Indonesia to shift towards floating subsidized fuel price

To increase transparency of the subsidy program.

Oil & gas is a key focus sector for the government in its 5-year plan. Some 45bn worth of new investments are expected within the next 5 years.

According to DBS, there is a proposal to shift towards a floating subsidized fuel price. This makes perfect sense as it increases transparency of the subsidy program and gives the government the flexibility to change its subsidized fuel price every month according to crude oil price movement.

DBS adds that there is a good chance that the switch to this new subsidy program will happen sooner than many would have expected. One reason is the fact that crude oil price has continued to fall since the government raised its fuel price in mid-November.

Based on DBS estimates, at the current crude oil price and exchange rate, the government is barely subsidizing anything should fuel price remain at IDR 8500 per litre (not that lower crude oil price is a bad thing for the government though, as it certainly means an even smaller subsidy bill).

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