Jakarta – The government announced a long-anticipated fuel prices increase on Saturday in a move to rein in the state budget deficit this year and better allocate the subsidies to the poor.
The subsidized diesel price rose 32 percent to Rp 6.800 ($0.46) a liter from Rp 5.150 a liter, Minister of Energy and Mineral Resources Arifin Tasrif said in a press conference broadcast live from the State Palace in Jakarta.
Pertalite, a 90 RON gasoline sold by state-energy company Pertamina, now costs Rp 10,000 a liter, up 30 percent from Rp 7.650. It was the fuel's first increase since 2019. The price of Pertamax, Pertamina's RON 92 gasoline, rose 16 percent to Rp 14,500 per liter from Rp 12,500.
Arifin said the new price was effective at 02:30 p.m Western Indonesia Time on Saturday.
President Joko "Jokowi" Widodo, who opened the press conference, said that the government had tried its best to shield the people from rising global energy prices, but it could not do that without swelling the state budget deficit.
"I actually want domestic fuel prices to remain affordable by providing subsidies from the state budget," Jokowi said.
"However, the budget for subsidies and fuel compensation in 2022 has increased by three times, from Rp 152.5 trillion to Rp 502.4 trillion, and it will continue to increase," he said.
The president also noted that more than 70 percent of the fuel subsidies went to car owners, who should be able to bear a higher fuel cost.
"The state's money should be prioritized to provide subsidies to the underprivileged," Jokowi said.
"Currently, the government has to make a decision that in this difficult situation, the last option is the government, which is to divert fuel subsidies," he said.
Finance Minister Sri Mulyani Indrawati, who was also present at the press conference, said event with the latest price increases, total subsidy for diesel, gasoline, liquified petroleum gas (LPG), and electricity would reach Rp 640 trillion to Rp 653 trillion.
The projection assumes the Indonesia Crude Price (ICP), a benchmark for the oil produced within the country's territory, drops to $85 and $90 per barrel, respectively, by the end of this year.
"If the [full-year average] of ICP price exceeds $100 per barrel, the total subsidy will reach Rp 649 trillion," Sri Mulyani said, adding the average now stands at $105 per barrel.
Sri Mulyani said the government had allocated Rp 24.17 trillion in additional budget for social protection to protect 50 percent of Indonesia's most vulnerable population from the impact of the fuel price increases.
"We estimate that with the additional social assistance of Rp 24.17 trillion, we can avoid an increase in poverty level. We even try to reduce it through other government programs," she said.