Subsidy spending may be lower, says Pertamina

Subsidy spending may be lower, says Pertamina

Leony Aurora, The Jakarta Post, Jakarta

The government could see the cost of this year's fuel subsidy
decline to Rp 119.39 trillion (US$11.52 billion) or 13 percent
from the estimated Rp 138.6 trillion, giving ammunition to those
who oppose plans for more fuel price hikes.

With state oil and gas company PT Pertamina applying market
prices to fuel products it sells to big industries, domestic
subsidized fuel sales this year are expected to amount to only Rp
99.38 trillion, offset by total supply costs of Rp 218.77
trillion, a Pertamina official says.

"The (total cost of) the fuel subsidy will reach Rp 119.39
trillion," Pertamina trading and marketing director Ari Soemarno
said at a hearing with the House of Representatives Commission
VII on energy and mining on Tuesday.

The figures were based on current fuel prices and a total
volume of 59.6 million kiloliters (kl), equal to the quota set by
the House, said Ari.

"We can keep to the quota by taking out the fuel consumed by
(large) industries," said Ari. Since July, Pertamina has applied
market prices to fuel supplied to industries involved the oil and
gas sectors, along with mining and other large-scale industries,
amounting to almost 6 million kl.

The government earlier projected the cost of fuel subsidies
would reach Rp 138.6 trillion -- assuming there is no price hike
this year -- contributing to a budget deficit of Rp 48.3
trillion, or 1.8 percent of the gross domestic product (GDP).

The commission arranged the hearing to determine fuel costs
and revenues to deliberate the state budget's second revision
this year. It has approved the presented expenses and sales.

However, it questioned the alteration of quotas for specific
fuels proposed by Pertamina.

With the lower-than-expected subsidy costs, the government
should not need to raise fuel prices again, commission member
Ramson Siagian said.

"It's not necessary to increase prices this year. The budget
can survive this," said Ramson, who is also a member of the House
budgetary committee.

Favoring the fuel price hikes however, was commission chairman
Agusman Effendi, who supported the increases as long as the
government could provide solid data about the number and criteria
of industries and individuals that would receive fuel subsidies.

"Personally, I think it would better to raise premium gasoline
and diesel fuel prices to market prices at once," he said.

He was commenting on the government's three plans it is
considering to hike fuel prices. The first option is to set the
prices and increase them periodically according to the fuel
subsidy cuts needed to reach a fiscal balance.

The second is to determine a target date when formally
subsidized fuels would reach market prices and raise prices in
phases, while the third was to directly apply market prices by
completely removing all subsidies.

The government has said the prices of premium gasoline and
diesel, currently about 40 percent of the market price, would
need to be raised by between 11 percent and 12 percent a month to
reach market prices within a year.

"Is the government really going to raise prices every month?"
said Agusman, adding that such a scheme would cause much anxiety
and be impractical.

He said kerosene price hikes should be done in phases to take
a longer time to meet the market price. "But it should not take
longer than two years," he said.

Government scenarios include raising the price of kerosene
from the present Rp 700 a liter to the market price of about Rp
5,550 in two- and three-year plans.