New ICP formula to boost state income
Tuesday, June 21 2016 - 02:34 AM WIB
The so-called Indonesian Crude Price (ICP), which is used as a benchmark to calculate non-tax income in the state budget, is currently set every month using existing references from price agencies Platts and RIM.
European benchmark oil price Brent and the American West Texas Intermediate (WTI) may be used as further references in formulating the ICP in the future, according to the Energy and Mineral Resources Ministry?s oil and gas director general, IGN Wiratmaja Puja.
The ICP has moved around US$34.5 per barrel on average so far this year and stood at $44.68 per barrel as of last month. Mean-while, Brent and WTI were traded at around $47 per barrel in the same period, around $2 to $3 per barrel more than the Indonesian benchmark.
?If the new ICP formula moves closer to Brent and WTI, then the impact will be good, revenues will increase. And the additional [revenue] will be significant, because right now maybe the gap between ICP and Brent and WTI is at around $3 per barrel,? said Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) deputy chairman Zikrullah, as quoted by The Post.
?If that gap is multiplied into the oil lifting target, it will have a major effect,? he added.
Oil lifting in Indonesia is projected to reach 830,000 barrels of oil per day (bopd) this year, according to the 2016 state budget. But the government is asking the House of Representatives to reduce the figure to 810,000 bopd in the revised state budget given the gloomy outlook for the oil and gas industry.
The government is aware that the change in ICP formula will boost state income, as it assumes a higher ICP price in the proposed revision of the 2016 state budget at $40 per barrel. The figure is higher than the $35 projected in the current draft revision. The government and the House of Representatives are currently deliberating revisions to this year?s state budget.
With the decision to raise the ICP to $40 per barrel, the final figures for oil and gas tax income revenues have been boosted to Rp 36.34 trillion. Every $1 increase in the ICP brings in an additional Rp 660 billion in revenue.
The state budget suffers from a lack of revenues and the government has set a high target for tax income that many say will be difficult to achieve.
The state budget deficit is expected to soar to 2.5 percent of the country?s gross domestic product (GDP) this year, nearing the 3 percent legally permissible level, from 2.1 percent as previously targeted, according to the revised 2016 state budget.
Apart from boosting state in-come, the new ICP formula will also help the government judge global oil prices more accurately, Zikrullah said.
?The objective is to make the prices more realistic, especially with the current condition. They were useful as references in the past because the conditions were better. We will adjust it,? said Wiratmaja.
Brent Crude is currently being considered as an additional reference point because many global oil players use it as reference, he added. The ministry is also considering adding a fourth reference point, West Texas Instrument (WTI), in order to close the gap between the ICP and the global oil price.(*)