Fuel Policy Indonesia: Premium Not to Be Fully Replaced by Pertalite (Yet)
Contrary to earlier reports the Indonesian government has not decided yet to completely phase out production and consumption of low-octane gasoline (known as premium) in Indonesia. Last week state-owned energy company Pertamina said that premium, a subsidized fuel that was introduced under the Suharto regime in order to support the population’s purchasing power (by making transportation costs artificially low) would be gradually replaced by 90-octane pertalite, a higher-grade fuel, starting from May 2015.
Although originally being a subsidized fuel, the current administration under the leadership of President Joko Widodo scrapped public subsidies for gasoline in January 2015 in order to assemble funds for structural economic and social development (rather than subsidizing people’s fuel consumption). Moreover, energy subsidies have grown rapidly in recent years, eating up about one-fifth of the annual state budget. Fuel subsidies had become a large burden as Indonesia’s domestic oil output has declined rapidly over the past two decades, hence the country changed into a net oil importer (and had to withdraw its membership in the OPEC in the mid-2000s).
Having become a net oil importer, Indonesia had to rely on costly fuel imports thus placing serious pressures on the country’s trade balance and current account balance. Other issues with premium is that it is a highly polluting fuel and damages the engine of cars and motorcycles when used long-term.
However, on Monday (20/04) Indonesian State-Owned Enterprises Minister Rini Sumarno said that the new pertalite fuel would not completely replace premium. Instead premium will be available to the public alongside the new pertalite fuel. After discussions with Indonesian Energy and Mineral Resources Minister Sudirman Said, Sumarno said that the most affordable fuel (premium) should continue to be available to the public and pertalite would be offered as a new option only.
Currently, the price of one liter premium is IDR 7,300 (USD $0.57). Since January 2015, the price of premium is set by the central government (in a monthly basis) in line with fluctuations of global oil prices. The retail price of pertalite would be IDR 8,000 (USD $0.62) per liter according to information from Pertamina.
Dwi Soetjipto, President Director at Pertamina, confirmed that - until no new regulations or guidelines come from the central government - there is no plan to phase out premium, implying that the phasing out of premium depends on the central government which may still decide to abolish premium.