Recalculating Fuel Prices amid Falling World Oil Prices

Penulis: Safrezi Fitra

Editor: Safrezi Fitra

Rabu 28/11/2018, 16.12 WIB

The government requested a reduction in the price of non-subsidized fuels and prepared a new price formula for premium and diesel.

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World oil prices have continued to decline since last month, but it has not affected the fuel prices. The government will ask for price reduction from companies selling fuels. It is also preparing a new price formula for premium fuel, which has so far been detrimental to PT Pertamina.

Based on Bloomberg data, Brent oil prices reached US$ 58.8 per barrel at the end of last week, the lowest level since June 2017, even though the price on 5 October had reached US$ 84.16 per barrel, the highest level of Brent oil prices in last three years.

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In line with oil prices, the rupiah exchange rate also strengthened against the US dollar. Since the middle of the year, the rupiah has continued to weaken until it reached Rp 15,400 per USD last October. Entering November, it strengthened to the level of Rp 14,510 as of last Tuesday.

The decline in world oil prices and the strengthening of the rupiah should have an effect on fuel prices. These two components are determinants of domestic fuel prices. The Ministry of Energy and Mineral Resources previously stated that it would summon companies selling non-subsidized fuels, such as Shell, Pertamina and Total, and ask them to reduce prices.

“If the oil price drops, the selling price must also goes down,” Director General of Oil and Gas Djoko Siswanto said in Jakarta, Wednesday (11/21). However, he is aware that entrepreneurs must recalculate the possibility of lowering fuel prices at this time. The reason is that they have previously imported oil with the old prices, while the oil prices have just dropped in the past month.

Earlier last month, several business entities, including Total, Vivo, and Shell, raised the price of non-subsidized fuels due to rising oil prices and the weakening of the rupiah. Total and Shell had officially increased their fuel prices at the end of last month. Since the beginning of the year, Shell has raised the prices for nine times, while Total has increased it for eight times.

Based on an official information from the Downstream Oil and Gas Regulatory Agency (BPH Migas), Total increased the price of three fuel products in the range of Rp 150-300 per litre. Vivo raised its fuel price by Rp 1,000-1,250 per litre, while the price of Shell was in the range of Rp 200-300 per litre. Pertamina followed with an increase of Rp 900-2,100 per litre.

The non-subsidized fuel price is indeed regulated in the Minister of Energy and Mineral Resources Regulation No. 34/2018. The highest price is determined based on the basic price plus Value Added Tax (VAT) and Vehicle Fuel Tax (PBBKB) determined by each province. Then, business entity’s margin must be a maximum 10 percent of the basic price. The business entity does not need government approval in setting the prices.

Pertamina Retail Marketing Director Mas’ud Khamid said the price of non-subsidized fuels does follow the development of world oil prices. However, the company is still waiting for instructions from the government to be able to reduce its fuel prices. “We are waiting to be summoned by the government,” he said at the Office of the Ministry of State-Owned Enterprises office building in Jakarta, Monday (11/26).

What about subsidized fuel such as diesel and other fuels such as premium whose prices are still determined by the government? When oil prices were high last month, Pertamina complained that it had to bear losses from premium sales. In the first half of 2018, Pertamina’s net profit dropped 73 percent due to fuel sales.

The Energy and Mineral Resources Minister Ignasius Jonan had announced a price increase for the premium on 10 October. Prices for the Java, Madura and Bali (Jamali) regions were increased to Rp 7,000 per litre, while other regions rose to Rp 6,900 per litre. However, President Joko Widodo (Jokowi) cancelled it a few hours later. The premium price remained at Rp 6,450 per litre for Jamali and Rp 6,550 per litre for other regions.

The planned increase in fuel prices failed before it was actualized. There were three considerations for Jokowi to delay the increase in premium prices. First, the president requested further studies of changes in international oil prices. Second, analysis of fiscal policy. Third, prioritization of people’s purchasing power so it can be well maintained.