Govt may hike fuel subsidies for 2005

Dadan Wijaksana, Jakarta

The government has proposed an increase in the fuel subsidy in the 2005 state budget to Rp 22.07 trillion (about US$2.39 billion), which will be allocated primarily for kerosene.

However, the amount, up from Rp 14.5 trillion set aside this year, is not yet final depending on deliberation process of the budget draft by the House of Representatives' budget committee, which on Monday was still in its early stages.

Deputy marketing manager at state oil and gas company PT Pertamina Rachmat Dradjat told reporters following a closed-door meeting with the committee that the higher subsidy was based on the assumption that fuel demands next year will increase and oil prices will also be higher.

The draft of the 2005 state budget assumed an average oil price of $24 per barrel, compared to the $22 per barrel assumption in the current state budget.

Fuel consumption next year is assumed to increase to 61.95 million kiloliters from 60.8 million kiloliters (kl) this year.

Of the total fuel subsidy, more than half of which would be fore kerosene, Rachmat said, with the consumption expected to rise from 11.56 million kl this year to 11.86 million kl in 2005.

"The subsidy for kerosene is around Rp 15 trillion, but that's the government's proposal. The final figure will be taken after the discussion on the issue is completed," Rachmat said.

He explained that the figure came from the margin between the production cost the government has to cover for every liter of kerosene production (set for 2005 at Rp 1,657 per liter), and actual retail price the public is supposed to pay (Rp 700 per liter).

"The government intends to maintain the kerosene price in the market in 2005 at Rp 700, same as this year's, that's why the subsidy will rise," Rachmat said.

As for the production cost, it came from 2005 state budget's assumption on oil prices and the foreign exchange rate, added Rachmat.

Fuel subsidies, especially kerosene, have become a sensitive issue in the country as kerosene is widely consumed by many low- income households and the price consequently directly affects the lives of nearly a hundred million people.

On the other hand, subsidies are also seen as another burden on the already tight state budget, crippled by huge debt payments -- both foreign and domestic.

The 2005 state budget draft also assumes domestic consumption of premium gasoline at 15.17 million kl, diesel at 26.74 million kl, industrial diesel oil at 1.31 million kl and fuel oil at 6.68 million kl.