President Regulation No. 6/2019 signed by Joko Widodo on January 28, 2019 about distribution of gas through pipeline to households, divestment of 20% shares in nickel giant PT Vale Indonesia Tbk (INCO), and financial penalties for export of nickel, bauxite, and other mineral ores are important policies to watch with short and long-term impacts.

Falling price of crude oil and recovery of palm oil, however, might raise question about the future of biodiesel mixing program, and, accordingly, Pertamina’s financials. Full impact of the biodiesel 20% program is expected this year, which would significantly cut the country’s import of diesel, and, accordingly, reduce the current account deficit, but if crude oil and palm oil continue to move in different direction?

Pretty much as predicted the opposition exploited the recent report from The Economist, which basically criticizing President Joko ‘Jokowi’ Widodo’s populism approach that weighing higher economic growth. The President, as you know, insisted not to raise fuel and electricity tariffs in this political year. 

Shares of Freeport McMoRan (FCX) collapsed 13.1% to US$10.7 billion in New York few hours ago to respond falling net profit in the fourth quarter of 2018. FCX actually reported strong revenue growth of 27% to US$6.23 billion from PT Freeport Indonesia, wherein it has 48.76% interest. Downfall of copper prices might have contributed to correction in FCX shares.

Brent crude oil opened lower by 0,83% to US$60.97 per barrel in Asian trading this morning. That means the commodity declined 13.4% year-on-year. Natural gas, meanwhile, lost 13.6% year-on-year. We might see a different dynamic this year related to Pertamina’s financials and the mandatory biodiesel program.

Nickel miner and processor and mining firm Central Omega Resources (DKFT) plans to launch a rights issue or offering new shares amounting 9.3 billion units. The Company will hold an extraordinary general meeting (EGM) of shareholders next month to seek the approval for the said plan.

Financial pressures on state companies Pertamina and Perusahaan Listrik Negara (PLN) have been exploited by Prabowo-Sandiaga campaign ahead of April 17 election. They also exploit low price of key commodities like palm oil, natural rubber, coffee, rice, corn to get votes from farmers. This, accordingly, is a challenge for the incumbent.

Higher average prices of commodities provided significant windfall for the State Budget 2018, which can be seen in both tax and non-tax revenues from oil & gas, thermal coal, and other minerals. So even when the tax shortfall reached Rp108.1 trillion, the State Budget achieved its revenue target. Things might be different this year. 

We’ve seen strong State capitalism in oil & gas where most expired blocks have been granted to or taken over by Pertamina in the past few years. Acquisition of Freeport Indonesia, one of the world’s largest gold and copper producers, by INALUM is also seen in this context. INALUM has also been strengthened with the government’s decision to give some nickel blocks previously controlled by Vale Indonesia to its subsidiary Aneka Tambang. 

Thermal coal rose 1.92 to US$99.20 per ton on Wednesday (Jan. 16) but declined 6.12% yearly. Natural gas fell 2.94% yesterday, but rose 5.43% annually, helping thermal coal prices. The global supply-demand concerns remain a concern.