Indonesia to regulate non-subsidised fuel prices to control inflation

Jakarta

INDONESIA plans to regulate prices of non-subsidised vehicle fuels as part of efforts to control inflation and boost people's purchasing power, Deputy Energy Minister Arcandra Tahar said.

President Joko Widodo won international praise and sovereign bond rating upgrades for South-east Asia's largest economy after cutting government fuel spending by more than 90 per cent and shifting the burden of petroleum subsidies to Pertamina shortly after taking office in 2014. But Indonesia still subsidises some fuels and the government said in March it would cap domestic coal prices and keep fuel and electricity prices unchanged until the end of 2019, an election year.

Mr Joko's latest energy policies contrast with his earlier moves to eliminate subsidies and have raised concerns among some economists. Non-subsidised fuel prices are currently set by retailers, but under a planned regulation the government would have the right to decide whether retailers can change fuel prices, Mr Arcandra said on Monday.

"The government is very concerned with the rate of inflation," he added, referring to adjustments to fuel prices by all retailers, excluding aviation fuel and industrial fuels.

"The direction from the president was that (fuel) price increases must take into account inflation going forward," Mr Arcandra said, referring to retail fuels. The government plans to meet retailers and issue a regulation on the matter "as quickly as possible" that will become effective immediately, he said.

Susyanto, secretary of Indonesia's Oil and Gas Directorate, said that under the proposed regulation, "every time there's an increase it will be obligatory to obtain prior government approval".

Indonesia's fuel retailers include Shell, Total, AKR Corporindo, and state-owned energy company Pertamina.

A second regulation would soon be issued to improve distribution of "premium" (RON 88) petrol after shortages emerged in some areas, Mr Arcandra said.

The government's concern is that household consumption growth remains below 5 per cent, below average for Indonesia, Permata Bank economist Joshua Pardede said, referring to recent central government data. "The hope is that by managing administered prices it can boost private consumption."

Mr Joko has been grappling with an economy that has refused to respond to conventional policies to kickstart growth. That could dent his re-election chances in 2019, especially with a budget that won't stretch to lavish government spending. REUTERS