Govt told to seek options other than raising fuel prices
Leony Aurora, The Jakarta Post, Jakarta
The government has other options other than hiking domestic fuel prices to ease pressure on the state budget, a group of economists say, namely by requiring local administrations to shoulder some of the fuel subsidy and reforming the oil and gas trade regime.
Indonesia Awakens, told a press conference on Monday that raising fuel prices was not the only way to cope with the widening state budget deficit, as the soaring global oil prices actually put the country's oil and gas balance in surplus.
Revenue from the sector will rise to Rp 213 trillion (US$21.73 billion) from Rp 129 trillion as the price of oil increases to $60 a barrel from $40, a study by the team shows. Government spending on the fuel subsidy will rise as well to Rp 129 trillion from Rp 59 trillion at current prices.
"There is a Rp 14 trillion difference between the additional oil and gas revenue and additional subsidy spending," Econit's economist Hendri Saparini said.
The deficit in the budget however, will still widen because local administrations get more revenue as prices rise.
Law No. 25/1999 on fiscal balance between the central and local administrations stipulates that after taxes, the two parties will get a share of 85 percent and 15 percent, respectively, of oil revenue and 70 percent and 30 percent of gas sales.
The team's calculations show that local governments will get Rp 36.7 trillion if oil stays at $60 per barrel, up from Rp 24.7 trillion with oil at $45 a barrel, as set in the revised state budget for 2005.
The team also urged the government to investigate and reform the country's oil and gas trade regime before resorting to a price hike. It quoted data from the Ministry of Energy and Mineral Resources, which shows that, of the 60.6 million kiloliters of fuel procured in 2003, only 52.4 million kl reached industries and the people.
"About 13.5 percent of the fuel was "lost" in the distribution and transmission process," Hendri said.
The team also questioned why a third of the 368,700 barrels of crude oil imported daily, or 128,700 barrels, are purchased in the spot market. The rest is bought on long term contracts.
"The spot market can be a corruption source as the prices fluctuate. Why not look for more contracts? Indonesia needs it in the long run anyway," Hendri said.
The government is mulling the possibility of increasing the prices of domestic subsidized fuel -- premium gasoline, diesel fuel, and kerosene -- to ease the burden on the state budget.
Fuel prices were raised by an average of 29 percent in March.
"The middle and lower-income groups' purchasing power cannot withstand another hike," said Dradjad.
The supposed redistribution of the subsidy to the poor through the low-income assistance program had not proved to be efficient, he added.