Govt likely to budget for $35 oil price in 2005

The government, which is looking at ways to gradually scrap fuel subsidies next year, said on Thursday it would likely revise upward its assumption of average oil prices for 2005 -- from US$24 to US$35 a barrel, The Jakarta Post newspaper reported in its Friday edition.

The government uses the estimate to set the budget for the fuel subsidy each year.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro revealed the figure during a hearing with lawmakers, saying that the revision was needed to better reflect the movement of global oil prices.

"The revision would, of course, increase the fuel subsidy, should we intend to maintain the existing policy. That's why we're here, to discuss options to gradually lift subsidies on fuel," Purnomo said.

Based on the new price, fuel subsidies -- if retained -- would reach Rp 53.4 trillion, compared with the initial price estimate of Rp 19 trillion, he said.

"But we want to air alternative schemes with legislators so that we can reduce this subsidy as cause as little impact as possible," Purnomo said.

The fuel subsidy for this year is estimated to reach a whopping Rp 59.2 trillion on the back of record high global oil prices, against an initial projection of Rp 14.5 trillion.

The latest finance ministry data showed that the fuel subsidy had cost the government more than Rp 46 trillion as of Nov. 23.

Purnomo did not rule out such an increase but said there were many ways being considered to reduce the subsidy.

"Not to mention that we still have to meet with legislators for approval," he said.

One option proposed by the ministry was the government lift the subsidies only industrial diesel oil, premium gasoline and bunker oil but retain subsidies on kerosene and automotive diesel oil, which would result in a subsidy reduction of up to Rp 25 trillion.

The elimination of subsidies for industrial diesel oil and bunker oil alone would cut the total fuel subsidy to Rp 36 trillion from Rp 53 trillion, Purnomo said. (*)