APSN Banner

Indonesia removes price floor for unsubsidized fuels amid global oil price war

Jakarta Post - March 17, 2020

Norman Harsono, Jakarta – Indonesia has revoked the price floor for unsubsidized gasoline and diesel as the government expects falling global oil prices to push down retail costs, but distributors look less likely to drastically cut prices with some already providing discounts.

The Energy and Mineral Resources Ministry issued on Feb. 28 Ministerial Decree No. 62/2020 that erases a price floor for gasoline and diesel set by a previous decree, providing flexibility for distributors to reduce prices as low as possible. The new decree still maintains a price ceiling for such fuels pegged to prices in Singapore.

"The government's position is to protect the people's purchasing power and ensure business continuity," said the energy ministry's acting oil and gas director general, Ego Syahrial, on Monday, "as we are facing a sudden fluctuation in crude prices."

Global crude oil prices plunged this year as the COVID-19 coronavirus outbreak has hurt global demand and triggered a price war between major oil exporting countries. The international Brent oil price benchmark almost halved its value to below US$30.50 on Tuesday, from around $50.10 at the start of the year.

Ego said on March 10 that the government would make the most of low global crude prices by increasing imports without swelling the country's trade deficit. The government said it expected Indonesia's top oil company, state-owned Pertamina, to "buy as much oil as it can", preferably under long-term purchasing contracts, while global prices sit at a four-year low.

Oil and gas imports, which reached $1.75 billion in February, up 10.7 percent from the same month last year, remained a key vulnerability for Southeast Asia's largest economy.

The month in which the Energy Ministry issued the new decree saw Indonesian crude prices (ICP) fall by 13.42 percent month-to-month (mtm) to $56.61 per barrel in February because of slowed economic activity from the world's second largest economy.

Global crude oil prices fell about 30 percent on Monday last week after Saudi Arabia, the world's largest oil exporter, slashed selling prices and planned to increase crude production next month, effectively starting a price war between oil exporting countries.

While Pertamina president director Nicke Widyawati echoed government sentiment over increasing crude oil imports, a separate company representative did not immediately comment, explicitly, on plans to lower fuel prices.

"Pertamina has executed and complied with the ministerial decree in question," said Pertamina spokeswoman Fajriyah Usman on Monday.

A representative from the Netherlands-based Shell Indonesia oil company also did not elaborate on plans to lower fuel prices.

"Shell is committed to complying with regulations and collaborating with the government and all stakeholders over this issue," said Shell's vice president of external relations, Rhea Sianipar.

Both companies had lowered fuel prices earlier this year after the energy ministry issued on Dec. 26 Ministerial Decree No. 187/2019 – a regulation revoked by the new decree – that tightened the minimum and maximum prices for fuel.

Afterwards, in early January in Greater Jakarta, retail fuel prices were reportedly lower at Shell and Total gas stations by up to 15.71 percent and 15.8 percent, respectively, for certain fuels.

In comparison, Pertamina reduced its Pertamax and Pertamax Turbo brand gasolines by 8.7 percent to Rp 9,000 per liter and 12.1 percent to Rp 9,850 per liter, respectively.

Source: https://www.thejakartapost.com/news/2020/03/17/indonesia-removes-price-floor-for-unsubsidized-fuels-amid-global-oil-price-war.html