State budget to peg oil price at US$35

State budget to peg oil price at US$35

Leony Aurora and Urip Hudiono, The Jakarta Post, Jakarta

The government will keep the oil price assumption of US$35 per
barrel for its 2005 state budget revision draft although the
global oil prices have surged to more than $50 a barrel.

With the decision, the government has eased public worries of
another rise in domestic fuel prices, which were increased on
March 1 by an average of 29 percent.

"The oil price assumption of $35 per barrel was decided in the
presidential regulation," Coordinating Minister for the Economy
Aburizal Bakrie told reporters on Monday.

He said the government has prepared a scheme to expand the
state budget's deficit if, over the course of the year, the
global oil prices finally average between $40 and $45 per barrel.
"We will raise the budget's deficit numbers, but not the oil
price assumption or increase fuel prices."

However, Aburizal said the option to change the oil price
assumption would still be open if it were deemed necessary during
the state budget discussion between the government and the House
of Representatives.

The government submitted the state budget revision draft to
the House last Thursday -- raising the oil price assumption to
$35 a barrel from the previous $24, and the rupiah exchange rate
to Rp 8,900 per dollar from Rp 8,600. The budget deficit,
meanwhile, was maintained at 0.8 percent of gross domestic
product (GDP) following a $2.6 billion debt moratorium from the
Paris Club group of creditor nations.

With the $35 a barrel assumption, the government will be able
to save Rp 20.3 trillion from the subsidy cut, allocating Rp 17.8
trillion for assistance programs to help the poor, who will
likely be most affected by the fuel price hike.

Legislators said earlier that the government's oil price
assumption and rupiah exchange rate would be unrealistic due to
the current conditions.

Crude oil for May delivery traded at $54.30 a barrel in the
New York Mercantile Exchange on Monday, while the rupiah
continued slipping to Rp 9,438 per dollar on Monday.

Meanwhile, Minister of Energy and Mineral Resources Purnomo
Yusgiantoro said the $35 per barrel assumption would still be
reasonable as the Indonesian Crude Price remained on the level of
$43 to $44 per barrel.

"The (oil) price we see now is stated at the New York
(Mercantile) exchange. It is the price of the West Texas
Intermediate," he said.

The assumption was also in line with the range set recently by
the Organization of Petroleum Exporting Countries (OPEC) at
between $32 and $38 per barrel. OPEC raised the range from $22 to
$28 it set in 2000, correcting it in accordance with the
inflation and exchange rate.

"The problems (with global oil prices) now are beyond the
supply and demand balance," said Purnomo, pointing at speculation
about disturbances in supply as the culprit behind soaring crude
oil prices.

He was optimistic that prices would slide down in the
following three months as demand eased with the coming of Spring
in European countries and the United States.

"OPEC has increased its output by 500,000 barrel per day (bpd)
and is ready to add 500,000 bpd more," he said. The additional
output would be disbursed if the heads of member countries agreed
that it was needed to help slash the soaring oil prices.