Purnomo insists fuel subsidy must be maintained
Fitri Wulandari, The Jakarta Post , Jakarta
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said government the subsidies on various fuel products should be maintained through 2004, which is an election year.
"Earlier this year we tried to increase fuel prices but there was a fierce rejection from the public.
"There is no way we can scrap the subsidies (for fuel products) by 2004," Purnomo said.
He said this meant that Law No. 25/2000 on the 2000-2004 National Development Program, which says that subsidies on all fuel products except kerosene must be scrapped by 2004, should be revised.
The government has been under pressure from international donors to end the cost fuel subsidies to put state finances in order following the devastating impact of the late 1990s economic crisis. Some analysts have also said the subsidies were largely enjoyed by richer people and encouraged the smuggling of fuel products to neighboring countries.
But ending the subsidies is a politically difficult task, particularly next year when the country holds its first ever direct election.
Earlier this year, a decision to start cutting the subsidies and forcing domestic fuel prices to appreciate in tandem with international prices had to be canceled following public protests.
The government has allocated Rp 13.2 trillion in the current state budget for fuel subsidies. This was initially meant only to cover the subsidy for kerosene, a fuel product used mainly by low-income families for cooking.
The Ministry of Finance, which is currently discussing the government's 2004 state budget draft with the House of Representatives, has yet to respond to Purnomo's statement. It would undoubtedly be difficult for Minister of Finance Boediono to accommodate the demand, as it would create an additional burden on the already tight state budget, particularly amid rising international oil prices.
Purnomo said that although rising international oil prices would force the government to spend more to maintain current fuel prices, the government would in turn enjoy huge windfall profits from the sale of oil to cover the ballooning subsidy. Indonesia is an oil exporting country.
Oil prices have averaged US$32 per barrel for the past few days, although this price has begun to inch back down to $28 per barrel.
The current state budget assumed an average oil price of $22 per barrel, but because of various uncertainties in the global market, including the recent war in Iraq, oil prices in the international market during the first half of the year averaged $26.15 per barrel.
Legislators and the Ministry of Finance will jointly decide on the size of the fuel subsidies for next year based on developments in international oil prices, the currency exchange rate and domestic consumption volume.
They initially set an oil price assumption of $22 per barrel amid a gloomy outlook for global oil prices next year due to fears of oversupply as oil from Iraq enters the market. Additionally, Russia has said it will increase oil production.
At Monday's hearing between the Ministry of Finance and the House budget committee, the ministry proposed a domestic fuel consumption figure of 61.4 million kiloliters, lower than the initial proposal of 63 million kiloliters.