June 6, 2017 / 10:31 AM / 2 years ago

LPG subsidy burden climbs as Indonesia considers price hike

JAKARTA, June 6 (Reuters) - The cost of Indonesia’s subsidy on liquefied petroleum gas (LPG) is increasing, leading to the country paying at least half of the cost of the fuel, said an official from state-owned energy company Pertamina on Tuesday.

The LPG subsidies are more than customers pay for the fuel in some instances, said Pertamina Marketing Director Muchammad Iskandar, amid discussions on increasing LPG prices to reduce government spending.

Net oil importer Indonesia’s fuel subsidies have been blamed for creating a false economy, widespread smuggling and corruption.

Soon after taking office in 2014, President Joko Widodo cut government fuel spending by more than 90 percent, and shifted the burden of petroleum subsidies to Pertamina.

Now Pertamina is selling subsidised LPG in 3 kg containers at 4,750 rupiah ($0.3574) per kg, less than half of the company’s breakeven price of about 10,500 rupiah per kg, said Isakander.

Millions of Indonesians are taking advantage of a program to shift households toward LPG and away from using the more costly and dangerous kerosene for cooking fuel.

“What is more worrying is that the subsidy burden is increasing, because consumption is increasing because prices are going up,” Iskandar told reporters.

“The numbers of (LPG) users are increasing,” he said, noting that people had switched over from using larger unsubsidised 12 kg LPG canisters to take advantage of the lower prices.

“Water pumps in paddies once used oil but now use LPG because it’s the cheapest.”

Energy and Mineral Resources Minister Ignasius Jonan said the 2017 budget allowed for government to increase LPG prices by 1,000 rupiah, but no decision has been made yet.

Any increase to LPG and other fuel prices would depend on directions from President Joko Widodo in a cabinet meeting, Jonan said.

Chief economic minister Darmin Nasution said last month that a price increase would not happen until Ramadan, the Muslim fasting month, ends at the end of June as part of a plan to control inflation.

Typically inflation picks up in the Muslim-majority country during the fasting month as people stock up on food, buy new clothes and travel to their home towns.

Indonesia was expected to import around 70 percent of its demand LPG this year, a Pertamina official said in January, and imports were expected to reach 5 million tonnes, up 13 percent from 2016 levels. ($1 = 13,290 rupiah) (Reporting by Wilda Asmarini; Writing by Fergus Jensen; Editing by Christian Schmollinger)

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