Govt to allow Pertamina, PLN to raise fuel, power prices

Rendi A. Witular, The Jakarta Post, Jakarta

In an attempt to rein in the ballooning fuel subsidy, the government will allow state oil and gas company PT Pertamina and state power firm PT PLN to charge market prices for fuel and power intended for specific uses.

The move is expected to help the government cut projected fuel consumption from 59.69 million kiloliters (kl) to 55 million kl, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Monday.

"The government will support any corporate plan from Pertamina and PLN to raise fuel prices and power rates. However, they will not be allowed to raise prices and power rates for the five classifications of users protected by the government," he said after meeting with President Susilo Bambang Yudhoyono.

Purnomo said these five protected classifications were small households, small and medium enterprises, public transportation owners, special transportation operators such as ambulance services and fire departments, and special purposes, which include donations and emergency uses.

The government will continue to provide a subsidy for consumers in these five categories, so the Premium gasoline, diesel fuel and kerosene they use will cost below global market prices.

However, Pertamina will be able to raise the prices of its nonsubsidized Pertamax and Pertamax Plus fuels. Pertamax currently costs Rp 4,000 per liter and the price could go up to Rp 5,000 per liter in the foreseeable future.

PLN will increase power rate for large industrial users.

Purnomo said the government also would allow Pertamina to prohibit cars with an engine capacity of 3,000cc and above from using subsidized Premium fuel, as well as allowing PLN to review its power rates for affluent households.

"While the government is still discussing its macro fuel conservation policy, such as taxes, Pertamina and PLN will be allowed to decide their own prices for certain users," he said.

Purnomo also said the government might cut the fuel subsidy for PLN after October should demand for electricity shoot up, thus forcing the company to purchase more fuel above its allocated quota for the year.

PLN has a fuel quota of some 9.5 million kl for 2005. As of the first semester of the year, the company had already used 5.5 million kl of the quota.

The government has allocated Rp 76.5 trillion (US$7.88 billion) in the 2005 budget to subsidize domestic fuel, including gasoline, kerosene and diesel. The subsidy was determined using an average global oil price of $45 per barrel.

Despite cutting the subsidy some earlier this year, continuing high oil prices -- now hovering at about $58 a barrel -- and increasing domestic demand have pushed the subsidy past the Rp 130 trillion mark.

If the government shoulders this extra cost, it will further burden the already stretched national budget.