Pertamina estimates 5M liters oil smuggled out of Indonesia

State-owned oil and gas company Pertamina estimates 5 million liters of kerosene and diesel may be smuggled out of Indonesia this year because of wide discrepancies in international and heavily subsidized domestic prices, a spokesman of Pertamina said Thursday.

The statement from Pertamina followed a newspaper report Thursday quoting Pertamina's downstream director Ariffi Nawawi as saying that some 5 million liters of oil, out of the total oil consumption volume of 56.8 million liters in 2001, is expected to be smuggled out of Indonesia this year.

Oil smuggling has been a long-standing problem plaguing Indonesia because of hefty fuel subsidies in domestic oil product prices. Most of the smuggled oil end up in Singapore, the spokesman said.

The estimates were also presented to the House of Representatives and the Indonesia Finance Minister Wednesday.

The House of Representatives state budget task force recommended maintaining fuel subsidy at 41.3 trillion rupiah (US$ = Rp11,175), while the government is proposing to allocate Rp 66 trillion for fuel subsidy.

The government is calling for a higher fuel subsidy because of the rupiah's weakness against the U.S. dollar. Also, the government fears that rising fuel prices, as a result of a subsidy cut, would exacerbate social instability.

Benny Pasaribu, head of the task force, had argued that the fuel subsidy had never been enjoyed by lower-income citizens and it only benefited oil smugglers.

Indonesia has been pressured by international lenders such as the International Monetary Fund and the World Bank to reduce its domestic fuel subsidies. (*)