In political year, even LPG price hike stirs political uproar

In political year, even LPG price hike stirs political uproar

Photo document of liquefied petroleum gas (LPG) distrubution. (ANTARA/M. Agung Rajasa)

Pertamina, as a state-owned company, has the monopoly right to supply LPG in the country."
Jakarta (ANTARA News) - As Indonesia gears up for the 2014 legislative and presidential elections, any important policy changes, including the price hike of liquefied petroleum gas (LPG), can trigger a political uproar involving ruling and opposition parties.

The legislative elections are scheduled to be held on April 9, 2014, while the presidential elections will be held on July 9, 2014.

In late December 2013, the state-owned oil and gas company, PT Pertamina, announced its decision to increase the price of non-subsidized 12-kg LPG by Rp3.9 thousand per kg, or up by 68 percent, as of January 2014.

The substantial and sudden hike triggered widespread criticism and protests from the public. The mass protests prompted President Susilo Bambang Yudhoyono to urge PT Pertamina to reevaluate its price hike within 24 hours.

"Ive given Pertamina 24 hours to review its decision," he stated shortly after he landed in Jakarta, on Sunday (Jan. 5) and summoned Pertamina President Director Karen Agustiawan to a limited Cabinet meeting at the Halim Perdanakusuma Airport.

He noted Pertaminas policy was ill-prepared and lacked proper coordination. This will only burden the people. He, however, admitted that Pertamina had the mandate to raise LPG prices without notifying him, but since the policy has such wide-ranging ramifications, the government needs to intervene.

Edhie Baskoro Yudhoyono, the Presidents son and the secretary-general of his Democratic Party, earlier announced that the party was against the LPG price hike and urged the government to reevaluate it.

"This was a corporate action and we are convinced that the President was not taken into confidence before the price hike was announced," he stated as quoted by media.

But politicians from opposition parties refused to accept the fact that Pertamina, as a state-owned company, did not update the president before announcing the price hike.

Yudhoyonos swift response to the public pressure was viewed by rival politicians as a "theatrical move" to polish the governments image and restore the decreasing electability of the Democratic Party.

"The price hike was not an abrupt move, but rather, planned and known by the government," Bambang Soesatyo of the Golkar Party claimed, adding that Pertamina would not announce the price hike without prior government approval.

The legislator argued that Pertamina is a state-owned company that is regulated by the law and hence, must obey the government, in particular, the President and the Energy and Mineral Resources Ministry. Moreover, the commodities managed by Pertamina are strategic, in terms of peoples interests.

In a bid to curb the political uproar, House Speaker Marzuki Alie from the Democratic Party, urged all parties to stop politicizing the LPG price hike decision, as it will only lead to confusion and distrust among the people.

"During the current political year, the LPG price hike decision would seemingly appear to be influenced by political interests," Marzuki Alie noted on Monday (Jan. 6).

He remarked that if the price hike was linked to politics, ahead of the general elections, it will only confuse the people and create a feeling of distrust among them.

"The opposition parties will claim that the LPG price hike was purposefully implemented as an image-building measure, as the government would later announce a decision to curtail the price," he added.

"Meanwhile, the government stated that the price hike was being politicized, as the hike will only drive negative public sentiments towards the government," he pointed out.

However, the house speaker noted that the LPG price hike during 2014 is not the best move.

"I think it is inappropriate to raise the price this year, when the nation is headed for legislative and presidential elections," Alie noted.

He emphasized that PT Pertamina should have sought consultation with the related DPRs commission and the government prior to raising the price of the 12-kg LPG cylinder.

"Pertamina, as a state-owned company, has the monopoly right to supply LPG in the country. Thus, the head of Pertamina must report to the government and the law makers in DPR if they want to raise the LPG price," he stated.

Following the presidential instruction, Pertamina finally decided to slash the price hike for the 12-kg LPG cylinder from Rp3.9 thousand per kg to Rp one thousand per kilogram.

"After seeking consultation from the officials of the Supreme Audit Agency (BPK), the price for the 12-kg LPG cylinder will be reduced to Rp82 thousand from the previous price of Rp117 thousand. The price change will become effective from January 7," State-owned Enterprises Minister Dahlan Iskan said on Monday (Jan. 6).

Minister Dahlan Iskan pointed out that PT Pertamina continues to suffer losses amounting to Rp6.5 trillion per year in the 12-kg LPG cylinder business, despite the price hike of Rp one thousand per kg.

"Previously, Pertaminas losses amounted to Rp7.7 trillion from the 12-kg LPG cylinder sales. However, after the price hike of Rp one thousand per kg, the losses will reduce to Rp6.5 trillion," the minister remarked.

He emphasized that the price hike of Rp one thousand per kg will fail to cover the companys losses. He further added that only an increase of Rp3.9 thousand per kg will help Pertamina overcome its losses.

"If we increase the price by Rp3.9 thousand per kg, Pertamina will stop incurring losses in the 12-kg LPG cylinder business. However, the hike will be a heavy burden on the people," the minister claimed.

The minister explained that the price hike of Rp one thousand was finalized after considering key factors such as the purchasing power of the public, the procurement cost, and the distribution sustainability.

Minister Dahlan Iskan stated that the price of the 12-kg LPG cylinder had not been hiked since the last four years. According to survey results, the price of Rp100 thousand for a 12-kg LPG cylinder was acceptable to about 85 percent of the Indonesian citizens. The current official price of the 12-kg LPG cylinder stands at Rp70.2 thousand.

Despite Pertaminas losses in the LPG cylinder business, it has actually enjoyed considerable net profits so far.

In 2012, for instance, the company reaped US$2.76 billion (Rp26 trillion) in net profits, a 18.4 percent increase from the $2.33 billion booked in the previous year.

The Jakarta-based company had forecast a net income of $3.05 billion in 2013, an increase of 11 percent as compared to the previous year.