Govt may revise oil prices in 2004 budget

Govt may revise oil prices in 2004 budget

Fitri Wulandari and Tony Hotland, Jakarta

The government plans to propose a higher oil price assumption
in revisions to the 2004 state budget in view of the higher price
of the commodity in the international market.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
proposed a new oil price assumption of between US$29 to $30 per
barrel, compared to the current assumption of $22 per barrel.

"The assumption could range from $25 to $35 a barrel, but we
will use a conservative estimate," Purnomo said on Friday.

The government is planning to revise the economic assumptions
in the state budget, particularly after oil prices recently
surged to a 21-year high of more than $41 per barrel. The
revision will be discussed with the House of Representatives in
July, rather than the previously scheduled September date.

According to a calculation made by state oil and gas firm PT
Pertamina, if the average oil price remains at $40 per barrel,
government fuel subsidies could nearly triple to Rp 40 trillion
(US$4.41 billion), compared to the Rp 14.5 trillion allocated in
the existing budget on an assumption of $22 per barrel, which
would ensue in a greater deficit.

The government has vowed not to raise domestic fuel prices
during election year, despite the surging international oil
price.

If the average oil price stabilizes at $30 per barrel,
however, fuel subsidies would inflate to around Rp 36 trillion,
meaning the deficit would increase by Rp 1 trillion to Rp 1.5
trillion.

A higher deficit would force the government to resort to
borrowing more loans, and thus raise public debt and limit future
capacities to finance development programs.

Elsewhere, Purnomo said the government would revise down the
oil production assumption from 1.15 million barrels per day (bpd)
to 1.072 million bpd.

Declining oil production, Purnomo said, was due to a lack of
investment in the sector during the recent past.

"The current condition is a result of minimum investment in
oil exploration six years ago," he said to dismiss criticism
against his office for failing to boost oil output.

Fresh investment is needed each year to offset the natural
decline in oil production.

Some analysts said previously that Indonesia had become a net
oil importer since March, when oil export was lower than crude
import and the country was unable to enjoy lucrative profits from
soaring oil prices.

But a government official insisted that the country was not
yet a net oil importer. Novian Thaib, director of exploration and
production at the energy ministry, said crude oil export in 2003
was 470,000 bpd while import was 360,000 bpd.

"To say that a country is a net oil importer should be based
on its annual production and not monthly production," he said.

The high international oil price is also financially
threatening Pertamina, which is responsible for importing
domestic crude needs.

Pertamina said its cash flow had dropped to a critical level,
as it was forced to import crude at higher prices while selling
oil-based products at much lower prices.

Meanwhile, the government subsidy was no longer sufficient to
cover the high price of oil, a condition that was compounded by
the government's tendency to be late in disbursing funds, pending
an audit by the Supreme Audit Agency (BPK).

BPK chairman Satrio Joedono, however, said on Friday that the
agency had given a green light to the government to make a
partial disbursement of around Rp 2.7 trillion to Pertamina.