House members agree to fix fuel subsidy at Rp 89.2 trillion

The House of Representatives state budget committee has agreed to set fuel subsidy at Rp 89.2 trillion in the 2005 state budget. If, the amount is approved in the upcoming House plenary session, the increase in the fuel prices can not be avoided.

The government has proposed a change in the 2005 state budget to reduce the impact of the sharp increase in the crude prices in the international market on the government’s spending. In its proposal, the government offers two options: to fix the subsidy at Rp 113.7 trillion or at Rp 89.2 trillion.

If the first option is chosen, the increase in the fuel price will be smaller, while if the second option is chosen, the fuel price will be increased much higher but the government will have a higher extra amount of money to finance other sectors.

At the 2005 state budget, the oil price reference is fixed at US$45 per barrel. Under this price assumption, and with the rupiah exchange rate being fixed at Rp 9,300 against the U.S. dollar, the total amount of funds needed for oil subsidy reaches Rp 76.5 trillion.

If the state budget is not revised, with the current crude oil price of about USS$65 per barrel, the government’s fuel subsidy would increase to about Rp 126 trillion, far higher than the initial estimate of Rp 76.5 trillion. (dino)