2006 oil price assumption set at $40 a barrel
The Jakarta Post, Jakarta
Against a backdrop of global oil prices over US$67 a barrel, the government is planning an assumption of $40 per barrel for next year's state budget, a level that legislators and business players consider unrealistic.
The assumption was set despite the data from the Indonesian Crude Price (ICP) -- an index to reflect the prices of various types of crude oil produced in the country -- used in the state budget, and which has averaged about $51 a barrel between January to mid August this year.
"The ICP will average between $50 and $55 per barrel this year," said Minister of Energy and Mineral Resources Purnomo Yusgiantoro, on Tuesday.
The ICP closed at $61.80 per barrel on Tuesday.
Next year, however, the ICP would go down to between $40 and $45 per barrel on average, as the global economy growth slows down, resulting in a smaller increase in fuel demand, claimed Purnomo.
"We also expect the fear factor (of political unrest) in Iraq, Saudi Arabia and Nigeria will abate. The political premium (on oil prices) will decline by between $10 and $15 (per barrel)," he added.
"Based on prudent fiscal calculations, we propose the assumption of $40 per barrel (in next year's budget)," said Purnomo.
With such an assumption, fuel subsidies payments in 2005 would stand at Rp 68.5 trillion, more than half of the estimated subsidies this year at Rp 101.5 trillion.
Subsidized fuel consumption is expected to hit 64 million kiloliters (kl) in 2006, from 59.6 million kl forecast in this year's budget.
Legislators, including the chairman of the House Budget Commission Emir Moeis, and the commission's vice chairman Hafiz Zawawi were united in their opinion that the proposed budget's oil price assumption was overly optimistic, saying the government should have assumed a more realistic figure of between $50 and $60 a barrel.
Separately, the Indonesian Chamber of Commerce and Industry (Kadin) chairman MS Hidayat also questioned the government's proposed oil price assumption.
"The government should follow international market assumptions of at least $60 per barrel," he said.
In responding to the naysayers, Purnomo explained that the proposed assumption was needed to ensure prudence in the country's fiscal calculations, while stressing that the final figure would be still be decided upon after deliberation with the legislators.
"We will discuss (the oil price assumption) with the House of Representatives."
The government has revised upward its oil price assumption for fiscal calculations twice this year from $24, which was initially approved by the last group of legislators, for the 2005 state budget. The government then forecast oil prices at $35 when it cut the subsidy percentage and increased fuel prices by 29 percent in March before raising their forecast to $45 in the revised 2005 state budget in July.
On Monday, the ministry of finance estimated that the actual average of oil prices throughout this year would be at $50.6 a barrel.