2006 oil price assumption set at $40 a barrel

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.