Indonesia reviews subsidised fuel policy amid global oil price drop

JAKARTA - As global oil prices tumble, Indonesia's new government said on Tuesday it is reviewing its subsidised fuel policy to ensure consumers are not being charged above the market rate.

In his first major economic policy decision, President Joko Widodo last month announced a more than 30 per cent hike in fuel prices, expected to save up to US$11.5 billion (S$15 billion) next year, to help fund his reform agenda and tackle the current account deficit.

But since then, global crude prices have fallen nearly 10 per cent as supply growth led by the US shale oil boom exceeded demand.

"We keep reviewing fuel prices and will coordinate with the finance ministry to recalculate and find an effective subsidised price," Energy Minister Sudirman Said told reporters.

"The principle is that the subsidised price is not allowed to exceed the market price."

Indonesia currently sets domestic fuel prices below the market price, with the government subsidising the difference.

Subsidised prices were raised by 2,000 rupiah in Nov to 8,500 rupiah (S$0.91) a litre for gasoline and 7,500 rupiah a litre for diesel.

But with Brent crude trading at around US$72 a barrel on Tuesday, the current market price for premium gasoline octane 88 was around 8,000 rupiah, which is below the pump price, said Leo Rinaldy, economist with Mandiri Sekuritas Research.

"This is the right time to adopt a fixed subsidy where the government just subsidises fuel at 1,000 or 2,000 rupiah per litre," Rinaldy said.

Finance Minister Bambang Brodjonegoro last month said he was working on a plan to fix the government subsidy at a specific level per litre.

A fuel subsidy cap will need approval by the opposition-dominated parliament.