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.