Fuel subsidy could triple to Rp 40 trillion<\/p>\n
Fitri Wulandari, The Jakarta Post, Jakarta<\/p>\n
The government fuel subsidy this year may nearly triple to
\naround Rp 40 trillion (about US$4.35 billion) due to soaring oil
\nprices, the state oil and gas firm PT Pertamina said on Tuesday.<\/p>\n
They also said it would worsen the state budget deficit and
\nhad already put heavy pressure on Pertamina's cash flow.<\/p>\n
The 2004 state budget has allocated some Rp 14.5 trillion for
\nfuel subsidies based on an average oil price assumption of $22
\nper barrel.<\/p>\n
\"Assuming crude oil prices stay at an average $35 per barrel,
\nfuel subsidies could reach a total of Rp 40 trillion,\" Pertamina
\nfinance director Alfred Rohimone said in a hearing with the House
\nof Representatives Commission VIII on mining and energy.<\/p>\n
The fuel subsidy will increase because the government has
\ndecided not to raise fuel prices at home during the current
\ngeneral election year, despite skyrocketing oil prices on the
\ninternational market. Even though the country is an oil
\nexporter, it also imports some of its crude oil needs.<\/p>\n
In the past week, crude oil prices hit a 21-year high of $41
\nper barrel due to supply uncertainties amid political tension in
\nthe Middle East.<\/p>\n
On Tuesday, U.S. light sweet crude edged up 33 U.S. cents to
\n$41.39 per barrel while European North Sea Brent crude climbed to
\n$37.70 per barrel.<\/p>\n
Anggito Abimanyu, the head of the fiscal analysis agency at
\nthe Ministry of Finance said a one dollar increase (average for
\nthe entire year) in the oil price would add a deficit to the
\nstate budget of between Rp 700 billion and Rp 800 billion.<\/p>\n
\"That is, if other indices such as the exchange rate,
\ninflation and interest rates were unchanged,\" Anggito said. The
\nrupiah, however, has sharply declined in the past month, creating
\ninflationary pressures, and could eventually push the central
\nbank to raise interest rates.<\/p>\n
But Anggito said that the government would work hard to ensure
\nthat the 2004 deficit target of 1.2 percent of gross domestic
\nproduct (GDP) could be achieved. The current administration has
\nbeen commended for its success in trimming down budget deficits,
\na key component to help create a healthy fiscal condition.<\/p>\n
\"We will make adjustments by issuing new policies,\" Anggito
\nsaid, but declined to elaborate.<\/p>\n
The government is due to discuss a revision of the 2004 State
\nBudget with legislators next month.<\/p>\n
Meanwhile, Pertamina said that the higher cost of importing
\ncrude had put the company's cash flow at a \"critical level\" as
\nthe government's subsidy funds were no longer sufficient.<\/p>\n
Alfred said Pertamina's cash-on-hand is now less than Rp 2
\ntrillion, but it must pay Rp 5.6 trillion a month to import crude
\nand fuel products.<\/p>\n
The company imports some 300,000 barrels of crude and fuel
\nproducts a day at market prices but they are sold at a subsidized
\nprice in line with government policy.<\/p>\n
\"The company is bleeding. It is urgent for the government to
\nhelp Pertamina,\" Alfred appealed.<\/p>\n
He said that to make things worse, the government for years
\nhad only covered around 70 percent of the fuel subsidy. \"It
\ncould take years to get full reimbursement from the government,\"
\nhe said.<\/p>\n
He said that this condition would, among other things, force
\nthe company to cancel several projects. He did not elaborate.<\/p>\n
Elsewhere, Pertamina also announced that it had delayed a
\nplanned sale of eurobonds until next year as rising bond yields
\namid higher interest rate pressure would increase the borrowing
\ncost.The company has also halved the size of the eurobonds to
\n$250 million.<\/p>",
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