High fuel subsidy offset gains on high oil prices
High fuel subsidy offset gains on high oil prices
Fitri Wulandari, The Jakarta Post, Jakarta
Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said the central government would not gain much from high oil
prices due to the heavy fuel subsidy and its obligation to
distribute the additional income to regional governments.
"Any windfall profit from high oil prices will go mostly to
regional governments and fuel consumers in the country," Purnomo
told a media conference on Thursday.
Purnomo said that, last year, windfall profit from oil prices
stood at Rp 16 trillion (about US$1.7 billion) but the government
had to pay additional fuel subsidy amounting Rp 13 trillion.
In the past few years, the government has been steadily
raising fuel prices in order to reduce fuel subsidies and to ease
pressure on the state budget, but public outcry has kept it from
scrapping the subsidy completely.
In 2003, the government allocated Rp 13.2 trillion for fuel
subsidies. However, high oil prices pushed the actual subsidy to
Rp 26.02 trillion by the end of the year.
"A large part of the remaining Rp 3 trillion went to regional
government as regional autonomy law required oil revenues to be
split between the central government and oil and gas producing
regions," Purnomo said.
Regions get an average of 15 percent from oil revenue, except
for Aceh and Papua, which receive a higher share at 85 percent,
given their special autonomy status. The remainder is held by the
central government.
"So we (the central government) have not gained (from high oil
prices)," he said.
The state budget assumes an average oil price of $22 per
barrel this year. However, oil prices has been on the increase
since December last year.
The price of benchmark U.S. light crude broke the $40 per
barrel mark last week and early this week -- the highest in 13
years -- and on Thursday it held strong at just under $41 on
concern that the Organization of Petroleum Exporting Countries
(OPEC) might not be able to meet the surge in demand fed by
global economic expansion.
Indonesia is a member of OPEC with an output of 950,000
barrels per day (bpd) to 1 million bpd. While Indonesia exports
some of its oil, it also imports the commodity to feed its local
refineries. The existing refineries owned by state oil and gas
company Pertamina have a combined processing capacity of about
1.1 million bpd.
The government and the House of Representatives are now
discussing the 2005 state budget. Purnomo said the government had
yet to determine the oil price assumption for the budget as it
was still awaiting an OPEC decision on whether to raise or lower
its price band.
The OPEC price band is now $22 to $28 per barrel, but the
cartel is going to review it in its ministerial meeting in Beirut
on June 3.
"We shall maintain our conservative policy of setting the oil
price assumption at a lower level than the OPEC price band in
order to protect the state budget," Purnomo said.
Separately, Purnomo, who is also president and acting
secretary-general of OPEC, said he was confident OPEC members
would agree to increase the oil production ceiling when they met
in Amsterdam next week, due to soaring crude oil prices.
Purnomo said the OPEC members would discuss Saudi Arabia's
proposal to raise output by 1.5 million bpd.
"All OPEC members are concerned about this and my feeling is
that they should agree (to a higher oil output) as we need to
stabilize the price," he said.
The informal OPEC meeting is scheduled for next week on the
sidelines of the 9th International Energy Forum in Amsterdam. It
comes ahead of OPEC's extraordinary June 3 conference.