Oil-based fuels to rise to market levels by 2008

Oil-based fuels to rise to market levels by 2008

Rendi A. Witular, The Jakarta Post, Jakarta

Following a process of gradually reducing costly fuel subsidies
over the coming years, the government hopes to eventually arrive
at a stage where the prices of gasoline and other oil-based fuels
will be determined by those prevailing on the international
market by 2008 at the latest.

To achieve this goal, the government is preparing a blueprint
containing prices of fuel suitable for the public, Minister of
Energy and Mineral Resources Purnomo Yusgiantoro said on Tuesday.

"We should have started applying economically feasible fuel
prices in 2004. But due to various problems, this goal
could not be achieved by the previous administration," he said at
a press conference after meeting Vice President Jusuf Kalla. He
did not elaborate on the "problems" he was referring to.

Purnomo said the blueprint would only regulate prices for
premium gasoline, diesel and kerosene, all of which are still
heavily subsidized by the government.

The blueprint would be discussed further during an upcoming
Cabinet meeting.

Indonesia, Southeast Asia's largest economy, is expected to
spend over US$10 billion this year to keep the prices on the
domestic market of these three types of fuels well below
international market prices.

Working Committee A of the House of Representatives' Budget
Commission has drafted two scenarios for the second revision of
the 2005 state budget, involving fuel subsidy spending of Rp
113.7 trillion and Rp 89.5 trillion respectively.

Committee member Catur Sapto Aji said that the first proposal
envisaged a deficit of Rp 23 trillion. "If we choose the second
scenario, the government will have leeway to increase fuel
prices," he said.

If the Budget Commission was unable to choose between the two,
a vote would be held by the full House at a plenary session next
week.

However, with global oil at record highs of over $65 per
barrel, the government simply can no longer afford the cost of
the fuel subsidies, and, unless action is taken to reduce them,
they will severely affect not only the fiscal balance, but also
monetary stability.

The huge disparity between domestic gasoline, diesel and
kerosene prices and overseas prices has long been blamed for
rampant fuel smuggling and adulteration, which inflict losses of
more than Rp 8.8 trillion (US$874 million) on the taxpayer
annually.

"The smuggling, adulteration and stealing of subsidized fuel
cannot be prevented entirely, unless we scrap the subsidies and
go by international market prices. We will make sure that this
does not cause social unrest," said Purnomo.

For the next three years, the Downstream Oil and Gas Executive
Agency (BPH Migas) will supervise the distribution of subsidized
fuel in a bid to prevent corruption and smuggling, with the money
to pay for such supervision being allocated by the agency.

The government has announced that it will increase fuel prices
in early October, prior to Idul Fitri, to keep the state budget
out tract.

However, the exact date of the fuel price increase and how
much prices will go up have yet to be announced.