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Indonesia Fuel Subsidies Cost $6m Daily
Energy

Indonesia Fuel Subsidies Cost $6m Daily

Indonesia's Pertamina is losing 80 billion rupiah ($6 million) a day from subsidized fuel sales, adding to losses from declining oil prices that have cut into first-half profits in its upstream business, the state energy company said on Wednesday.

In January, Southeast Asia's largest economy shifted the burden of fuel subsidies to Pertamina, forcing the company to accept losses to ensure retail fuel prices do not rise too fast for consumers in the country, Reuters reported.

"There was a high amount of opportunity loss and this is still being felt as a result of products being sold below economic prices," Pertamina CEO Dwi Soetjipto said, referring to first-half results announced on Wednesday.

He, however, said the losses would not affect Pertamina's plans to invest $4.4 billion this year.

Pertamina invested $1.87 billion in the first half, with $1.52 billion invested in the upstream sector, Soetjipto said.

"The upstream sector has eroded Pertamina's operating profits," Soetjipto said, amid declining income from slumping global oil prices.

Oil prices this week came close to six-year lows touched at the start of 2015, with Brent dropping below $50 per barrel for the first time since January, amid record OPEC and US output levels, while data showing further signs of slowing in key consumer China also dragged on prices.

Pertamina's first-half profits halved this year to $570 million from $1.13 billion in the first six months of 2014, its finance director Arief Budiman said.

"If it wasn't for the losses, our potential EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) would be $3.32 billion," Budiman told reporters, adding that the company's losses from fuel sales this year have so far reached 12.6 trillion rupiah.

"We may negotiate this loss with the government (in exchange for) the payment of dividends," he added.

Pertamina's domestic fuel sales dropped around 8% in the first half, including an almost 13% fall in sales of subsidized Premium gasoline sales.

The company's newly launched Pertalite gasoline product could help reduce some of Pertamina's losses from premium sales, Budiman said, "but only a little".

Pertamina hopes to have 500 filling stations selling Pertalite by the end of the year, replacing approximately 5% of premium consumption nationally, according to the company's marketing director, Achmad Bambang.

 

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