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Indonesia’s government will compensate state energy firm Pertamina up to $1.3 billion for fuel sales costs in 2017 in addition to subsidies, for keeping domestic prices steady, a senior Pertamina official said on Wednesday.
Indonesian President Joko Widodo has promised to freeze some consumer fuel and electricity prices ahead of national elections in 2019, despite climbing global oil prices and the rupiah’s depreciation.
Widodo raised subsidies for diesel fuel fourfold to 2,000 rupiah ($0.1377) a litre this year to keep prices unchanged, but made Pertamina shoulder the losses of keeping prices of RON 88 gasoline steady.
Under the president’s order, Pertamina must also sell fuel at the same prices across the country, which meant more costs for the company.
These state policies have dented Pertamina’s finances and cut its means of spending on much-needed infrastructure.
Pertamina’s finance director Pahala Mansury said the government has promised to repay his company’s expenses for fuel sales under a presidential decree issued in May.
The estimated costs Pertamina can claim from the government reached $1.2 billion-$1.3 billion from sales in 2017, on top of subsidies, Mansury said at a news conference.
“Our costs are temporary, there will be repayment,” he said, adding that he is expecting the government to also cover Pertamina’s 2018 costs.
The finance ministry’s director general of budgeting Askolani declined to immediately comment.
Ratings agency Standard & Poor’s estimated Pertamina has to “absorb lost profits” of $1.5 billion-$2 billion this year due to government controls on pump prices.
Southeast Asia’s largest economy spent 97.6 trillion rupiah on energy subsidies last year. The finance ministry expected that to increase to 163.5 trillion in 2018 and to slightly decline to 160 trillion in 2019.
