Research Center ECONOMIC AND PUBLIC POLICY DIVISION Expertise Agency of DPR RI Gd. Nusantara I Lt. 2 Jl. Jend. Gatot Subroto Jakarta Pusat - 10270 c 5715409 d 5715245 m [email protected] A BRIEF STUDY OF ACTUAL AND STRATEGIC ISSUES Vol.XII., No. 9/I/Puslit/May/2020

A FALL IN WORLD CRUDE OIL PRICE AND ITS IM- 19 PLICATIONS FOR AND THE STATE BUDGET

Sahat Aditua Fandhitya Silalahi

Abstract World oil prices remains to accept the pressure during global restrictions amid the Covid-19 pandemic. This is influenced by the asynchronous production volume and global storage capacity so that oil price contracts touch negative level. The opinion developed that the government is required to limit or reduce the selling price of non-subsidized fuel whose price in accordance with the market mechanism. A fall in non-subsidized fuel prices is supposed to greatly support the people affected by the economy due to the Covid-19 pandemic; on the other hand, it will give pressure on Pertamina's upstream business and the state budget reception post. This paper illustrates the fall in world oil prices and their impact on Indonesia. The policy of eliminating non-subsidized fuel prices shall be comprehensively examined not only for the public interest, but also for the potential negative impact over state finances.

Introduction delivery period (investing.com, 28 World oil prices continue to April 2020). This shows the outlook decline amid pressure from the of world crude oil prices have Covid-19 pandemic. After a period not shown momentum for price of negative prices, the price of West increases at least in the medium Texas Intermediate (WTI) oil was term. recorded trading at 12.71 US dollars The downward trend in world per barrel for the delivery contract oil prices has actually commenced in June 2020 (seekingalpha.com, to be figured since Covid-19 was 28 April 2020). While the price of declared as a global pandemic. PUSLIT BKD Brent type oil was traded at 22.98 Many countries are implementing US dollars per barrel, and stable “lockdowns” and strict restrictions at trading intervals of 22.5–25.12 on the activities of their citizens, US dollars per barrel for the same causing a drastic cut-down in the consumption of fuel oil (BBM) domestic fuel needs in the and affecting on crude oil prices. transportation, industrial and The Organization of household sectors. National oil Exporting Country (OPEC) projects production over the past 10 years that there will be a decrease in has continued to fall from 949 world oil consumption by an thousand barrels per day in 2009 average of 1 million barrels per day to 778 thousand barrels per day amid an economic slowdown that in 2018 (Secretariat General of the encourages a reduction in global National Energy Council, 2019). Gross Domestic Product (GDP) by The fall was mainly due to the age 0.6% (Kompas.com, 5 April 2020). of old oil wells so that production The decrease in world oil declined. While exploration efforts prices definitely has effected in and new well production figures reducing the burden on government are still very limited and have not imports. Public policy observer, been able to compensate for lost 20 Agus Pambagio, assesses that production from old wells. savings should ideally be carried The constraints on the out in order to reduce the selling upstream side bring the impact of price of non-subsidized fuel to dependence on crude oil imports to consumers (investor.id, 27 April be processed at domestic refineries. 2020). In fact, up to the present time, Indonesia's oil import dependency there has been no impact on falling rate reaches 35%, mostly imported prices, especially non-subsidized from the Middle East (Secretariat fuel that follows the world oil price. General of the National Energy The impact of the fall in Council, 2019). world oil prices must be viewed in Looking at the ratio of import a more comprehensive viepoint by dependence on total oil production, involving aspects of Pertamina's it can be concluded that the fall in business as a State-Owned world oil prices has a great impact Enterprise (BUMN) in the oil and on the reduced financial burden in gas sector and the potential impact Pertamina. on state finances so that decisions Pertamina initially planned must be taken comprehensively by to import 4.75 million barrels considering long-term interests. of crude oil which would be Therefore this paper will provide converted into BBM with Research further explanation over the impact Octane Number (RON) 90 and of falling world crude oil prices on 92 specifications or known as the Pertamina's business and the state's Pertalite and Pertamax trademarks financial condition or the State and non-subsidized diesel under Budget (APBN). the DEX brand. However, referring to the decline in world oil prices, World Oil Prices, Pertamina's the Director of Pertamina, Nicke Financial Burden, and the Widyawati, announced there would State Budget. be an increase in the amount of the Indonesia, indeed, has volume of imports to 10 million imported petroleum to meet barrels. The import surplus is 21

predicted to be planned to be stored in Pertamina has so far not reduced domestic refinery storage to anticipate the selling price of non-subsidized the surge in fuel needs after the fuel, even though the world price Covid-19 pandemic. The serious step of oil applied as a has to take to increase fuel stock is also fallen into half of the original price. considered to be strategic to maintain According to calculations with a the availability of supply and the crude oil price range of US $ 22 resilience of the subsidy budget when per barrel and a rupiah exchange the demand for world oil prices rate of Rp. 15,360 per US dollar, returns to normal (cnbcindonesia.com, Pertamina only requires to spend 16 April 2020). on fuel procurement costs of Rp. On the other hand, Indonesia 2,000 per liter (investor.id, April 27, also receives revenue through the 2020). With the current price level, export of petroleum, especially Pertamina certainly receives a very with specifications that are not high margin; on the other hand, the suitable with domestic refineries. people will bear a burden since the The Indonesian Crude Price (ICP) income is greatly reduced due to assumption in the 2020 APBN is set the implementation of Large-Scale at US $ 60 per barrel. Meanwhile, Social Restrictions (PSBB). in accordance with the provisions Public policy observer Agus in the Decree of the Minister of Pambagio assesses that the policy Energy and Mineral Resources No. to determine the selling price of 269 / K / 10 / MEM / 2019 of 2019 fuel has undergone a fundamental concerning Formula for Crude Oil change after the issuance of the Prices Indonesia, the ICP as of 1 April Minister of Energy and Mineral 2020 was 34.23 US dollars per barrel Resources Decree No. 62 K / 12 / or decreased by 22.38 US dollars MEM / 2020 in 2020 concerning the per barrel compared to the previous Basic Price Formula in Calculation month (Kompas.com, 5 April 2020). of Retail Sales Price of General Fuel The drop in ICP below the assumption Oil Types of Gasoline and Solar Oil value of the state budget certainly Distributed Through Public Fueling brings pressure on the revenue posts Stations and / or Fisherman Fueling and brings the potential for widening Stations. This Ministerial Regulation the budget deficit, moreover the removes the formula of the upper state budget has been reallocated and lower limits of the selling to overcome the effects of the price of fuel which was originally increasingly widespread pandemic stipulated in the Minister of Energy Covid-19. and Mineral Resources Number 187 K / 10 / MEM / 2019 of 2019 about Pros and Cons of Reducing the Indonesian Crude Oil Price Nonsubsidized Fuel Prices Formula. The fall in world oil prices Another crucial difference which has an impact on the decline from the current arrangement is in fuel oil import prices by Pertamina the imposition of margins. Minister certainly invites questions from many of Energy and Mineral Resources parties about when the selling price of Decree No. 187K / 10 / MEM / non-subsidized fuel will fall. In fact, 2019 regulates margins only by 5% of the base price, while the of US $ 9-10 per barrel so that the Minister of Energy and Mineral low world oil price as it currently Resources Number 62 K / 12 / provides only a small margin MEM / 2020 imposes a margin of (money.kompas.com, 27 April 10% from the base price (investor. 2020). Investment activities in the Id, 27 April 2020). The combination upstream sector are increasingly of removing the upper and lower unattractive carried out by adding limits along with the imposition of a high uncertainty factor that is higher margins causes Pertamina prevalent in exploration activities. to be more flexible not to reduce the The reduced investment interest in selling price of non-subsidized fuel. the upstream sector has a long-term From a corporate point impact on government efforts to of view, Pertamina's decision increase petroleum production and not to reduce the price of non- reduce dependence on imported oil subsidized fuel is seen as the and gas (BBM). 22 right step. Pertamina's Corporate Communication Vice President, Fajriyah Usman, stated that since References the implementation of the PSBB, in “Harga Minyak Mentah Turun, general there has been a decrease Kenapa Harga BBM Tak in daily fuel consumption by 8%, Kunjung Turun?”, 27 April from 134.87 thousand kilo liters to 2020,https://investor.id/ 123.74 thousand kilo liters. By only business/harga-minyak- incorporating the consumption mentah-turun-kenapa-harga- reduction factor, it is predicted bbm -tak-kunjung-turun”, that Pertamina will produce a diakses 28 April 2020. 38% decrease in revenue from the “Harga Minyak Turun, Pertamina Company's Budget Work Plan Impor 10 Juta Barel”, 27 (RKAP). Meanwhile, by including April 2020, https://www. the weakening factor of the c n b c i n d o n e s i a . c o m exchange rate of the rupiah against / news/20200416205743-4- the U.S dollar and the decline in 52530/harga-minyak-turun- selling prices in accordance with the pertamina- impor-10-juta-barel, world oil benchmark, it is predicted diakses 28 April 2020. that the company will only manage https://www.investing.com/ to reach 55% of the 2020 revenue commodities/brent-oil, diakses target. Pertamina dividends to the 28 April 2020. state treasury (money.kompas.com, “Imbas Covid-19, Harga Minyak 27 April 2020). Mentah Indonesia Anjlok Pertamina's potential Pada Maret 2020”, 5 A losses also occur in the upstream p r i l 2 0 2 0 , h t t p s : / / sector involving exploration and www.kompas.com/tren/ exploitation activities due to read/2020/04/05/170000865/ the high cost of oil production. imbas-covid-19-harga-minyak- Investors calculate the cost of mentah-indonesia-anjlok-pada- production in the upstream sector maret-2020?page=all, diakses 28 April 2020. “Jika Harga BBM Turun, Pendapatan Pertamina Bisa Anjlok Lebih dari 45 %",27April2020, https:// m o n e y . k o m p a s . c o m / read/2020/04/27/142008626/ j i k a h a r g a - b b m - t u r u n - pendapatan-pertamina-bisa- anjlok-lebih-dari-45-%, diakses 28 April 2020. Keputusan Menteri (Kepmen) ESDM Nomor 62 K/12/ MEM/2020 Tahun 2020 tentang 23 Formula Harga Dasar dalam Perhitungan Harga Jual Eceran Jenis Bahan Bakar Minyak Umum Jenis Bensin dan Minyak Solar yang Disalurkan Melalui Stasiun Pengisian Bahan Bakar Umum dan/ atau Stasiun Pengisian Bahan Bakar Nelayan. Keputusan Menteri Energi Dan Sumber Daya Mineral Republik Indonesia Nomor 269 K/Lo/ Mem/2019 Tahun 2019 tentang Formula Harga Minyak Mentah Indonesia. Sekretariat Jenderal Dewan Energi Nasional. (2019). Outlook Energi Indonesia 2019. “U.S. Oil Fund moving out of June WTI position”, 27 April 2020, https://seekingalpha. com/news/3564636-u-s-oil- fund-moving-out-of-june-wti- position,diakses28April2020 24

Sahat Aditua F Silalahi [email protected].

Sahat Aditua F Silalahi, ST, MBA, completed his bachelor's degree in Chemical Engineering, Bandung Institute of Technology in 2004. Then, he earned his Master of Business Administration (MBA) from Gadjah Mada University in 2009. During his work at the Research Center, Agency The expertise of the Republic of Indonesia House of Representatives, active in the Academic Manuscript Drafting Team and the Draft Law (RUU) on State Owned Enterprises (BUMN) and the Draft Bill on Industry, and the DPR RI Special Questionnaire Committee on Indonesian Port II (Pelindo II). Some of the writings that have been published include: Factors Affecting Satisfaction and Loyalty Toward Islamic Banking (Atlantis Press, Web of Scince Indexed, 2019), Strategic Issues in Management of State-Owned Enterprises (2016), and Problems in the Manufacturing Industry in Indonesia (2016).

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