Domestic fuel sales require price subsidies

JAKARTA (JP): Minister of Mines and Energy I.B. Sudjana estimated yesterday that the government might have spent Rp 54.3 billion (US$23.11 million) in subsidies for domestic oil fuel sales in April because crude oil prices reached US$19.21, much more than the $16.50 estimated for the current fiscal 1996/97.

"However, since it is very difficult to estimate the trend for the whole fiscal year on the basis of the April price the government has decided to stick to the original estimate," Sudjana told a hearing with the House Commission on Mining and Industry.

Sudjana made the remarks while commenting on the recent debate over the World Bank's recommendation that the government raise the prices of fuel and electricity to increase the budget surplus.

Sudjana reiterated the government's stance that the price of domestic fuel and electricity would not be increased in the near future despite the World Bank's recommendations.

The government expects, on the basis of an average oil price of $16.50, to make Rp 827.8 billion in profits from domestic fuel sales in the current fiscal year.

In fact, according to Sudjana, profits from domestic fuel sales in the last fiscal year, which ended last March, amounted only to Rp 487.6 billion, much less than the Rp 1,475 billion estimated in the budget, because the actual oil prices averaged $17.34, as opposed to the original estimate of $16.50.

He added, however, that the government usually takes into account various other factors, besides the factor of production costs, to determine domestic fuel prices.

Most analysts see the World Bank's recommendations as economically logical but politically problematic in view of the upcoming general election next year.

Contract

Sudjana added that the government had submitted for approval some 70 mining working contracts -- mostly for gold in the eastern part of the country -- to the House of Representatives and the Investment Coordination Board (BKPM).

"These 70 contracts were processed over the last two years," he said.

According to him, of the 70 working contracts for foreign investors, some 14 are in Sumatra, 28 in Kalimantan, six in Sulawesi, five in Nusa Tenggara, two in Maluku, and 15 in Irian Jaya.

"66 of the contracts are for gold exploration, basic metal and associate minerals, three for diamond exploration and one for nickel," he said.

He said that the ministry of mines and energy agreed the 70 working contracts under the new regulation called Sixth Generation, which allows 100 percent ownership by foreign investors.

In a related development, Director General of General Mining Kuntoro Mangkusubroto noted that only between three and ten percent of the mining contracts could be termed successful.

"Mining businesses need at least eight years before starting production. During that period, investors have to spend between Rp 15 billion to Rp 50 billion a year; and there is no guarantee that they will find any minerals," he noted.

He added that this is the main reason many investors go bankrupt before starting production.

Kuntoro said that of the 320 working contracts approved so far, only 42 of them are still operative.

"Of that number only 10 contracts have entered production development, meaning that the success ratio is only about 10 percent," he concluded.

He added that only about three percent of gold mining contracts had made it to the production stage.

He said that in order to encourage local investment in the mining sector, his ministry wants to see the shares of mining companies traded on the domestic exchanges.

Sudjana told the press after the hearing that OPEC (Organization of Petroleum Exporting Countries), which will hold its annual meeting next month in Vienna, Austria, could raise its output ceiling by 300,000 barrels to 24.82 million barrels per day (bpd) to accommodate Iraq's quota.

The United Nations has allowed Iraq to export 700,000 bpd of oil to buy food for its people.

Currently, Iraq has a quota of 400,000 bpd from OPEC's current ceiling of 24.52 million bpd.

He said that oil prices could be slightly depressed as a result, but he said that hopefully the price would still be above the $16.50 per barrel set by the government for the current fiscal year.

According to the latest market quotations, the price of Indonesians oil on the world market averages $19.21 per barrel.

But he warned that increased supply will depress down the oil prices, harming all oil producers, including non-OPEC countries. (13/vin)