Indonesia Considers Raising Subsidized-Fuel Price Next Year

Indonesia’s government is considering raising the price of subsidized fuel by about a third next year to reduce costs and make room for infrastructure investments in its budget.

The cost of subsidized fuel may rise by about 1,500 rupiah (16 U.S. cents) a liter to 6,000 rupiah, Deputy Energy and Mineral Resources Minister Rudi Rubiandini said in a Bloomberg Television interview from Jakarta today. “It’s not yet decided, but we are preparing to increase our fuel pricing.”

Indonesia is trying to reduce energy subsidies to narrow its budget deficit and make room for spending on infrastructure. The government’s attempt to contain a budget deficit stumbled in March after lawmakers rejected a proposal for an immediate 33 percent increase in the price of subsidized fuel.

A parliamentary commission approved a government plan on Sept. 17 to raise the price of electricity next year, potentially reducing subsidy costs and encouraging investment in the nation’s power grid. Higher electricity prices will allow state utility PT Perusahaan Listrik Negara to supply power for 3.2 million new customers next year, Rubiandini said in a separate interview.

Energy Infrastructure

Indonesia plans to boost gas consumption by building a network of pipelines and floating storage terminals to bring natural gas from producing regions such as Kalimantan on the island of Borneo and the island of Papua to the main islands of Java and Sumatra, Rubiandini said.

BP Plc said in May it would build a third liquefied natural gas production line at Tangguh in Papua province for $11 billion. The facility will produce as much as 3.8 million metric tons of LNG a year, of which 40 percent will be for the domestic market.

“We try to figure how to build mini-scale refineries everywhere in Indonesia,” Rubiandini said. ”With this situation, economic growth won’t only be on Java and Sumatra but also on other islands.”

The Southeast Asian country is increasing natural gas consumption for electricity generation and transportation to reduce petroleum use and cut fuel subsidies.

The government plans to improve the selling price of electricity produced by power plants that use new and renewable energy sources such as solar, geothermal and biomass power, Rubiandini said.

The energy ministry issued a decree last month that ordered Listrik Negara to buy electricity from geothermal power plants for between 10 U.S. cents and 18.5 cents a kilowatt-hour, up from previous cap of 9.7 cents.

“With the new feed-in tariff, we’ll make new and renewable energy grow,” he said. Indonesia plans to increase the share of new and renewable energy to 26 percent of total consumption by 2025 from 6 percent now, the energy ministry said in a statement posted in its website.

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