Indonesia plans to raise diesel subsidies four-fold

JUNE 06, 2018 - 6:00 AM

[JAKARTA] INDONESIA plans to quadruple its diesel subsidies to keep prices for the fuel unchanged through 2018 in spite of high global oil prices and a weak rupiah, the finance minister said on Tuesday.

In March, the government said it would keep power tariffs for poor households and some fuel prices flat until 2019.

Critics said the move was intended to increase President Joko Widodo's popularity ahead of a national election next year.

Officials have said the measures are intended to control inflation and support people's purchasing power.

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Finance Minister Sri Mulyani Indrawati last month pledged to shield the public from any "big shock" from soaring global oil prices.

On Tuesday, she said the government will ask parliament to increase diesel subsidies to 2,000 rupiah ($0.192) per litre, from the current 500 rupiah.

The proposal is very likely to be approved, as it is popular and Mr Joko has majority support in parliament The government will also increase electricity subsidies to cover new customers as well as keep some tariffs steady this year, Dr Sri Mulyani said.

She said the subsidies should be enough to "maintain the condition of society and the finances" of state oil and gas firm Pertamina and power utility Perusahaan Listrik Negara.

Dr Sri Mulyani did not indicate how much additional spending on subsidies the government will do this year to keep prices unchanged.

In the original budget, the government allocated 94.5 trillion rupiah for energy subsidies, including for an estimated total diesel consumption of 15.62 million kilolitres, based on an average Indonesia crude price of US$48 a barrel and an exchange rate of 13,400 rupiah to the dollar.

The average price of Indonesian crude in January-May was US$65.80 a barrel, according to the energy ministry. The rupiah traded around 13,880 a US dollar on Tuesday.

Aside from the government subsidies for diesel, Pertamina has been tasked with keeping prices of RON 88 petrol steady until 2019. That type of petrol has not been subsidised by the state budget since 2015, and it was not clear if Pertamina would receive subsidies for its support.