April 13, 2018, by Gayatri Suroyo and Fergus Jensen
JAKARTA (Reuters) – Royal Dutch Shell has asked Indonesia to rethink a policy allowing the government to control domestic fuel pricing, a company official said, an area “fundamental” to its fuel distribution business.
Indonesia’s Ministry of Energy and Mineral Resources announced on Monday that President Joko Widodo wanted to issue rules allowing the government to regulate fuel prices to control inflation.
Non-subsidized fuel prices are currently set by retailers, but under a planned regulation the government would have the right to decide whether retailers can change fuel prices.
Shell operated in many countries and understood “government concerns related to the impacts of increasing consumer fuel prices on inflation,” PT Shell Indonesia Retail Director Wahyu Indrawanto said in an emailed statement reviewed by Reuters late on Thursday.
Shell had observed several alternative policies to control inflation and had “passed them on to the government hoping this can be given further consideration,” Indrawanto said.
“In principle, certainty of being able to sell consumer fuel at economic prices is fundamental to maintaining an investment climate and sustainability in Shell’s fuel distribution business,” Indrawanto said.
Finance Minister Sri Mulyani Indrawati said on Thursday that maintaining commodity supplies and prices were important elements in maintaining low and stable inflation to keep Indonesian economic growth above 5 percent.
Indonesia was “not going back to what we call a practice that is going to subsidize everything, or in this case curtailing the market mechanisms,” Indrawati said in response to questions on the subsidy policy at a press conference.
“Of course, just like in transport, there is always healthy and non-healthy competition, excessive profit and non-excessive profit.”
The fuel pricing policy would follow an existing rule on the retail fuel sector that governed pricing and operations, she added.
“We are focusing on enforcement and policy instruments that can protect our people’s confidence that our economy is growing (and) that we can guard against external fluctuations, be it oil prices, Fed interest rates (or) a trade war,” Indrawati told reporters separately while attending meetings at the parliament.
President Joko Widodo won international praise and sovereign bond rating upgrades for Southeast Asia’s largest economy after cutting government fuel spending by more than 90 percent and shifting the burden of petroleum subsidies to Pertamina shortly after taking office in 2014.
But the latest energy policies contrast with Widodo’s earlier moves to eliminate subsidies and have raised concerns among some economists.
Net oil importer Indonesia’s fuel subsidies have been blamed for creating a false economy, widespread smuggling and corruption.
Reporting by Gayatri Suroyo, Maikel Jefriando and Jakarta bureau; Writing by Fergus Jensen; Editing by Christian Schmollinger