Govt readies funds to cover shortfall of 2002 oil revenue

Berni K. Moestafa, The Jakarta Post, Jakarta

The government will raise funds to anticipate a shortfall in next year's oil revenues amid concern that a sluggish global economy may depress crude oil prices to below the level assumed in the 2002 state budget.

Minister of Finance Boediono said on Monday the contingency funds would be used if crude oil prices fell below US$22 per barrel.

"We will then use the contingency funds to cover development spending in the budget," Boediono told reporters after a meeting with the House of Representatives budget commission.

He said the setup of the contingency funds had been agreed to by the House, which would also decide their amount.

"The setup of the contingency funds is only for the 2002 state budget," he added.

For 2002, the government is eyeing oil export revenues of Rp 44.01 trillion (about $4.19 billion) plus Rp 15.68 trillion in taxes from the oil and gas sector.

These targets are based on assumptions the rupiah averages the year at 9,000 against the U.S. dollar, and oil production reaches 1.32 million barrels per day (bpd), with prices of $22 a barrel.

However, the outlook on oil production and oil prices has so far been against the assumed levels.

With present oil production levels of 1.2 million bpd, state oil and gas company Pertamina must scramble to raise its output.

Predictions of the global economic downturn lasting well into next year have also dimmed hopes of an upswing in oil prices.

Oil prices have weakened since the second half of this year, dragged by a slowing U.S. economy.

The Sept. 11, terrorist attacks in the U.S. tipped world economies into recession, sending oil prices into a nosedive, to below $20 a barrel.

In the 2002 state budget draft, the government set an oil price assumption of $21 a barrel, but upon legislators' urging raised it to $22.

The setup of the contingency funds might come into conflict with plans to hedge oil prices at $22.

Hedging the oil price allows the government to protect its oil revenue base, but it must forgo surpluses if the price moves above the hedged level.

The plan could also prove costly, as the government must find a hedging agency willing to cover the high risk of continued sluggish oil prices.

Boediono said the source of the contingency funds would be the gap in revenue targets between the 2002 state budget and its draft.

"During discussions of the (2002) budget draft, the revenue (targets) in the budget were raised: This is what legislators will decide on," he explained.

He said the government would derive the higher revenue from tax and nontax surpluses.

But chairman of the House's budget commission Benny Pasaribu said the contingency funds should come from savings in routine spending and delays in development projects.

He urged the government to cut unnecessary routine spending and delay development projects that were not urgent.