Govt plans to use less imported crude oil

The Jakarta Post, Jakarta

The government is giving consideration to using more domestic crude oil in a bid to lower the cost of fuel subsidies, according to a minister.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government had set up a team to review the plan to use more domestic crude oil.

"If we can lower production costs, the fuel subsidy can be reduced," Purnomo said on Monday.

Fuel production currently comprises a mixture of domestic crude oil (55 percent) and imported crude oil (45 percent). With this proportion, production cost is Rp 1,650 per liter.

Purnomo said the government would seek to change the proportion, using much more domestic crude oil (up to 80 percent).

However, he did not give details on how much production costs could be reduced if less imported oil were used.

Purnomo said a few problems would arise if more domestic crude were used.

First, production-sharing contractors have committed to selling their crude oil to overseas buyers, which means there may not be much left over for domestic use.

At the same time, state oil and gas firm PT Pertamina has signed long-term crude import contracts.

Additionally, domestic refineries are designed to be fed by light sweet crude, which has become increasingly scarce under domestic production. Importing this type of crude would be costly because of its high price.

"The team will review the matter to see how to reduce the proportion of imported crude," Purnomo said.

The government faces a higher fuel subsidy this year due to higher crude oil prices. The government has proposed a higher subsidy in the 2005 state budget -- Rp 22 trillion -- compared with Rp 14 trillion in the 2004 state budget.