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.