Agustiyanti, Rizky Amelia, Arientha Primanita & Ezra Sihite – Indonesia can increase the price of subsidized fuel as early as next month if the Indonesian Crude Price hits $135 per barrel in April, ministers said on Sunday.
The House of Representatives on Friday rejected the plan to raise the price of Premium subsidized fuel from Rp 4,500 to Rp 6,000 (50 cents to 65 cents) beginning on Sunday, but instead approved a conditional increase.
The revised state budget law passed in the early hours of Saturday states that the government can increase the fuel price if the average of the ICP in the previous six months is 15 percent above $105 per barrel, an assumption of the ICP set in the budget.
Both Finance Minister Agus Martowardojo and Coordinating Minister for the Economy Hatta Rajasa said on Sunday that the amendment means that government has the authority to go ahead with the 33 percent fuel price hike if the six-month ICP average goes beyond $120.75.
According to government data, the ICP in October stood at $109.25 per barrel, November at $112.94, December at $110.70, January at $115.90, February at $122.17 and March at $128. This means the current six-month ICP average stands at $116.66 per barrel.
Deputy Minister for Energy and Mineral Resources Widjajono Partowidagdo said that according to his calculation, if April's ICP rises above $135 per barrel, the six-month ICP average will go beyond $120.75. "This means we can directly increase the fuel price next month," he said.
Widjajono explained that fluctuations in the ICP depended on circumstances in the Middle East, but that if there is no change in the current situation, the oil price will continue to rise.
The government had been fighting for the price increase to reduce subsidy spending on fuel, which ate up around $14 billion, or 11 percent, of the country's state budget last year – more than what the government spent on education and health combined, which stood at $9 billion and $1.4 billion respectively.
The plan to reduce fuel subsidies and increase prices led to massive protests across the nation that turned violent in the run up to Friday's plenary.
But when he addressed the nation on Saturday evening, President Susilo Bambang Yudhoyono said the government would only cut fuel subsidies after all other measures had been exhausted. "My view is that an increase in subsidized fuel price will be a last resort if there is no better way," he said in his televised remarks.
The President said that although the oil price has been increasing since October last year, the government has been looking for alternative policies that did not directly increase the fuel price.
Hatta added that even if the average ICP passes the $120.75 mark, the government would still not automatically increase fuel prices. "We will try to find alternatives, such as calling on ministries and state institutions to cut expenses so that we can have budget savings to finance the subsidy," he said.
However, oil and gas expert Kurtubi says that based on his estimates of how world oil prices fluctuate, a price hike next month was unlikely. "The government will increase the price by July 1, at the soonest," said the Center for Petroleum and Energy Economic Studies expert.