Indonesia Seeks to Regulate More Fuel Prices as Elections Loom

(Bloomberg) -- Motor fuel retailers including PT Pertamina and Indonesian units of Royal Dutch Shell Plc and Total SA will soon need government approval before raising prices as Southeast Asia’s largest economy seeks to cap inflation ahead of elections.

President Joko Widodo’s government plans to issue a new rule to regulate prices of all oils, barring jet fuel and those for industrial use, Arcandra Tahar, deputy minister for Energy and Mineral Resources, told reporters in Jakarta on Monday. The retailers should consider the impact on inflation before increasing tariffs, he said.

The move to rein in gasoline prices follows a two-year freeze on prices of subsidized fuels and electricity announced last month and may help cushion the impact on inflation from higher crude prices and a weaker currency. Widodo, who is set to seek re-election next year, is unlikely to extend the price interventions beyond 2019, according to Mirae Asset Sekuritas Indonesia.

“Despite his high approval rating, President Jokowi seems to play it safe ahead of the 2019 presidential race,” Taye Shim, head of research at Mirae said in a report on Monday, referring to Widodo. “The current administration seems to be adopting structural price management strategy to secure second term in the upcoming election. However, we do not believe government will stretch its price intervention agenda beyond 2019.”

Branded Fuels

The fuel price controls will apply to all domestic retailers including PT AKR Corporindo, Total and PT Vivo Energy Indonesia, Tahar said.

“We need to control our inflation rate, especially for fuels like Pertamax, Pertalite, Pertamax Turbo and the others,” Tahar said, referring to various brands of premium gasoline sold across the archipelago. “To do that, we also need to see how companies like Pertamina, Shell, Total and AKR decide their price. They will need approval from us.”

Indonesia’s consumer price index accelerated to a three-month high in March, led by food prices and non-subsidized fuel prices, according to the nation’s statistics bureau. Capping fuel prices will help keep a lid on inflation in a country where tariff increases typically boost the cost of essential commodities, and often prompt the central bank to take corrective measures.

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