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December 28, 2008

Indonesia may cut fuel prices again

Indonesia’s government may further cut the prices of Premium gasoline and diesel on January 15, hinting it may even, partly or entirely, float the prices of the two subsidised fuels to keep in line with global crude prices, reported the Jakarta Post.

"There might be price revisions for Premium gasoline and diesel on January 15," Energy and Mineral Resources Ministry Purnomo Yusgiantoro said Thursday evening. If it happens, it will be the third such price cut since early December -- a popularity-boosting move that could bode well for the government ahead of next year's elections.

Asked about the size of the possible cut, Purnomo said the government was still evaluating all indicators, in particular fluctuations in the price of crude oil.

Crude oil traded on the New York Mercantile Exchange Thursday gained about 4 percent to $36.80 a barrel, but analysts said it was only a short-term gain. Bloomberg reported crude oil prices dropped more than 30 percent in December alone. From a record high of $147.27 on July 11, crude oil prices have fallen by 76 percent.

Purnomo said the government was fully aware of the downward trend in prices of oil-based fuels, especially Premium gasoline.

"We usually set the diesel price lower than that of Premium, but an unusual trend is occurring now: The price of premium in the international market is very low because of an excess of supply," he said.

"If the trend continues like this, the price of Premium could drop below that of diesel."

On December 15, the government cut the price of premium by 500 rupiah, to 5,000 rupiah (45 US cents) per liter, and the price of diesel by 700 rupiah, to 4,800 rupiah per liter.

Critics have lambasted the government's moves to lower the prices of subsidised fuels as a publicity stunt to draw more support ahead of next year's legislative and presidential elections.

At a press conference held at the office of the Golkar Party, the country's biggest political party, Vice President and Golkar chairman Jusuf Kalla said the government would "consistently" adjust domestic fuel prices to reflect global levels.

"The President and I always discuss when we need to cut fuel prices; however, they will certainly keep declining," he said.

"If oil prices are down globally, then we will also bring them down here to reasonable levels, to reduce the burden on people and boost consumption."

Purnomo said the price cuts for Premium gasoline and diesel were likely the first such adjustments to reflect global oil prices.

As the election draws near, the government is managing the issue of subsidized fuels carefully. On Wednesday, Purnomo warned state oil and gas company PT Pertamina, the sole distributor of subsidized fuels, to avoid a shortage of the fuels next year.

"I don't want to see any shortage of subsidized fuels next year, because this issue can be easily used as a political tool," he said.

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