Proposal to increase margin for subsidized fuels rejected

Members of the House of Representatives (DPR) opposed the proposal submitted by the Energy and Mineral Resources Ministry and state oil and gas company PT Pertamina (Persero) to raise its margin from the sales of subsidized fuels.

Effendi Simbolon, the vice chairman of the House commission VII overseeing energy and mines, said in Jakarta on Monday that the gross margin for the sales of subsidized fuels was kept at the current level of Rp 595.46 per liter (1US$ = Rp 8,560).

Earlier Pertamina, with the support of the Energy and Mineral Resources Ministry, proposed to increase the margin to Rp 618.68 per liter this year in order to reduce the company?s loss from the sales of the subsidized fuels.

Pertamina said that it suffered losses of Rp 4.9 trillion from the distribution of the subsidized fuels in 2009 because the margin of Rp 429 per liter it received was too small to cover distribution costs. In 2010, the margin was increased to Rp 595.46 per liter but the company still suffered losses of Rp 2.5 trillion.

The margin, better known in the industry as "alpha", is the difference between the price of crude prices bought by Pertamina and the prices of subsidized fuels. It is revised every year.

Pertamina?s Finance Director M. Afdhal Bahauddin said that the losses occurred because the alpha or margin given by the government had yet included the distribution costs. The government?s decision to increase the subsidized fuel quota to 40.49 trillion kiloliters this year from the initial plan of 35.5 million kiloliters would further increase the state oil company?s loss from the sales of the subsidized fuels, he said. (*)