Wed, 25 Jun 2008
Aditya Suharmoko, The Jakarta Post, Jakarta

The central government plans to increase its take of profits garnered by regions through commodity trade starting next year in a bid to create a more balanced fiscal management, a ministry official says.

If the House of Representatives approves the plan, the central government will increase its share of oil and gas profits each by 0.5 percent to 15.5 and 30.5 percent respectively.

"It is important to 'share the pain'. We will improve the fiscal imbalance between producer and non-producer regions," director general of financial balance Mardiasmo said in Jakarta on Monday.

The plan comes as part of the government's strategy to lower the burden of high energy subsidies on state spending due to soaring global oil prices.

The increased earnings, Mardiasmo said, would be spread to support educational programs in regions.

The central government will also stop sharing oil profits with oil-producing regions next year if the Indonesian Crude Price (ICP) -- the country's benchmark oil price -- breaches a designated threshold of US$156 per barrel.

If the price is reached, the central government will take all additional gains from the profits.

"It (the threshold) is 130 percent of the assumption (of the price of oil per barrel) in the 2009 state budget," Mardiasmo said, referring to the $120 per barrel ICP drafted in the 2009 state budget.

"The profits will be recorded as net domestic revenue and allocated to other (non-oil-producing) regions through the general allocation funds (DAU) formula," Mardiasmo said.

The government will revise the existing calculation formula for the DAUs, which account for 70 percent of local government budgets, so as to create a fairer budget distribution among regions, he said.

Earlier, the Finance Ministry said it wanted to reduce the DAUs to oil-producer regions to reduce their dependency on the funds and also because they were already enjoying windfall profits.

State Minister for National Development Planning Paskah Suzetta said regions were not advised to spend their share of the profits in the space of one year.

"Regions are expected to participate (in reducing the central government's fuel subsidies burden) by not spending the windfall profits in a year," Paskah said.

The government plans to reduce the DAUs to more developed regions in stages over the next five years, he said.



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