Govt to disburse Rp 76.5 trillion for fuel subsidy

Govt to disburse Rp 76.5 trillion for fuel subsidy

Urip Hudiono
The Jakarta Post/Jakarta

The House of Representatives finally approved the government's
revision of the 2005 state budget on Tuesday after three months
of deliberation that nearly clouded the country's first semester
financial position.

The House's green light allows the government to immediately
disburse the much needed Rp 11 trillion (US$1.14 billion)
assistance fund for low-income families, a Rp 13.3 trillion fund
for rebuilding tsunami-stricken Nanggroe Aceh Darussalam and Nias
and Rp 76.5 trillion for the fuel subsidy.

However, global oil prices which touched a record high of
US$60 a barrel on Monday could take the revision back to square
one, as fuel subsidies may likely balloon again, exceeding the
agreed allocation.

In a plenary session on Tuesday, the House's 11 factions
approved the budget revision, even though several notes were
attached for the government to address.

With less than 100 House members, of a total of 550, attending
the plenary session, Tuesday's event served as a mere
"ceremonial" approval. The House's Budget Commission, tasked to
deliberate the revision, had officially given its approval last
week.

The House had been using the deliberation of the budget
revision, submitted on March 23, to strictly monitor the
implementation of the government's decision to raise domestic
fuel prices by an average of 29 percent starting March 1.

The fuel price hike was meant to ease fuel subsidies -- which
had risen in line with soaring global oil prices -- to relieve
the burden on the state budget, and to allocate a fund for the
poor. The government also proposed additional funds to rebuild
Aceh and Nias, and address changes in the budget's macroeconomic
assumptions accordingly.

Economic growth was forecast to reach 6 percent, the rupiah
exchange rate set at 9,300 per U.S. dollar, the inflation rate at
7.5 percent and the price of oil at $45 a barrel.

Indonesia's oil production and the central bank's benchmark
interest rate, meanwhile, were unchanged at 1.125 million barrels
per day and 8 percent, respectively.

One of the issues in the budget revision highlighted by the
House was the possibility that fuel subsidies would keep going up
due to steadily rising global oil prices and a weak rupiah, both
affecting the country's oil import costs.

Chairman of the Budget Commission Emir Moeis said on the
sidelines of the plenary session that the fuel subsidy for the
year would likely exceed its agreed allocation.

"I assume the fuel subsidy could reach up to Rp 90 trillion by
the end of the year, particularly if we consider several
forecasts saying global oil prices could reach $100 a barrel by
2008," he said.

The probability of a higher subsidy is imminent, Emir added,
as out of the Rp 76 trillion fuel subsidy, Rp 32 trillion has
been used up for oil imports.

With Idul Fitri, Christmas and New Year holidays at the end of
the year, domestic fuel consumption is likely to be higher in the
second semester.

To overcome such a problem, Emir urged the government to raise
the country's oil production and be more transparent in the fuel
subsidy disbursement, including in auditing fuel production costs
of state oil and gas firm PT Pertamina.

He explained that the government could save up to Rp 29
trillion if it increases Pertamina's efficiency in providing n
annual fuel consumption of 59 million kiloliters.

Minister of Finance Jusuf Anwar said the approved revision
would not be final, adding "The budget can be revised again in
the second semester when the government submits its first
semester budget realization report."

He further said the government was still upbeat that the
soaring global oil prices would have little effect on Indonesia's
economic growth.

"I still see it as being able to reach 6 percent by the end of
the year," he said. "We have to be optimistic about it."