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Indonesia fuel price fiasco may put $1.7 bln dent in Pertamina's finances

Jakarta (Platts)--10 Jun 2018 919 pm EDT/119 GMT


Indonesia's state-run Pertamina is paying the price for the government's reluctance to raise domestic fuel prices in line with surging global crude prices, at least until next year's presidential elections are held.

Consequently, national oil company Pertamina is estimated to incur losses totaling Indonesian Rupiah 24 trillion ($1.73 billion) through 2018 if fuel prices remain unchanged, an official who declined to be named said.

Indonesia's move contradicts its policy of fuel reforms in the aftermath of the 2014 oil price crash, when President Joko Widodo had fully scrapped gasoline subsidies and retained a nominal Rupiah 500/liter subsidy for diesel.

It also mirrors populist moves in countries like Malaysia where the government has lifted consumer taxes to win public support, and underscores the dilemma of Asian governments in a high oil price environment.

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When Jokowi scrapped gasoline subsidies in 2014, crude was under $50/b. However on Tuesday, August Brent crude futures on ICE settled at $75.94/b.

The government has effectively shifted the burden of higher oil prices to Pertamina, which distributes gasoline at retail prices lower than market levels, unlike private retailers who can adjust fuel prices more freely.

Pertamina currently sells 88 RON gasoline at Rupiah 6,450/liter (46 cents), while the market price is around Rupiah 8,600/liter. It sells gasoil at Rupiah 5,150/liter compared with a market price of about Rupiah 8,350/liter, according to the energy ministry.

Meanwhile, the Jokowi administration says it is protecting Indonesian wallets.

"The President is also aware that the public's purchasing power has to be maintained at the current stage, so fuel prices will not be increased until 2019," energy and mines minister Ignasius Jonan told reporters.


PERTAMINA'S Q1 PRODUCTION PLUMMETS


Pertamina increased its crude and condensate production by 14% to 386,000 b/d in the first quarter of 2018, from a year earlier. Its natural gas output increased by 55% to 3.115 billion cu ft/d in the same period.

The company's overall crude and gas production touched 923,000 boe/d in the January-March period, officials said.

Separately, Indonesia's total crude and gas production reached 2.171 million boe/d in Q1, above this year's target of 2.151 million boe/d. This comprised 780,000 b/d of crude oil and condensate, and 1.391 million boe/d of natural gas, Jonan said in a parliamentary hearing in early June.

Indonesia missed its crude and condensates 2017 production target of 815,000 b/d by pumping only 803,800 b/d of , as well as its gas production target of 6.44 billion cu ft/d by producing 6.386 billion cu ft/d.

The country's combined crude and gas production last year was 1.944 million boe/d, missing its target of 1.965 million boe/d.


PERTAMINA'S PRESSURES AT THE PUMP


Indonesia's last fuel adjustment happened in March 2016, when Brent crude was in the vicinity of $40/b. Since then, oil prices are on the verge of doubling, resulting in potential losses worth Rupiah 3.9 trillion ($281 million) for Pertamina over January and February alone.

Earlier this year, Pertamina curbed gasoline distribution to the islands of Java, Madura and Bali where it was not mandated to sell, in a bid to ease its financial burden. However, this ended up causing fuel shortages that led to the dismissal of some of its directors.

Pertamina's marketing director Mas'ud Hamid said the company would resume selling gasoline at 571 fuel stations in Java, Madura and Bali. These are Indonesia's most populated islands with the most fuel consumption, and where gasoline demand hit 5.1 million kl in 2017 and 1.2 million kl in Q1 2018, regulators said.

On May 30, Jokowi signed a presidential decree that obliged Pertamina to distribute unsubsidized 88 RON gasoline to these islands, reversing previous policies.

Meanwhile, the head of Indonesia's downstream regulator BPH Migas, Fanshurullah Asa, said last week that it had increased Pertamina's gasoline distribution quota for this year to 11.8 million kiloliters from 7.5 million kl, which would add to its losses. BPH Migas assigns gasoline prices and distribution quotas to Pertamina.


RAISING GASOIL SUBSIDIES


Meanwhile, the government plans to increase the gasoil subsidy to Rupiah 1,000/liter, from Rupiah 500/liter, in response to high crude oil prices, the energy ministry spokesman Agung Pribadi said.

The gasoil subsidy can be offset by profits from Indonesia's crude oil exports, as every $1/b of crude price increase results in a profit of about Rupiah 2.8-2.9 trillion ($202 million-$209 million).

Higher oil prices have led fuel retailers like Total, Shell and AKR Corporindo to ask the energy ministry to increase retail prices, Energy and Mines Ministry's oil and gas director general Djoko Siswanto said.

--Anita Nugraha with Eric Yep,, eric.yep@spglobal.com
--Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com




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