Tue, 24 Jun 2003

Pertamina to float price of LPG to avoid losses

The Jakarta Post, Jakarta

State-owned oil and gas company Pertamina, claiming that it has to shoulder losses from the current pricing system, will float the price of liquefied petroleum gas (LPG) while controlling fluctuations by applying floor and ceiling levels.

Pertamina's downstream director Muchsin Bahar said on Monday that the planned price, which was set to take affect in August 2003, would be denominated in U.S. dollars and be pegged to Aramco's contract price (CP) development.

"The calculation will be like that for oil fuel prices, and it will be adjusted every month," Muchsin told reporters, adding that the company was still studying the figures for floor and ceiling prices.

The current LPG price is fixed at Rp 2,700 (30 U.S. cents) per kilogram.

Muchsin said with the exchange rate of the rupiah standing at Rp 8,250 against the greenback, Pertamina suffered a loss of Rp 50 per kilogram.

By applying the floating price, the volatility of the LPG price would depend much on the rupiah exchange rate, he said.

"Therefore, if the rupiah's value reaches Rp 8,250 per U.S. dollar in August, the LPG price will be raised by Rp 50 per kilogram from its current price. But if the rupiah strengthens to Rp 8,000, then we don't have to hike the price," he explained.

Asked if the volatility of the LPG price would proceed at the expense of consumers, Muchsin promised Pertamina would keep the fluctuations in check.

LPG is widely used by middle- to upper-income households in major cities, and the amount of LPG marketed in Indonesia reaches one million metric tons per year. In Jakarta alone, there are some 200,000 households using LPG for cooking.

Last year, Pertamina had again raised the price of LPG from Rp 28,800 to Rp 32,400 per 12-kilogram tank.

Pertamina's planned move to increase the LPG price has been condemned by consumer protection activists.

However, Muchsin defended the move, saying that with a higher LPG price, more players would enter the market.

Currently, Pertamina is the only LPG producer and provider in the country.

Meanwhile, he said that oil fuel prices were expected to remain stable next month at their current levels, because crude oil prices on the world market stood at between $26 and $27 per barrel.

"If the exchange rate for the U.S. dollar remains stable next month, the domestic fuel prices are likely to stay the same," he said.

In January, responding to nationwide protests against the government's decision to raise fuel prices, President Megawati Soekarnoputri made only small adjustments. The price of automotive diesel was cut to Rp 1,650 per liter from the previous price of Rp 1,890 per liter, while the price of industrial diesel was reduced to Rp 1,650 from Rp 1,860. The price of heavily subsidized kerosene for industrial use was lowered slightly to Rp 1,800 from Rp 1,970.

The prices of other fuel products, including premium gasoline and kerosene for household needs, were maintained.