RI oil subsidy trims revenue on weak rupiah

RI oil subsidy trims revenue on weak rupiah

SINGAPORE (Reuter): Indonesia's net crude oil exports will cushion the impact of its currency woes but sales revenues, which outweigh import costs, will be trimmed by high domestic price subsidies, analysts said yesterday.

"Pertamina's exports are more than its imports. Therefore, there will be a net gain from an increase in revenue in rupiah terms," an oil analyst told Reuters.

Other analysts said unless the highly subsidized domestic oil product prices were adjusted, the government would have to foot a hefty bill to meet the increased cost of importing products due to the de factor devaluation of the rupiah.

"But it is very unlikely that the government will adjust the domestic prices because it is politically sensitive," another Jakarta analyst said. "If domestic prices did not rise, the amount of subsidy the government would have to pay will increase, pushing up costs."

Indonesia, through state oil monopoly Pertamina, sells crude and buys products on the international market in U.S. dollars.

Last week, Bank Indonesia lifted its intervention band on the rupiah, taking the cue from other Asian countries.

As a result, the rupiah fell sharply and hit a low of 3,045 against the dollar on Tuesday -- a more than 26-percent drop since January -- before stabilizing at the current 2,740.

The analysts said the government spent $150 million on oil subsidies in the first half of the year.

"But the Indonesian definition of subsidies is the difference between domestic product sales and the price that they imported products at," said one.

Indonesian domestic oil product prices are controlled by the government, and have not been adjusted since January 1993.

The domestic kerosene price is 280 rupiah per liter, or U.S. 10 cents at the current exchange rate. Diesel costs 380 rupiah per liter, while gasoline is 700 rupiah per liter.

International diesel and kerosene prices are estimated at 14 cents per liter.

Indonesia plans to phase out domestic product price subsidies, but it will be a slow process and free market pricing is expected only in the next century.

"If anything were to happen on domestic prices, it will only start after the (mid-1998) presidential elections," an analyst said.

Indonesia is Asia's second largest crude producer and its only member of the Organization of Oil Exporting Countries (OPEC), with output of 1.4 million barrels per day (bpd).

Pertamina exports about 400,000 bpd of crude, half the country's total crude exports estimated at 760,000-800,000 bpd.

The rest is owned by foreign contractors. It exports 140,000 bpd of low sulphur waxy residue and 20,000 bpd of naphtha.

The country imports 200,000 bpd of the cheaper Middle East crudes and lighter grades from Malaysia and Australia.

It also imports an average of 180,000 bpd of products, including 98,000 bpd of diesel, 40,000 bpd of kerosene and 30,000 bpd of fuel oil.

Pertamina says its total oil product imports for this fiscal year will be 62.9 million barrels (172,323 bpd), up from 44.03 million barrels (120,626 bpd) in the last fiscal year.

In its draft budget in January, based on an oil price forecast of $16.50 per barrel, Indonesia estimated its revenue from crude and gas exports in fiscal 1997-1998 (April-March) at 14,870 billion rupiah or $5.95 billion, based on the exchange rate at that time.

But in June, Mines and Energy Minister Ida Bagus Sudjana said the price of the main Indonesian crude, Minas, was $18.78.

Pertamina chief Faisal Abda'oe said that for every dollar rise above the forecast price, Indonesia gets $600 million.

In contrast, analysts estimated Pertamina's crude and oil products import costs at $3.1 billion in the last calendar year.