fuel prices in a bid to boost people’s purchasing power has sparked a polemic.

An observer has warned that the policy, which was set to be announced on Monday, would hit state-oil and gas firm Pertamina’s revenues while another analyst said impacts resulting from the price cut would be tolerable.

Most of our Premium is imported while the rupiah has continued to decline against the US dollar

Reforminer Institute director Komaidi Notonegoro said on Sunday that the normal price of Premium – a low-specification gasoline – was Rp 6,500 (around 44 US cents or S$S0.60 cents) per liter and that a lower retail price could eat into Pertamina’s earnings as fuel production costs had been rising this year.

“Most of our Premium is imported while the rupiah has continued to decline against the US dollar,” Komaidi said as quoted by Kontan.

The fuel price should be cut because Pertamina now buys crude oil and the fuel directly from the market, resulting in a shorter supply chain

However, an oil and gas observer from the University of Gadjah Mada, Fahmi Radhi, said Pertamina’s main problem would not be lower Premium prices but a lack of efficiency in its management.

He said the fuel price should have been cut right after Pertamina’s Singapore-based trading arm, PT Pertamina Energy Trading Limited (Petral), was dissolved.

“The fuel price should be cut because Pertamina now buys crude oil and the fuel directly from the market, resulting in a shorter supply chain,” Fahmi argued.

Read the full article: Plan to cut fuel prices in Indonesia sparks polemic | Asia One

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