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The European Union-Germany Agree that Fuel Cars Can Still Be Used

The European Union (EU) and Germany agreed to still allow the use of cars with fuel oil (BBM) or internal combustion engines (ICE) after 2035. In a Reuters report, Sunday, March 26 2023, Executive Vice President for the European Green Deal Frans Timmermans said The EU will follow up on the necessary steps for this deal.

The agreement between Germany and the European Union has conditions that are met in the form of fuel standards that must be guided by reducing carbon emissions. “We agreed with Germany on the use of car fuel in the future. We are working now to get CO2 standards to be applied to cars as soon as possible," Frans tweeted.

By contrast, Benjamin Stephan of campaign group Greenpeace said the deal was a setback for climate protection. This is because this will weaken the focus needed by the automotive industry on efficient electromobility going forward. "This rotten compromise undermines climate protection in transport, and costs Europe," he said in the Reuters news story quoted by BUSINESS.

The EU has banned the use of petrol cars in 2035 to reduce carbon emissions. That means automakers will be forced to drop all petrol, diesel or hybrid car models from European manufacturers' lineups by 2035. As a result, Germany is demanding EU executives put forward a proposal to exclude vehicles running on climate neutral synthetic fuels.

According to German Transport Minister Volker Wissing, all parties in favor of climate neutral mobility must remain open to various technological options, as well as use them. For information, the German automotive industry contributes about five percent of the country's economy and employs more than 800 thousand people. German car manufacturers such as BMW AG, Mercedes Benz and Volkswagen have contributed over a century to the German automotive industry until now.

Several Causes of Changes in Fuel Prices in Indonesia

Socialization of regulations for calculating the price of fuel oil (BBM) is considered to need to be increased, it is also carried out massively. Currently, the method for calculating fuel prices in Indonesia has been regulated in the Regulation of the Minister of Energy and Mineral Resources (Permen ESDM) No.20/2021. This regulation was later updated through Permen ESDM No.11/2022 concerning Calculation of Retail Selling Prices of Fuel Oil. However, not many people know or understand some of the things that make fuel prices volatile or fluctuating.

Executive Director of the ReforMiner Institute, Komaidi Notonegoro, said that so far the community is used to stable fuel prices as a result of government intervention. In fact, the price of crude oil as the biggest maker of fuel prices in the international market changes almost every day.

According to Komaidi, changes in the demand and supply conditions for Indonesia's oil have increased the costs required to intervene in fuel prices. Indonesia's oil consumption increased from around 300 thousand barrels per day in the initial period of development implementation to around 1.5 million barrels per day. "Meanwhile, Indonesia's oil production capacity, which once reached 1.6 million barrels per day, has now fallen to 600 to 700 thousand barrels per day," said Komaidi.

Even though the price of fuel is not only determined by world crude oil prices. The rupiah exchange rate, the cost of transporting crude oil, processing, fuel storage, fuel distribution, to tax rates and the reasonable margins of related business entities also play a role. "If so far the price of fuel in Indonesia has been relatively stable, this is not due to stable price forming factors, but rather because the fuel price has been intervened by the government," he said.

In the process of calculating the fair price of fuel, there are a number of important factors that cannot be ignored. One of them is the characteristics of crude oil and the setting at the oil refinery that affect the product to be produced, which depends on the crude assay. Through crude assay, the composition of the various products that will be produced can be known, from gas, liquefied petroleum gas (LPG), kerosene, gasoline, diesel, to waste (residues). Meanwhile, in the process of refining crude oil, not all of it turns into fuel, it can also be used as other derivative products.

Komaidi emphasized that calculating the fair price of fuel is not as simple as it looks, because there are calculations for other products whose prices are also not the same. This does not include the structure of the cost of providing fuel which differs between countries. "In general, the fuel price structure is divided into three main components, namely the cost of crude oil, business entity profits, and taxes. The biggest components are generally distributed for crude oil costs and taxes," said Komaidi.

Regulations in Indonesia stipulate that the retail price of subsidized/certain types of fuel is determined by the basic price formula plus value added tax (VAT), minus subsidies, and added motor vehicle fuel tax (PBBKB). Meanwhile, the retail price for special assignment fuel (JBKP) is determined through the basic price formula plus an additional distribution fee in the assignment area of IDR 90, plus value added tax (VAT), and added motor vehicle fuel tax (PBBKB).

In addition to regulating the retail price of subsidized fuel and JBKP, the state also regulates the retail price of general fuel which is calculated and determined based on the highest price formula. The formula consists of a base price plus Value Added Tax (VAT), Motor Vehicle Fuel Tax (PBBKB), and a maximum operating margin of 10 percent of the base price.

Furthermore, the basic price of fuel has a formula consisting of acquisition, distribution, storage and margin costs. Every month, the base price is calculated using the average market index price and the rupiah exchange rate against the US dollar at Bank Indonesia's buying rate.

Due to this fluctuating nature, Komaidi considers that changes in fuel prices are a natural thing, just like changes in the prices of goods and services in general. Another important thing that needs to be monitored is the implementation of a fair price adjustment mechanism for all parties. "When the cost of supply goes down, the price of fuel must be lowered so as not to harm consumers. On the other hand, when the cost of supply rises, the fuel price must be increased so as not to harm the business actors providing fuel," said Komaidi.

Pertamina Focuses on B35 Fuel Distribution

The government has officially implemented 35 percent biodiesel or B35 since February 1, 2023. To be able to meet this need, PT Pertamina (Persero) will increase blending capacity and storage tanks, especially in the eastern Indonesian region.

Main Director of Pertamina Patra Niaga Alfian Nasution explained, for the first phase, Pertamina will focus on distributing B35 in Regions 1, 2, 5 and 8, namely Java, Bali and Nusa Tenggara. "From the needs of this region, the increase in FAME needs reaches 1.4 million kiloliters. We have to improve the infrastructure and also increase the blending capacity," Alfian said at the DPR, Tuesday 7 February 2023, as quoted by REPUBLIKA.

He explained that for August 2023, Pertamina had only increased distribution in Regions 3, 4 and 7, namely the East Java, Madura and Eastern Indonesia regions. According to him, it will take six months to build the infrastructure. "We really need to improve the infrastructure and blending capacity to maintain the quality control of B35," said Alfian.

Pertamina will spend more to invest in infrastructure improvements and blending facilities. He said, by increasing the portion of fatty acid methyl ester (FAME), there would be an additional cost of around Rp. 110 per liter. "We identify that there will be additional operational costs for our increased investment in infrastructure improvements and blending facility improvements," said Alfian.

The Coordinating Minister for the Economy Airlangga Hartarto explained, the B35 program officially took effect on February 1, 2023. The B35 policy is expected to absorb 13.15 million kiloliters of biodiesel for the domestic industry. Implementation of the policy is also estimated to save foreign exchange of 10.75 billion US dollars and increase the added value of the downstream industry by Rp 16.76 trillion. "The B35 policy is also projected to reduce greenhouse gas emissions by 34.9 million tons of CO2," said Airlangga.

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