The government is hoping that its program to replace heavily subsidized kerosene with liquefied natural gas (LPG), and reductions in the volume of Premium and diesel sales will enable it to reduce its fuel subsidy spending by up to Rp 22.5 trillion (about US$2.5 billion) in the 2008 national budget.
Speaking during a hearing with the House of Representative's energy commission Tuesday, the director general of oil and gas at the Energy and Mineral Resources Ministry, Luluk Sumiarso, said the cut in the subsidy allocation would not result in an increase in fuel prices as it would result from a reduction in the volume of subsidized fuels sold.
He told the hearing, convened to discuss the energy budget for 2008, that the program launched last year to replace kerosene for household use with LPG would reduce the volume of heavily subsidized kerosene sold to households to 8.6 million kiloliters next year from 9.9 million kl this year.
The government would also reduce the quota of subsidized Premium gasoline to 16.9 million kl in 2008 from 17 million kl this year. However, it would maintain the quota for subsidized diesel next year at 11 million kl.
The government subsidizes premium gasoline, kerosene and diesel for use by motorists, households and small businesses, respectively.
In total, the volume of subsidized fuels would be reduced by 1.4 million kl to 36.5 million kl next year from this year's target of 37.9 million kl, he said.
Luluk also said that the government planned to reduce the amount it paid in fees to Pertamina for distributing subsidized fuels to 13.5 percent of the fuel price from the previous 14.1 percent.
"We have discussed this with Pertamina and the State Minister for State-owned Enterprises, and we have all agreed on the cut in the fee," Luluk said.
By reducing distribution fees, and the amount of subsidized fuels, the government will be able to significantly cut its fuel-subsidy spending to Rp 39.45 trillion next year from this year's target of Rp 61.93 trillion.
The figure of Rp 39.45 trillion is based on an oil price assumption of $57 per barrel and a rupiah exchange rate of Rp 9,300.
However, the government may have to pay as much as Rp 49.8 trillion in fuel subsidies next year should the House adopt an oil price assumption of $60 per barrel and a rupiah exchange rate of Rp 9,400
The government needs House approval to endorse the subsidy budget.
The government may also increase its subvention to PT Perusahaan Listrik Negara (PLN) by as much as 38 percent next year as the state power utility increases fuel consumption.
PLN may receive as much as Rp 42.6 trillion next year in return for selling electricity at below cost, and to cover the company's target of a 5 percent profit margin, Energy Minister Purnomo Yusgiantoro told the same House hearing.
PLN will receive a subvention of about Rp 30.8 trillion this year.
The utility has to increase electricity generation so as to meet rising demand as economic growth is expected to reach as much as 7 percent in 2008.
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