SINGAPORE (Reuters) – Indonesia has enforced mandatory use of diesel containing 20 percent locally produced biofuel amid steps to rein in its fuel bill and cushion the impact on its economy of a currency crisis and higher oil prices, a government official told Reuters.
Speaking on the sidelines of the Singapore International Energy Week conference, deputy energy minister Arcandra Tahar said Jakarta in September made use of the fuel, known as B20, mandatory in all diesel machinery in the country in a move to curb gasoil imports.
Major emerging Asian economies including Indonesia have been hit hard this year by rising crude oil prices, which despite declining this month are still up by about 15 percent since the start of 2018, while the rupiah, Indonesia’s currency, has hit a 20-year low this year.
“Is there any impact the rupiah and oil prices will have on our economy? Yes… Do we have a corrective action? Yes, we do,” said Tahar.
While industry watchers have been debating the possibility of Indonesia introducing fuel price controls, as India did this month amid similar troubles, Jakarta has yet to announce any such move.
Although Indonesia is an exporter of crude oil itself, it imports even more refined products, including gasoline and diesel. That is putting huge pressure on the government budget and Pertamina, the country’s state-owned oil company, which is being squeezed between government fuel polices, higher oil prices and the rupiah’s slide.
Tahar said he expected Indonesia’s use of B20 fuel in the farming sector to increase to 6 million kilolitres next year, from the current nearly 4 million kilolitres.
Southeast Asia’s largest economy is also trying to boost the locally sourced fuel content in the oil, gas and mining sectors by giving them a 2-4 percent cut of gross tax revenue if they use at least 30 percent of local content, he said.
“If you have gross revenue of $10 billion and using 35 percent of local content, you are going to get an incentive of 2 percent or around $200 million,” Tahar said. “That’s a huge number compared to the cost saving you may get if you import from another country.”
Last month, Jakarta’s trade ministry issued a requirement to use letters of credit from banks affiliated with Indonesian banks to help shore up the ailing rupiah. This will apply to the mining sector, Tahar said.
A Pertamina official said last week that it is looking to buy crude oil purchases in other currencies to reduce spending of foreign exchange in U.S. dollars.
Tahar said, however, that would be difficult as the main oil market in Singapore trades in U.S. dollars.
In the electricity sector, meanwhile, Indonesia is switching primary sources of power plants from diesel to crude palm oil, he said, also a move to reduce the country’s exposure to high oil prices.
In the longer term, he said Indonesia plans to encourage the use of electric vehicles as it pushes to shake off its dependency on oil imports and boost energy security.
He did not give specific examples of how the government would boost usage of electric vehicles.
But he said oil product demand growth for next year will remain steady at 3-4 percent.