Fully state-owned energy company Pertamina announced that it has raised the selling price of liquefied petroleum gas (LPG) by 23 percent in an effort to cut losses from subsidized gas sales. The company said that it incurred losses of IDR 2.5 to 3.0 trillion in the first half of 2014 as a result of 12 kilogram LPG canisters sales. These LPG sales are heavily subsidized as the government determines a fixed price, below the market value. However, the government does not reimburse this difference in selling price and market value.
The break-even point for LPG sales is IDR 12,192 per kilogram (based on the benchmark Aramco LPG contract price). However, previously, a canister containing 12 kilogram of LPG was sold for IDR 92,800 (or IDR 7,733 per kilogram), implying a wide gap between market value and the government-set price. Starting from today (Wednesday 10 September 2014), the price of LPG is increased by IDR 1,500 per kilogram to IDR 114,300 for a 12 kilogram LPG canister.
It is the second price hike in 2014. In January 2014, Pertamina raised the price of LPG by IDR 1,000 per kilogram after the company’s initial proposal to raise the LPG price by 65 percent was rejected by Indonesian President Susilo Bambang Yudhoyono. Yudhoyono rejected a large price increase as it would bring inflationary pressures that would hurt the poorer segments of Indonesian society (between a quarter and half of the Indonesian population lives on less than USD $2 per day).
Bank Indonesia said that the higher LPG price may add 0.06 percent to the country’s inflation rate. Indonesian inflation has eased markedly this year to 3.99 percent (year-on-year) in August 2014.
Pertamina plans to add another IDR 1,500 per kilogram to prices of 12 kilogram LPG canisters in January 2015. However, it will require government approval first. Analysts expect the government to approve this request as by January 2015 the government will be headed by reform-minded Joko Widodo, who recently stated to try to do his best to direct generous government energy subsidies from fuel consumption to structural and long term economic and social development programs.
If Pertamina continues with increasing LPG prices by IDR 1,500 every six months, the company could be selling gas at an economical price by 2016.
Pertamina also sells LPG in 3 kilogram canisters which are subsidized by the government under a program to divert households away from kerosene use. These 3 kilogram LPG canisters will not see a price hike.