Govt to allocate higher fuel subsidies for 2004

Fitri Wulandari, The Jakarta Post, Jakarta

Legislators and the government agreed on Tuesday to allocate Rp 14.5 trillion (US$1.73 billion) for fuel subsidies in next year's state budget.

The amount is higher than the initial government proposal of Rp 12.7 trillion and also higher than the Rp 13.2 trillion set aside for this year's budget.

The decision was reached during a meeting between the House budget committee and senior officials from the Ministry of Finance and the Ministry of Energy and Mineral Resources. The meeting was to deliberate the government's 2004 state budget proposal.

Director General of Oil and Natural Gas, Iin Arifin Takhyan said that the higher budget allocation for fuel subsidies was needed because of expected increases in oil prices. The average international oil price in the 2004 state budget is now set at $22 per barrel, compared to the government's earlier proposal of $21 per barrel.

But Iin added that the decision had yet to be formally approved by the House plenary session.

He said the government could earn windfall profits from the increasing oil prices to cover higher fuel subsidies.

"Fuel subsidies are up because oil prices have changed," he told reporters after meeting with lawmakers.

By maintaining fuel subsidies, Iin asserted there will be no increase in fuel prices in 2004.

Previously, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said subsidies on various fuel products except kerosene, should not be scrapped next year as stipulated in Law No. 25/2000 on the 2000-2004 National Development Program.

Purnomo said ending fuel subsidies next year would be difficult considering the political situation in the country, which is set to hold its first direct general election during the year.

Earlier this year, the government tried to cut fuel subsidies to bring the price in line with international prices. But it was canceled due to widespread protests.

However, maintaining fuel subsidies would not please international donors who have pushed the government to end the costly policy.

Scrapping fuel subsidies is deemed important to put state finances in order to pull the country out of economic crisis.

The increasing fuel subsidies would also put burden on the already tight state budget.

However, the head of Fiscal Analysis at the Ministry of Finance Anggito Abimanyu said higher fuel subsidies would not widen the deficit in the 2004 state budget.

Anggito said as quoted by Tempo Interactive the government would reduce spending in other areas of the budget such as electricity or food.

During the Tuesday meeting, lawmakers and government officials also agreed to set domestic fuel consumption target at 60 million kiloliters for next year.

The 2003 state budget set domestic fuel consumption at 58.2 kiloliters.

Iin said the government had projected higher domestic consumption on the back of economic and population growth.