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ICC Inquires Businesses and the Ministry of Energy and Mineral Resources Regarding Price Fixing Allegation of Fuel Oil

04 May 2020
News Indonesia

The Indonesia Competition Commission (ICC) has responded to the issue of the presently not yet adjusted selling price of fuel oil (BBM) in Indonesia. This argument has been based on an extremely significant plunge in the world oil price, hence, the domestic selling price of fuel oil should have been reduced.   

Since the beginning of January 2020, the price of crude oil has significantly changed from time to time. However, the price of non-subsidized fuel oil since February 2020 has yet to be significantly reduced. The price of Pertamax 92 per January 2020 to February 2020 merely dropped from IDR9,200/liter to IDR9,000/liter. That was also presumed due to the implementation of an effective price formula that took effect in the beginning of February. Since then, the price of non-subsidized fuel oil has not been decreased, although the world oil price has significantly decreased. 

The price fixing of fuel oil basically is closely related with the market mechanism, for there are government provisions serving as a basic benchmark. Based on the Decree of the Minister of Energy and Mineral Resources No. 62.K/12/MEM/2020, there are two variables setting the amount of the fuel oil price in the market, namely the MOPS/Argus variable and the Margin Variable of business actors. MOPS is the Mean of Platts Singapore and a maximum Margin of 10% of the selling price. This means that the effects of falling world oil prices resulting in the falling amount of MOPS price serve as a significant factor in the pricing. Furthermore, since this is related to international trade, consequently, the factor of exchange rate also have an influence. Meanwhile, the portion of the selling price set by business operators is extremely small, namely in the range of 0% - 10% of the profit margin. 

ICC Spokesperson, Guntur S. Saragih explained that in the context of performing its supervisory function, ICC took the initiative to inquire various parties including the Ministry of Energy and Mineral Resources, and businesses, both SOE (Pertamina) and private businesses. The key questions that became the focus of ICC's supervision are as follows:

  1. Has the calculation of the selling price as provided in the Decree of the Minister of Energy and Mineral Resources No. 62./K/12/MEM/2020 been appropriately used as the calculation formula by business actors?;
  2. What is the time frame to put into effect the selling price of fuel oil based on applicable regulations (not excessive)?;
  3. Are there any similarities in the price fixing exceeding the rules conducted by business actors?; and
  4. Are there any alleged violations of price fixing jointly perpetrated by business actors?. 

Based on Article 5, Law No. 5 Year 1999, "Business actors shall be prohibited from entering into agreements with their business competitors to fix the price of certain goods and or services which must be paid by consumers or customers in the same relevant market". The price fixing referred to in the article includes the behavior to jointly set the price above the applicable rules. 

In respect of the issue of the excessive current selling price of fuel oil, the ICC has studied and collected various data and information on the calculations indicating that the selling price of fuel oil should be adjusted due to the change in the world oil price. The formula is provided by virtue of the Decree of the Minister of Energy and Mineral Resources No. 62.K/12/MEM/2020 regarding the Formula of Basic Price in the Calculation of Retail Selling Prices for General Types of Fuel Oil in the form of Gasoline and Diesel Oil Distributed Through Gas Stations and/or Gasoline Stations for Fisherman (Ministerial Decree 62K/2020). The regulation points out that the price of fuel oil is set based on acquisition costs, storage costs, distribution costs, and established margins. Gasoline types below RON 95 and CN 48 types of Diesel Oil are measured by virtue of the formula of Mean of Platts Singapore (MOPS) or Argus + IDR1,800/liter + Margin (10% of the basic price). Meanwhile, the type of Gasoline RON 95, Gasoline RON 98, and Diesel Oil CN 51 are set by virtue of the formula of MOPS or Argus + IDR2,000/liter + Margin (10% of the basic price). 

Based on these regulations and market mechanism with such an active competition, mathematically, the selling price of fuel oil that must be paid by the public should be lower than the currently applicable price. Ensuring that prices are not in violation of fair business competition, both through market mechanism or regulation adjustment, will create a competitive price. This certainly plays a role in helping the reduction of burden for public and industries during this Covid-19 pandemic period.