Tenggara Strategics, Jakarta – Ministers from President Joko "Jokowi" Widodo's administration have brought the topic of the subsidized fuel, Pertalite, back into the spotlight.
The plan is to reduce the consumption of the government subsidized fuel beginning August, coinciding with Indonesia's Independence Day. However, differing statements from high-ranking officials have left the public puzzled, as the government has yet to reach a consensus on curtailing the country's fuel subsidies.
Coordinating Maritime Affairs and Investment Minister Luhut Binsar Pandjaitan was the one who first floated the idea of imposing restrictions on subsidized fuel, set to begin on Aug. 17, 2024. The restriction, he explained, was part of the government's measures to improve the efficiency of the fuel subsidy and thus improve the state finances. Additionally, Luhut said, the government would introduce low-sulfur bioethanol as a substitute for Pertalite to alleviate the financial burden of oil imports and mitigate air pollution.
In contrast with Luhut, Coordinating Economic Minister Airlangga Hartarto and Energy and Mineral Resources Minister Arifin Tasrif refuted reports that the government intended to restrict the use of subsidized fuel beginning Aug. 17. Arifin said the government was still determining which vehicles qualified for subsidies and it needed time to ensure the data was accurate. President Jokowi also spoke out and said there would be no such restrictions on subsidized fuel just yet.
Minister Arifin also noted that the initial rollout of low-sulfur bioethanol would be a pilot project, allowing for further testing and refinement. The search for effective additives continues to ensure compliance with Euro 5 standards, which requires a significant reduction in sulfur content to below 50 parts per million (ppm). Currently, subsidized Pertalite, with a research octan number (RON) of 90, and RON-92 Pertamax, still has a sulfur content of around 500 ppm, far from the Euro 5 standards. Only RON-95 Pertamax Turbo has sulfur content of below 50 ppm.
The government has introduced RON-95 E5 bioethanol, but questions remain on where the government would source the ethanol if the fuel became mandatory. The government apparently wants to copy the success of the B30 biodiesel program, a blend of 30 percent palm oil and 70 percent fossil-based diesel fuel. Indonesia has abundant source of palm oil, but not yet for ethanol.
By curtailing the consumption of subsidized fuels, the current government is apparently trying to pave the way for the next government to reduce the fuel subsidy. The incoming government under president-elect Prabowo Subianto targets to cut the fuel subsidy drastically by Rp 67.1 trillion (US$4.16 billion) in the 2025 budget from Rp 113.3 trillion this year to give more space for the next government to allocate budget for its free meal program that would cost Rp 71 trillion in the 2025 budget.
With the huge fuel subsidy budget cut, the current government has proposed to subsize the Solar diesel only, with total volume of between 18.33 and 19.44 kilo liters (kl) in 2025, up from 17.8 million kl this year. There will be no more Pertalite. It remains to be seen how the next government would implement the reduced fuel subsidy.
What we've heard
Several sources in the oil and gas industry say the government's plan to limit the purchase of subsidized fuel such as Pertalite and Solar starting from Aug. 17 is part of its plan to produce a new type of diesel fuel.
According to these sources, the Office of the Coordinating Maritime Affairs and Investment Minister and the Energy and Mineral Resources Ministry have been working for the past few months on a plan to produce low sulfur fuel oil (LSFO) that does not contain biofuel.
A source familiar with the discussions said Pertamina was already capable of producing LSFO, dubbed "green Solar", which would eventually replace its subsidized Solar diesel brand. However, it had limited refineries with the capacity to produce LSFO, which included Pertamina's refinery in Balongan, West Java, and the government was still waiting for completion of Pertamina's refinery project in Balikpapan, East Kalimantan, to kick off LSFO mass production.
Other sources say the Finance Ministry is opposed to the LSFO development project if it burdened the state budget (APBN), which had allocated part of the subsidized fuel budget for Pertalite.
The government is therefore planning to revise Presidential Regulation No. 191/2014 on the provision, distribution and retail price of fuel to impose restrictions on the consumption of Pertalite and other subsidized fuels. This will free up the subsidized fuel budget for reallocation to the LSFO project.
A separate source said the government was not entirely in agreement with this plan, however, indicating an ongoing tug-of-war between the Office of the Coordinating Maritime Affairs and Investment Minister and the Office of the Coordinating Economic Minister. Some sources said that instead of producing new low sulfur fuel, Coordinating Economic Minister Airlangga Hartarto wanted Pertamina to produce bioethanol fuel blends instead.
The problem is that out of 13 bioethanol producers, only two meet the fuel grid criteria at present. Meanwhile, Pertamina's bioethanol-gasoline product Pertamax Green 95 (RON 95) is still not available for nationwide distribution and sales.
[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]