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INCREASE IN FUEL PRICES OPENS OPPORTUNITY FOR ALTERNATIVE ENERGY SOURCES.

The discrimination against large export oriented industries in the fuel prices to be raised by the government has drawn strong protest from the Indonesian Chamber of Commerce and Industry (Kadin). In response to the reaction, the government is revising the plan to raise the fuel prices originally planned for April 20000

The fuel prices were to be raised by 20% on April 1, 2000. It was planned when a draft for the state budget 2001 was prepared. It was designed to reduce fuel subsidy. The subsidy on fuels in 2000 was almost level with revenues from oil (mot including gas). In 2001, fuel subsidy is set at Rp 45 trillion.

Originally, the government planned to raise fuel prices based on the groups of consumers. Therefore, there would be three types of prices - subsidized prices, market prices and sales basic prices. Subsidized prices were to be used for premium gasoline, automotive diesel oil sold by gas station and fuel agents and fuels for state electric utility PLN, kerosene for households and industrial diesel oil and fuel oil for PT PLN.

Market prices are provided for certain consumers among the industries and shipping companies. The user will buy fuel at international matket prices. They are large and export oriented companies. Among the ships are foreign ships and Indonesian ships serving international routes. Tankers and barges carrying fuels for fishing ships also have to buy fuel at international prices.

In 2001, Pertamina calculated the price of oil fuel on an assumed price of crude oil at US$ 24 per barrel with an exchange rate of Rp 7,800 per dollar.

[TABULAR DATA 1 NOT REPRODUCIBLE IN ASCII]

Based on the calculation above the sales basic prices of oil fuels averaged Rp 1,412.34 per liter as against the average price of 562.67 per liter set under the presidential decree No. 135 in 2000. With sales estimated at 51.8 million kiloliters in 2001, sales based on the old prices would total Rp 29.15 trillion as against sales of Rp 74.85 trillion using the sales basic price.

Table - 2 Projected sales of oil fuels by types, 2001
 Quantity Price Net sales
 (KL) (Rp/Litre) (Rp. million)

Type of fuel (1) (2) (3)

Premium 12,913,449 1,150 12,321,783
Kerosene 10,705,165 350 3,405,791
ADO 19,639,208 600 10,103,804
IDO 1,699,604 550 843,790
Fuel oil 6,852,632 400 2,476,939
TOTAL 51,810,058 29,152,107



Source: Pertamina

Without an increase in prices, the government has to provide a subsidy Rp 45,696,480 million in 2001.

Table - 3 Projected subsidy on oil fuels, 2001
No Description Rp. (million)

 1 Net sales 29,152,107
 2 Basic costs 74,848,587
 3 Subsidy 45,696,480



Source: Pertamina

In addition to reducing subsidy, the plan to raise fuel prices is aimed at changing the consumption pattern toward greater efficiency. Low prices will also encourage smuggling of fuels from the country.

Utilization of natural gas difficult with low oil fuel prices

A study by the MIGAS Research Center and Lemigas Mineral Energy concluded that the present price of oil fuels will not encourage utilization of gas fuels. The prices of fuels are set by the government with big subsidy. The subsidy will increase if the price of oil increases and if the dollar soars higher against the rupiah. If the subsidy increase the difference between the oil fuel prices and its economic prices will also increase. See the following table.

Table - 4 Fuel prices and its economic prices at present

Assumption:

- US-dollar = Rp 9,000 - Crude oil price = 25 barrel
Fuel Oil Economic price Current price

Gasoline 32.79 18.08
Kerosene 31.72 5.50
ADO 28.77 9.43
IDO 25.74 8.65
FO 25.26 6 29



Source: Analist of team Enrgy Gas Intitution

Gas fuel is not competitive on the domestic market because of the subsidized price of oil fuels.

Table - 5 Domestic prices of natural gas by consumers

DOMESTIC PRICES OF NATURAL GAS (per MMBTU)
 I. As fuel

1 Fertilizer industry $1.00 - $2.00
2 Steel industry $2.00
3 Power generating $2.45 - $3.00
 plants
4 Cement industry $2.70 - $3.00
5 Paper industry $1.30
6 Refineries $1.49
7 Plywood $0.49
8 City gas Rp. 2,500 - Rp. 4,150

 II. As feedstock

1 Fertilizer industry $1.00 - $2.00
2 Steel industry $0.65
3 Methanol mill $1.42 - $2.00



Source: Petroleum Report Indonesia 2000, America Embassy Jakarta

At present the prices of natural gas for the power generating sector range from US$ 2.5 to US$ 3 per MMBTU. To be competitive, the price of FO should be at least US$ 11.64 per barrel or equivalent to Rp 660 per liter (US$ = Rp 9,000).

Without subsidy the price of FO is Rp 1,400 per liter. If the economic price is used natural gas will be highly competitive. Now the price of FO is Rp 400 per liter. Similarly in the transport sector gas is not competitive.

As long as the energy policy is not changed utilization of gas would not be effective. Gas will be competitive if oil fuels are sold at economic prices.

However, plan to abolish subsidy has continued to meet strong protest especilly as the purchasing power of the general consumers is weak.
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Comment:INCREASE IN FUEL PRICES OPENS OPPORTUNITY FOR ALTERNATIVE ENERGY SOURCES.
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Mar 27, 2001
Words:908
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