Thu, 22 May 2008
Jakarta (ANTARA News) - The Indonesian government will raise prices of subsidised fuel products by an average 28.7 percent as it cuts subsidy spending amid the relentless surge in global crude oil prices.

"Relatively, the size of the increase is already final," Finance Minister Sri Mulyani Indrawati was quoted by Thomson Financial as telling a media briefing late Wednesday. She said the government is still undecided when the price hike will take effect.

Indrawati said the government will hike prices once it has implemented a cash compensation program for the poor. The government will distribute 14 trillion rupiah ($1.5 billion) in cash, out of the 34.5 trillion rupiah that it could save from subsidy spending as a result of the price hike, to about 19 million poor families.

The cash compensation is intended to ease the burden of poor families as they will spend more for transportation costs and basic needs.

The Indonesian government still subsidises about 60 percent of the nation's fuel consumption. The subsidised fuel products are premium gasoline and diesel fuel for transportation and kerosene for cooking. The volume of subsidised fuel for this year is set at 35.5 million kiloliters.

The last time subsidised fuel was hiked was in October 2005 and by an average 126 percent.

Indrawati said by raising fuel prices, the government may be able to limit subsidy spending to between 126 trillion rupiah and 135 trillion rupiah. Without the increase, the fuel subsidy could swell to over 190 trillion rupiah.

She said the government has to increase fuel prices because a number of measures including cutting back on spending by government offices, cost efficiencies by state oil company PT Pertamina and electricity company PT Perusahaan Listrik Negara were not enough to save on costs.

"This (price hike) is not the first option. This is the last option," she said.


Declining output

The government initially estimated this year's fuel subsidy at 45.8 trillion rupiah assuming that Indonesian crude price (ICP) will average $60 a barrel.

In April, the government raised the estimate to 126 trillion rupiah with
the ICP average increased to $95. The government also has extra budget of 8.3
trillion rupiah that can be used if oil prices average above $100 a barrel.

The ICP is about $5 less than the global oil price. So far this year, the
ICP averaged at $104 a barrel.

Indonesia is an oil-producing country but has become a net oil importer in recent years due to declining output. The government has projected this year's output to average at 927,000 barrels a day.

Supply worries and a weaker dollar pushed crude oil by $4.19 to settle at $133.17 a barrel on the New York Mercantile Exchange on Wednesday. It passed $134 a barrel in after-hours trading. (*)



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