Pertamax Fuel Prices Rise, Beware Of Mass Migration To Pertalite

The price of Pertamax fuel rose to Rp. 12,000 from Rp. 9,000 starting April 1, 2022. (ANTARA)

JAKARTA - Finally officially PT. Pertamina (Persero) on April 1 made an adjustment to the price of Pertamax fuel. In a statement on Pertamina's website, it was stated that the Non-Subsidized Gasoline RON 92 (Pertamax) price was adjusted to Rp 12,500 per liter (for areas with 5 percent motor vehicle fuel/PBBKB), from the previous price of Rp 9,000 per liter.

Meanwhile, Pertalite fuel did not increase and remained at Rp 7,650. Previously, Pertamina announced an increase in Pertamax prices in 16 provinces. However, not long after, Pertamina released the increase in Pertamax prices in 34 provinces. The portion of subsidized fuel consumption reached 83 percent, while the portion of Pertamax consumption was 14 percent.

Previously in a public lecture at Hasanuddin University Makassar which was broadcast via Youtube, Wednesday, March 30, Minister of State-Owned Enterprises (BUMN) Erick Thohir spoke about policies related to fuel. According to him, Pertalite fuel type has been decided by the government to become a Special Assignment Fuel Type (JBKP). This means, Pertalite becomes BBM whose distribution is regulated by the government to the assignment area, and can be subsidized through a compensation scheme to PT Pertamina (Persero).

SOE Minister Erick Thohir was the first to convey the increase in Pertamax fuel prices. (AMONG)

“The government has decided that Pertalite will be used as a subsidy, but Pertamax has not. So if Pertamax goes up, I'm sorry, but if Pertalite is subsidized, "said Erick.

Subsidy Budget Increases and Arrears to Pertamina

On another occasion, the Minister of Finance (Menkeu) Sri Mulyani in a press release explained that the selling value of various types of fuel in Indonesia has not been adjusted to the price fluctuations that occur globally.

As a result, the subsidy budget swells, causing pressure on the state budget. In the presentation, the Minister of Finance also stated that the subsidy figure had exceeded Rp. 21.7 trillion in February 2021. Even though in 2021 the value of subsidy payments was only Rp. 12 trillion.

In detail, the Minister of Finance said that the realization of the use of subsidized fuel until January 2022 was 1.39 million kilo liters, or grew from January 2021 which was recorded at 1.18 million kilo liters. In 2020 the government's subsidy obligation to Pertamina is IDR 45.9 trillion. From that figure, only IDR 30 trillion was paid in 2021, so the government still has IDR 15.9 trillion in arrears.

Sensitive Issue

The increase in the price of fuel oil or BBM in Indonesia is inevitable following the continued soaring price of world crude oil. Increasing the price of fuel oil in Indonesia is a sensitive matter. As a net oil importing country or net oil importer since 2004, the selling price of fuel at the retail level is highly dependent on the movement of crude oil prices. The Indonesian public is not used to the dynamic fuel price movements.

At the beginning of the COVID-19 pandemic in the March 2020 period, oil prices continued to decline due to a drastic drop in demand. There were no planes flying, no cars running around, and factory activities stalled. In January 2020 the price of crude oil was at the level of US$60 per barrel.

The government has reportedly lowered the price of Pertamax twice. As of January 5, 2022, the price of Pertamax has decreased from IDR 9,850 per liter to IDR 9,200 per liter. Then to Rp 9,000 per liter since February 1, 2022.

Illustration of rising fuel prices in the world. (AMONG)

But currently, the above situation is reversed. Now, the price of crude oil passed 100 US dollars and had touched 139 US dollars per barrel in early March.

In addition to the high demand for energy from a number of countries whose economies are recovering from the pandemic, the Russian-Ukrainian armed conflict has also triggered the price increase. Russia is a supplier of 10 percent of global crude oil.

With the selling price changing, such as when the price of crude oil soars, business entities will certainly bear the loss. The government also has to bear the additional fuel subsidy. To note, biodiesel is fuel that is subsidized by the state through the state budget with a fixed subsidy scheme of Rp. 500 per liter. Meanwhile for premium, the difference between the selling price of Rp 6,450 per liter and the economic price is covered by the government with a compensation scheme.

From SBY to Jokowi

The increase in fuel prices occurred at the beginning of the SBY administration at a price of Rp. 1820 per liter, then on March 1, 2005, it increased again by Rp. 2400 per liter.

Entering the last year of the 1st period of the SBY administration, the fuel price hike occurred again, amounting to Rp. 1500 per liter which caused the price of fuel to become Rp. 6000 per liter. However, due to following the world oil prices in 2013 there was a decline in the price of BBM twice, namely to Rp. 5,000 and Rp. 4,500 per liter.

The change in government from SBY to Jokowi has made the prices of several raw materials and people's needs increase, including fuel. At the beginning of his administration, Jokowi abolished the premium fuel subsidy which made the premium to Rp. 8,500 per liter.

The price of fuel that did not go down when the pandemic hit made people protest. The declining volume of fuel sales due to being at home and restricting community activities is Pertamina's reason for not lowering fuel prices.

The burden of the large state budget has forced Finance Minister Sri Mulyani to think about how to balance fiscal instruments. The strategy taken is the social assistance budget (bansos). The social assistance program, which was originally intended to be distributed throughout the year, was taken to patch energy subsidies, including fuel, so that the government would not be overstrained.

Pertamax Increase Domino Effect

The aftermath of the government's decision to increase the price of RON 92 Pertamax fuel in April to Rp 16,000 per liter received a response from the former Minister of Finance M. Chatib Basri, who warned of the possibility of migrating public consumption from Pertamax to Pertalite.

"There is something that needs to be anticipated regarding the increase in Pertamax: the price gap," wrote Chatib Basri on his Twitter account @ChatibBasri, Thursday, March 31.

According to Chatib, the transition from Pertamax to Pertalite users was triggered by the large price difference between the two types of fuel sold by PT Pertamina (Persero).

"Pertamax goes up to Rp. 16,000, Pertalite remains at Rp. 7,650, so there can be migration from Pertamax to Pertalite," he explained.

The increase in Pertamax fuel prices could trigger mass migration to Pertalite, which could potentially lead to an increase in the subsidized fuel quota. (ANTARA/Rivan Awal Lingga)

If there is a consumption migration from Pertamax to Pertalite, this will cause over-quota and the burden on the APBN will increase. Chatib suggested that the government provide subsidies that are more targeted at the poor.

"Better targeted subsidies for people than goods," Chatib tweeted.

The important thing from the current dynamic movement of crude oil prices, the government should educate the public that the retail price of fuel can go up or down, depending on the movement of crude oil. That this is common for non-subsidized fuel.

And for subsidized fuel, the same scheme should be applied on condition that there is still intervention in the form of subsidies. The government has a legal basis to evaluate fuel prices regularly according to movements in world oil prices. This space should be used to the fullest.