Indonesia considering hiking fuel prices as much as 40%, lawmakers say

Indonesia may raise subsidised fuel prices by 30% to 40% to manage fiscal pressure from a ballooning subsidy budget, lawmakers from President Joko Widodo's ruling coalition government told Reuters on Friday.

Eddy Soeparno, a member of the National Mandate Party and deputy head of the parliament's energy committee, said he obtained the information in a closed-door parliamentary meeting with state oil company Pertamina earlier this week.

Southeast Asia's largest economy has already tripled its 2022 energy subsidy allocation from its original budget to 502 trillion rupiah (US$33.90 billion) – about 16% of total spending plans – amid rising global oil prices and a depreciating rupiah.

The government has said even more money would be needed for subsidies this year if fuel prices were not increased.

The option Pertamina preferred was to raise 90-octane gasoline prices to 10,000 rupiah (67.5 US cents) per litre from 7,650 rupiah; 92-octane gasoline to 16,000 rupiah per litre from 12,500 rupiah; and diesel to 7,200 rupiah per litre from 5,150 rupiah, Eddy said in an interview on Friday.

Pertamina also backed introducing some sales restrictions such as banning vehicles with larger engine capacities from purchasing subsidised fuels, he said.

"We see this (raising prices and restricting sales) as having the least detrimental effects for the people," Eddy said.

The price increase is estimated to add around 1.9 percentage points to the 2022 inflation rate, Eddy said.

Indonesia's inflation reached 4.94% in July, its highest in seven years, holding well-below rates seen in more advanced countries largely due to its fuel subsidies.

Sugeng Suparwoto, the chair of parliament's energy committee, confirmed details from the Pertamina meeting in a phone interview.

"We seek to maintain inflation at 7% until the end of the year," he said, adding that cash handouts would be provided to cushion the impact of any fuel price increases on the purchasing power of Indonesia's poor.

Irto Ginting, corporate secretary of Pertamina's retail distribution unit, declined to comment about the proposed price hikes, but noting that pricing decisions are for the government to make.

Officials with energy and economic ministries and the presidential palace did not immediately respond to requests for comment.

Chief economic minister Airlangga Hartarto said earlier this week he would present all policy options this week to Jokowi, as the Indonesia president is widely known. 

Indonesia's relatively low inflation has allowed the central bank to delay raising interest rates until this week, well behind its regional and global peers.

Some economists said Bank Indonesia's 25-bp rate hike, its first since 2018, was to front-run the announcement of the fuel price increase. 

Other options being considered for price increase include setting 90-octane gasoline – Indonesia's most popular fuel – at 9,500 rupiah a litre and the other fuels also below Pertamina's preferred price points, Eddy said.

The price levels under consideration remain below refinery production costs previously given by the energy ministry, implying some level of subsidies.