Govt leaves two options for solving fuel problem

Govt leaves two options for solving fuel problem

Rendi A. Witular and Urip Hudiono, The Jakarta Post/Jakarta

As the clock continues to tick and the cost of subsidizing fuel
soars, exacerbated by a jump in domestic fuel consumption, the
government remains undecided on which option it will take to
prevent the fuel problem from disrupting the economy.

The government is now preparing three options to address the
problems, and has partly begun one of them, Vice President Jusuf
Kalla said during a press conference on Friday.

"The options will be; leaving the subsidy costs to increase
without doing anything, reducing the subsidy expenditures --
which will mean another rise in domestic fuel prices -- and
reducing consumption. We have begun the third option now for a
short-term period," he explained.

The government launched a public energy conservation movement
earlier this week, although many have criticized it as
ineffective, calling instead for the government to reconsider its
fuel subsidy policy thereby increasing the price that consumers
pay for gasoline, diesel and other fuels, for the second time in
five months.

Kalla said the remaining two options were hard to execute as
both required sacrifices from the government and the public.

The government is facing risks, in terms of its fiscal
stability and its ability to maintain its handle on the economy,
with the fuel subsidy payments set to soar amid a combination of
higher fuel consumption, rising global oil prices and a weakening
local currency.

This year's state budget allocates Rp 76.5 trillion (US$7.88
billion) to reimburse the state oil company PT Pertamina (the
sole distributor and importer of fuel) and subsidize the price at
the pump for consumers, but that amount is based on an average
annual oil price assumption of US$45 a barrel and a rupiah
exchange rate of Rp 9,300 per U.S. dollar.

A recent surge of oil prices, now hovering around $60 a
barrel, a slumping of the rupiah to the Rp 9,800 level, and a 10
ten percent increase in expected fuel consumption, could push the
fuel subsidy payment this year to well over Rp 120 trillion.

According to the Ministry of Finance, the government has
already spent some Rp 46 trillion (US$4.7 billion) on fuel
subsidy payments to Pertamina -- more than half of its full-year
allocation.

Kalla said that local administrations may actually benefit
from the surging global oil prices, because they would receive
more money from the central government under their revenue-split
schemes, while at the same time they are spared from shouldering
the subsidy.

Under the Autonomy Law, the central government has to split
its oil revenue with oil-producing regions.

Elsewhere, Minister of Finance Jusuf Anwar said that apart
from the energy conservation movement, the government must also
boost the country's oil production, from a current 1.07 million
barrels per day (mbpd) up to the budget forecast amount of 1.125
mbpd target, to prevent the subsidy payments from further
burdening the budget.

Jusuf explained that under the current oil production level,
recent oil prices and the rupiah exchange rate, the budget will
surely receive an additional financial gap if consumption
continues exceed expectations, which was forecast in the budget
to be 59.6 million kiloliters this year.

"The gap between oil export revenues and fuel subsidy payments
for oil imports is around Rp 20 trillion," he said.

This year's budget assumes a net fuel deficit of Rp 20.33
trillion, or 0.8 percent of the country's gross domestic product
(GDP).