Due to sharply fallen global crude oil prices the Indonesian government announced on Friday (16/01) that prices of fuels (low-octane gasoline and diesel) will be cut by an average of 14 percent, effective from Monday (19/01). The price of gasoline will drop 13 percent to IDR 6,600 (USD $0.53) per liter and diesel by 15 percent to IDR 6,400 (USD $0.51) per liter. Lastly, the government also reduced the price of Pertamina’s liquefied petroleum gas (LPG) by 4.2 percent to IDR 129,000 per 12-kilogram-cannister.
Prices of Indonesian low-octane gasoline and diesel are evaluated and set each month, thus floating in line with global oil prices (while also taking into account rupiah exchange rate fluctuation).
Indonesian President Joko Widodo decided to raise the country’s subsidized fuel prices by over 30 percent in November 2014 in a move to create more fiscal room for investments and curb the country’s wide current account deficit. However, due to sharply falling global crude oil prices (prices having fallen about 60 percent from six months ago), Indonesians suddenly had to pay a higher price for subsidized fuel than the real market price, and hence the people were now subsidizing the government. Therefore, President Widodo decided to scrap subsidies for low-octane gasoline altogether at the start of January, while a fixed IDR 1,000 per liter subsidy for diesel was introduced, thus moving a big step closer to a full market-based price mechanism.