Oil and gas producing provinces 'must bear the cost of fuel subsidies'

President Susilo Bambang Yudhoyono has asked oil and gas producing provinces to jointly share with the central government the rising burden of government fuel subsidy.

The President made the request in his state of the nation speech during the first annual plennary of the Regional Representatives Council (DPD) on Tuesday, which was attended by some 128 DPD senators and regional administration leaders.

“We must jointly find a formula, which will not affect justice, equality and national unity, on the distribution of income,” Susilo said.

Oil producing regions currently obtain 30 percent of oil revenue under an income sharing mechanism with the central government (Except for Aceh which gets a muc higher revenue). The other 70 percent goes to the central government, to be among others redistributed as development funds for non-oil producing regions.

But the central government solely covers the expenses for fuel subsidy including for fuel products sold in oil producing regions. With the current surge in international oil prices, the burden of the fuel subsidy is becoming heavier for the central government. According to one estimate the fuel subsidy for this year could exceed Rp 100 trillion (compared to the current estimate of 76.5 trillion, based on oil price assumption of around $45 per barrel) if international price continue to rise to an average of $60 per barrel.

Some experts have previously suggested that oil producing region should also share the fuel subsidy burden.(dino)