Oil price hike renews concerns over fuel subsidy

Oil price hike renews concerns over fuel subsidy

The Jakarta Post, Jakarta

A surge in oil prices is creating renewed concerns over a costly
government fuel subsidy that eventually will become unbearable
for the economy.

Looking forward, a revision of the current subsidy policy --
widely regarded as unfair, as it has been mostly enjoyed by the
rich -- to focus it more on low-income people should be on top of
the government's agenda, experts said.

"When you see vehicles speeding their way through the streets,
you know that they are all beneficiaries of the current fuel
subsidy policy. At the same time, you also know that many ravaged
school buildings, or damaged roads, or broken bridges, or other
public facilities cannot be fixed because of a lack of
(government) funds.

"Don't you think it's ironic? Not only is it costly, but it
also fails to fully reach the target," Kurtubi, an expert on the
energy sector, said on Thursday.

Kurtubi was referring to the possibility of the government
setting aside up to a staggering Rp 50 trillion (some US$5.8
billion) for the fuel subsidy this year, more than triple the
initial amount in the current state budget, as global oil prices
have soared to record levels.

The Rp 50 trillion figure -- almost twice the combined funds
earmarked for education, health care, defense and security
combined -- came from calculations by the Ministry of Energy and
Mineral Resources on the assumption that average oil prices for
the year will stand at $34 per barrel, far above the $22 per
barrel assumed in the 2004 state budget.

Under the $22 per barrel assumption, Rp 14.5 trillion has been
set aside for the fuel subsidy.

The ministry proposed the new figures to the Ministry of
Finance to revise the current budget.

Minister of Finance Boediono has said that for now the
government can still afford the fuel subsidy and maintain current
fuel prices at home without harming the budget, but acknowledged
that starting next year the government should adjust fuel prices
in line with international prices to avoid a fiscal fiasco.

The government has promised not to raise fuel prices this year
to avoid unrest during the elections.

Despite being an oil exporting country, Indonesia also imports
crude to meet domestic fuel demand due to the limited capacity of
existing refineries and declining reserves amid a lack of
investment.

For 2004, total oil consumption is predicted to reach 60.8
million kiloliters, with close to 40 percent of that going to the
transportation sector.

Kurtubi suggested the government apply a more focused subsidy
program to meet the fairness principle, while would also reduce
the burden on the state budget.

Indah Sukmaningsih, chairwoman of the Indonesian Consumers
Foundation, agreed with Kurtubi.

"Had the government listened to what we said about a more
focused subsidy policy, we would never have faced this problem.

"For the public's sake, a subsidy is a must. It is a matter of
making sure that it goes to the right people. This (huge subsidy)
is yet another result of a policy that has failed to do so."

Analysts also have said that heavily subsidized fuel products
have encouraged smugglers to sell the fuel in neighboring
countries at large profits.