Indonesia fuel price hike to cut Pertamina state subsidy by $8bn

18 June 2013 12:24  [Source: ICIS news]

SINGAPORE (ICIS)--Indonesia’s decision to hike fuel prices could reduce the annualised subsidy to state-owned energy firm Pertamina by about $8bn (€6bn) at current international prices, Fitch Ratings said on Tuesday.

The southeast Asian country’s parliament approved an increase in fuel prices early this week that meant a 44% increase in subsidised petrol and a 22% rise in subsidised diesel prices, the European ratings agency said in a statement.

“The increase in retail selling prices will result in a decrease in the per unit subsidy Pertamina receives from the state, against higher revenue from consumers, resulting in overall unchanged cash flows per unit of fuel sold,” it said.

In 2012, Pertamina was paid $22bn in state subsidy.

Notwithstanding the expected decline in fuel subsidy, Pertamina’s financial profile is unlikely to be significantly affected by the government’s move to hike fuel prices, according to Fitch, which has a BBB- credit rating on the company, with a stable outlook.

“Fitch believes that higher retail prices could impact volumes sold to an extent, although this is unlikely to materially hurt Pertamina's cash generation. The reduced reliance on state subsidies will be only marginally positive for Pertamina's working capital requirement, as much of the annual subsidy, typically around 95%, is received on a monthly basis,” the ratings firm said.

Pertamina's subsidy mechanism ensures that the company receives a margin for both subsidised gasoline and diesel it sells under its public service obligation (PSO) mandate.

The company is Indonesia’s sole refiner and dominant retailer of petroleum products.

($1 = €0.75)

By: Pearl Bantillo
+65 6780 4359

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