Economists Respond to Pertamax Increase: Pertamina's Bailout Fund Cannot Continue to Hold Pertamax Prices

JAKARTA - A number of economists consider the government's move to adjust the price of RON 92 (Pertamax) fuel to Rp. 16,250 per liter to be appropriate. The economist of the State University of Surabaya (Unesa), Hendry Cahyono, said this step was difficult to avoid after the last few months Pertamina held the selling price of non-subsidized fuel below its economic price.

"Finally, after being detained for some time, non-subsidized fuel can no longer be detained so that it is released according to market mechanisms. Therefore, the current increase is quite high. Pertamax has to go up," said Hendry when contacted, Friday, June 12. Hendry explained, until now Pertamina has used the company's bailout funds to hold Pertamax below the economic price. However, Pertamina's bailout funds are basically a temporary instrument to dampen the price spike so that it is not immediately felt by the public. However, when the rupiah exchange rate and oil prices continue to rise, the room to maintain this policy is getting narrower.

"Pertamina's bailout fund is also limited. Because Pertamax is a non-subsidized fuel. There is no APBN subsidy in it. So it is purely following market prices," explained Hendry.

He added that if Pertamina continued to bear the price difference without adjustment, the condition could erode the company's profits. The impact is not only on the dividend deposit and the company's contribution to the state, but also on investor and rating agency perceptions of Pertamina's financial performance.

"Investors look at the profit ratio and financial performance. If it keeps losing, who wants to invest?" he said.

In the short term, Hendry said that adjusting the Pertamax price was a more realistic step than continuing to increase the bailout fund. Because in the end, the burden borne by Pertamina will return to the state's finances and the health of the state-owned energy company's corporate health.

In the same vein, energy economics expert at Padjadjaran University (Unpad), Yayan Satyaki said the weakening of the rupiah exchange rate and the increase in world oil prices made Pertamina have to continue to bear the price difference through the bailout fund. This condition makes the cost of providing national energy also increase because the fuel price formula is very dependent on world oil prices and the rupiah exchange rate.

"Because if you use the formula in the Ministry of Energy and Mineral Resources Decree Number 19 of 2019, the reference price uses MOPS (average price of transactions of fuel products in the Singapore market). There it depends very much on the exchange rate of the rupiah against the dollar," he said.

According to Yayan, for the past few months, the public is still enjoying a relatively lower Pertamax price because Pertamina has held off on raising prices through the bailout fund mechanism. However, this condition cannot continue because the economic price of fuel continues to move in line with global market developments.

Based on his calculations using a formula referring to Singapore MOPS and the rupiah exchange rate, the economic price of Pertamax is currently in the range of Rp. 14,150 to Rp. 16,650 per liter. Therefore, the new Pertamax price set by the government is still within the calculation range.

"The government has set it at around Rp16,250. So if you use the formula of the Minister of Energy and Mineral Resources, the price is more or less there," he said.

Yayan explained that the bailout funds that have been used to hold prices have not eliminated the burden, but only delayed payment. Because the price difference that Pertamina bears will eventually be included in the compensation mechanism that the government must take into account.

"If Pertamina now has a claim that it will receive compensation, then the compensation must be billed to the government," said Yayan.

Therefore, according to Yayan, maintaining the price of Pertamax far below the economic price has the potential to reduce state revenue from Pertamina. On the other hand, Pertamina's ability to continue to bear the price difference also has limits because the company must still consider its financial health in order to maintain investor confidence.

"If investors see Pertamina's financial condition deteriorating, of course, investment interest in the Indonesian oil and gas sector will also decline," he said.