JAKARTA (Sept 10): Indonesian state-owned oil and gas firm Pertamina said on Wednesday it has raised the selling price of liquefied petroleum gas (LPG) by 23 percent, its second hike this year, to cut mounting losses from non-subsidised gas sales.
Subsidies are politically sensitive in Indonesia, where a large portion of the population live on incomes of less than $2 dollars a day, but cost the government around $20 billion a year. Protests against rises in fuel prices contributed to the overthrow of late dictator Suharto in 1998.
President-elect Joko Widodo, who takes office on Oct. 20, wants to fast-track a cut in fuel subsidies that are one of the main reasons behind a current account deficit that is expected to exceed 3 percent of gross domestic product this year.
LPG sold in 12 kilogram canisters by Pertamina is effectively subsidised by the firm itself, as the government has controlled the sale prices but not paid Pertamina the difference in market value, resulting in losses of 17 trillion rupiah ($1.44 billion) since 2009.
Pertamina's last move to increase gas prices by 65 percent in January was rejected by President Susilo Bambang Yudhoyono, due to step down next month, over concerns on the impact of the increase on the poor, and had to be revised down.
"Starting from the 10th of September, the increase is 18,000 rupiah per container or 1,500 rupiah (13 US cents) per kilogram," Pertamina marketing and trading director Hanung Budya told reporters, referring to the firm's plans to increase the retail price for gas in 12 kilogram canisters.
With the change, agents will sell gas in 12 kilogram canisters for around 114,300 rupiah, which includes transportation costs, filling fees, tax and an increased profit margin for resale agents, Budya said, up around 23 percent from 92,800 rupiah previously.
The increase is expected to cut Pertamina's losses by 452 billion rupiah this year to around 5.7 trillion rupiah from 6.1 trillion rupiah. The increase is expected to result in a 0.06 percent increase in inflation, according to central bank data, Budya said.
Budya said Pertamina's break even point (BEP) for LPG was around 12,192 rupiah per kilogram, based on the benchmark Aramco LPG contract price.
If Pertamina increases gas prices every six months by a similar amount, Budya estimated, the firm could be selling gas at an economical price by 2016, and other firms could enter the market.
"According to our roadmap, on January 1, 2015 we will increase 12 kilogram LPG canister prices by (a further) 1,500 per rupiah per kilogram, but we will consult with the government first," Budya said.
Pertamina also sells gas in smaller 3 kilogram canisters that are subsidised by the government under a program to divert households away from kerosene use. There is no change to the sale price on these, the Pertamina executive said. (1 US dollar = 11,781 rupiah)