Committee proposes lower fuel subsidy next year
Leony Aurora, The Jakarta Post/Jakarta
A working group of the House of Representatives' Budget Committee will propose an overall subsidy for oil-based fuels of Rp 54.3 trillion (US$5.35 billion) in next year's state budget, 20 percent lower than the government's proposal of Rp 68.5 trillion.
Although the calculations are based on the current domestic retail prices for subsidized fuels as well as the market prices for industry, they do not mean the government cannot raise prices further next year, said committee member Tjatur Sapto Edy on Friday.
"It's the House's job to determine the maximum subsidy to be spent on fuel," he said. "The government can raise prices, but they will have to face the people."
The working group will propose the subsidy to the Budget Committee and the House will discuss the 2006 budget in a plenary session. The House will resume the sitting on Oct. 24.
In calculating the fuel subsidy, the committee based its calculations on Indonesian crude production of 1.05 million barrels per day (bpd), an Indonesian Crude Price (ICP) of $57 per barrel and an exchange rate of Rp 9,900 against the U.S. dollar.
Individual fuel subsidies would apply to 17.08 million kiloliters (kl) of premium gasoline, 14.5 million kl of diesel and 10 million kl of kerosene. The subsidized fuels currently retail at Rp 4,500 per liter, Rp 4,300 per liter and Rp 2,000 per liter, respectively.
Working group member Ramson Siagian said that as the calculations were based on current prices, the government could not raise prices further next year.
"That's what we have decided," he said. "The subsidy money will be sufficient for the government to meet demand without raising prices."
Since July, state oil and gas firm PT Pertamina, with the government's consent, has been charging market prices to industry to contain the ballooning cost of the fuel subsidies.
The government had previously said that it would raise fuel prices gradually to bring them in line with market prices between the end of 2006 and the end of 2007.
The government will spend Rp 89.2 trillion in fuel subsidies this year, lower than the previously estimated Rp 113.7 trillion, thanks to the increase of 126.6 percent on average in domestic subsidized fuel prices on Oct. 1.
The fuel price hikes have already led to lower demand. Fuel consumption stood at 126,000 kl per day on Thursday, Pertamina spokesman Mochamad Harun said.
"We're seeing significant declines in the demand for premium gasoline and diesel," he said.
Pertamina now supplies 33,000 kl of premium gasoline per day, down from 52,000 kl the week before the price hikes, while diesel consumption has fallen to 40,000 kl per day from 71,000 kl
The demand for kerosene, however, has risen to 38,000 kl from 34,000 kl previously.
"We're distributing more kerosene to meet the demand," said Harun.
He added that due to the lower demand and as the country's refineries were producing at maximum capacity, Pertamina has rescheduled the shipment of six cargoes of premium gasoline from this month to November.