April 9, 2018 / 10:28 AM / a year ago

UPDATE 2-Indonesia to regulate non-subsidised fuel prices to control inflation

* Govt approval mandatory for fuel price changes under new rule

* Widodo ‘very concerned’ about inflation -deputy minister

* Move follows coal price cap, hold on fuel, power prices (Adds comment from second economist)

By Wilda Asmarini and Tabita Diela

JAKARTA, April 9 (Reuters) - Indonesia plans to regulate prices of non-subsidised vehicle fuels as part of efforts to control inflation and boost people’s purchasing power, Deputy Energy Minister Arcandra Tahar said.

President Joko Widodo won international praise and sovereign bond rating upgrades for Southeast Asia’s largest economy after cutting government fuel spending by more than 90 percent and shifting the burden of petroleum subsidies to Pertamina shortly after taking office in 2014.

But Indonesia still subsidises some fuels and the government said in March it would cap domestic coal prices and keep fuel and electricity prices unchanged until the end of 2019, an election year.

Widodo’s latest energy policies contrast with his earlier moves to eliminate subsidies and have raised concerns among some economists.

Non-subsidised fuel prices are currently set by retailers, but under a planned regulation the government would have the right to decide whether retailers can change fuel prices, Tahar told reporters on Monday.

“The government is very concerned with the rate of inflation,” he added, referring to adjustments to fuel prices by all retailers, excluding aviation fuel and industrial fuels.

“The direction from the president was that (fuel) price increases must take into account inflation going forward,” Tahar said, referring to retail fuels.

The government plans to meet retailers and issue a regulation on the matter “as quickly as possible” that will become effective immediately, he said.

Susyanto, secretary of Indonesia’s Oil and Gas Directorate, said that under the proposed regulation, “every time there’s an increase it will be obligatory to obtain prior government approval”.

Indonesia’s fuel retailers include Shell, Total, AKR Corporindo, and state-owned energy company Pertamina.

A second regulation would soon be issued to improve distribution of “Premium” (RON 88) gasoline after shortages emerged in some areas, Tahar said.


A spokesman for Pertamina said the company had not received information about the move. A Jakarta-based spokesman for Shell did not respond to a written request for comment on the matter.

The government’s concern is that household consumption growth remains below 5 percent, below average for Indonesia, Permata Bank economist Joshua Pardede said, referring to recent central government data.

“The hope is that by managing administered prices it can boost private consumption,” Pardede told Reuters.

Widodo has been grappling with an economy that has refused to respond to conventional policies to kick-start growth. That could dent his re-election chances in 2019, especially with a budget that won’t stretch to lavish government spending.

“The preliminary conjecture is that this is an effort to save (Widodo’s) electability,” Bhima Yudistira Adhinegara, an economist at the Institute for Development of Economics and Finance (Indef), told Reuters, referring to recent declines in consumer confidence.

Net oil importer Indonesia’s fuel subsidies have been blamed for creating a false economy, widespread smuggling and corruption.

Pricing controls have dented the finances of Pertamina and state electricity company Perusahaan Listrik Negara (PLN), and reduced their spending capacity.

Pertamina’s losses from government-price-controlled fuel sales had reached 3.9 trillion rupiah ($283.43 million) as of February, and this amount could swell to 5 trillion rupiah by June, Adhinegara said. ($1 = 13,760 rupiah) (Writing by Fergus Jensen; Editing by Richard Pullin and Kim Coghill)

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