There will be no immediate subsidized fuel price increase on April 1st. 2012

News update on June 17, 2013

The government of President Susilo Bambang Yudhoyono is mulling over raising gasoline prices 44 percent, from 4,500 rupiah, or 45 cents, a liter, or 0.26 gallon, to 6,500 rupiah to help close a widening budget deficit. The country’s Finance Ministry has said spending on fuel subsidies could reach $23 billion in 2013, compared with about $20 billion last year, if urgent action is not taken. 

The House of Representatives just approved the government's proposed fuel-price hike as it endorsed the draft bill of the 2013 revised state budget in a plenary session in Jakarta on Monday. June 17th. 2013.that will pave the way for the government to announce the first price hike since 2008.

Under the revised state budget, the price of fuel will increase by 44 percent to Rp 6,500 (66 US cents) per liter.

During the session, 338 legislators voted in favor of the bill, while 181 lawmakers rejected it.
Fuel prices have long been a flashpoint issue in Indonesia, with economists arguing that huge government subsidies are damaging Southeast Asia's top economy. 

International lenders like the World Bank have urged the Indonesian government to eliminate subsidies altogether, as savings could go to crucial social programs, including health care, as well as much-needed infrastructure investment.  

Although Indonesia has plenty of oil production fields and is among the top 25 oil-producing nations in the world, it is a net importer of petroleum. Gasoline is so heavily subsidized that at the end of 2012, the country had the lowest fuel prices of any net oil-consuming nation in the world, according to the World Bank. The second-lowest was the United States, where a gallon sold for $3.29 on Dec. 31 — nearly twice as much as in Indonesia.

Comparison of Fuel Prices worldwide

The House of Representatives, through a dramatic voting process, agreed on early Saturday to revise the 2012 state budget, which includes a contentious article 7 paragraph 6A  allowing the government to increase subsidized fuel prices within six months if the Indonesian Crude Price (ICP) is 15 percent higher than assumed in the state budget.

According to government data, the ICP in October stood at $109.25 per barrel, November at $112.94, December at $110.70, January at $115.90, February at $122.17 and March at $128.

This means the current six-month ICP average stands at $116.66 per barrel.
– The average Indonesian Crude Price (ICP) for December 2011 was US$110.7 per barrel, declined from US$112.52 per barrel in the previous month.

The Sweet Light Crude (SLC) also fell to US$112.52 per barrel from previous month’s US$116.04 per barrel.

Ministry of Energy & Mineral Resources assessed the price decline was in line with crude oil price in international market, which was pressured by some factors such as production quota rise by OPEC members, global negative growth sentiment due to European debt crisis, the acceleration of oil production in Lybia and the dollar appreciation.

“For Asia and Pacific region, the decline in crude oil price was due to the decline in oil consumption by China along with the its economic slowdown,” OPEC said

The ICP is determined by Pertamina, based on moving average spot price of a basket of five internationally traded crudes:

• Minas (Indonesia)
• Tapis (Malaysia)
• Gippsland (Australia)
• Dubai (UAE)
• Oman

In some cases ICP is used as index in long term LNG contracts in East Asia.

State-owned oil and gas firm PT Pertamina has increased prices for non-subsidized fuels, starting Sunday, due to the skyrocketing global prices for crude oil.

Pertamina spokesman M. Harun said Sunday that the increased prices reflected fluctuations in the market.
"We adjust the price of non-subsidized fuels every two weeks, on the first and fifteenth days of each month. The changes depend on market conditions," he told The Jakarta Post in a telephone interview.

The price of RON 92 Pertamax high-performance gasoline has gone up to Rp 10,200 (US$1.11) per liter, from Rp 9,850. Meanwhile, RON 95 Pertamax Plus is now being sold at Rp 10,350.

Indonesia can increase the price of subsidized fuel as early as next month if the Indonesian Crude Price hits $135 per barrel in April, ministers said on Sunday (April 1st. 2012)

Deputy Minister for Energy and Mineral Resources Widjajono Partowidagdo said that according to his calculation, if April’s ICP rises above $135 per barrel, the six-month ICP average will go beyond $120.75.

However, oil and gas expert Kurtubi says that based on his estimates of how world oil prices fluctuate, a price hike next month was unlikely. “The government will increase the price by July 1, at the soonest,” said the Center for Petroleum and Energy Economic Studies expert.

There will be no immediate subsidized fuel price increase on April 1st. 2012

That 7 factions rejecting the proposal are PDI-P, Gerindra, Hanura (the opposition) and four factions of SBY-Boediono’s Ruling Coalition members (Golkar, PKS, PPP, and PKB). Only two factions of the Ruling Coalition (President SBY’s Demokrat Party and PAN) support the government proposal.

While 4 factions rejecting the proposal but accepting the existence of the controversial Article 7 paragraph 6A, as proposed by the Government in the revision of the 2012 State Budget, are Golkar, PKS, PPP and PKB.

Article 7 paragraph 6A basically gives flexibility to the Government to adjust the fuel price with the world oil price.

Golkar supports the government to raise fuel price if the global oil price increased more than 15% of global oil price’s assumption set on the budget.

PKS also allows when global oil price rose more than 20% from the budget assumption. While PPP and PKB will support if the world oil price advanced above 10% and 17.5%, respectively.

Some observers said that the controversial Article 7 paragraph 6A is basically similar with Article 28 paragraph 2 of Law No 22/2001 regarding Oil and Gas (Migas) Law. The Article 28 paragraph 2 of Migas Law had been annuled by the Constitutional Court (MK) on December 15, 2004 as it violated the 1945 Consitution.

MK, according to Constitutional Judge Harjono, has prohibited the regulator to determine the fuel price based on market mechanism.

 As many as 356 lawmakers voted to pass the bill while 82 House members were against it. The other 93 lawmakers from the People’s Conscience Party (Hanura) and the Indonesian Democratic Party of Struggle (PDI-P) walked out just before the voting process started.

Their plan would allow the government to raise the cost of fuel only if the ICP rose a certain percentage above the $105-per-barrel assumed average of oil prices used to formulate the 2012 state budget.

Initially, they wanted a 5-percent difference but eventually shifted their demand to 10 percent and then 15 percent.

The five other members of the pro-government coalition of parties laid down conditions that would make it impossible for the price increase to take place as scheduled.

Golkar, in its opinion read out by lawmaker Ahmadi Noor Supit, proposed that a “fuel price adjustment” only be made if the ICP was at least 15 percent higher than the 2012 budget price assumption for six consecutive months.

Ahmadi said while at first the party had understood the need for a price increase, “When the people began to make demands of the parties, we conducted a review. We reject an increase in the price of fuel.”

The Prosperous Justice Party (PKS), a coalition member, wanted the ICP gap to be at least 20 percent, while coalition member the National Awakening Party (PKB) and the United Development Party (PPP) pushed for 17.5 percent and 10 percent, respectively.

The National Mandate Party (PAN) joined Golkar in demanding the ICP be at least 15 percent higher than the assumed price.

Under the agreed option the fuel price will only increase if the Indonesian Crude Price exceeds the amount set in the budget by at least 15 percent for six months.
Although the government has yet to announce the final decision on the planned fuel price hike, property prices on Bali are already rising.

 Planned Fuel Price Hike is driving Property price sky rocketing

Real Estate Indonesia’s (REI) Bali branch chairman Dewa Putu Selawa cited  property prices have increased 15 percent on average since early March, when the government revealed  its plan to increase the price of subsidized fuel by 33 percent or Rp 1,500 (16 US cents) to Rp 6,000 as of April 1 2012

“The increase is not only because the rising price of construction materials. The property business is very sensitive to rumors and discourse. Once the discourse of the fuel-price hike started, all property businesspeople reacted by increasing the prices,” Selawa said recently.

Selawa said that those in the real-estate business showed various reactions, depending on their capital. About 25 percent of the island’s real estate tycoons who had hefty capital were holding onto their property stock while waiting for the government’s final decision.

“Many businessmen canceled the sale of their properties because of the discourse. That’s because the prices would again increase when the fuel price is hiked. They were waiting to get the highest profit.”

Those with small capital had no choice but to sell their properties at the current prices.

The Bali branch of REI has 72 members, 25 percent of whom had a large amount of capital.

Selawa himself raised the prices of his properties.

“I have a property that is worth Rp 350 million per 100 square meters. Due to the discourse on fuel-price hike, I increased the price up to Rp 500 million per 100 square meters. When the fuel price is hiked, the prices of other needs would increase and the land prices would also increase,” he said.

He is confident that property prices would not fall, even if the government abandons its plan to increase fuel prices.

“Don’t ever expect that property prices will go down. The property prices will always rise,” he said.

Another property developer, Widiana Kepakisan, said that the discourse about fuel prices has increased the price of building materials, transportation, as well as cost of labor.

“The discourse has automatically driven the increase of land prices,” he said. “Fuel is like a political commodity. Once the government in Jakarta said they will increase the price, it affected businesses in this island automatically.”

Widiana also increased the prices of his properties in Jimbaran.

“A unit of house type 70, which was worth only Rp 825 million before the discourse, now is priced at Rp 925 million per unit,” he said.

Bali has the highest rate of increased land prices in the country.

A recent study by Knight Frank and Elite Havens shows the price of land in Bali increased by an average 34 percent in 2011, while the normal growth rate was only around 8 to 16 percent.