Ika Krismantari, The Jakarta Post, Jakarta
Energy and Mineral Resources Minister Purnomo Yusgiantoro has said the government will not raise fuel prices next year, despite a hefty cut in fuel subsidy spending in the 2008 state budget.
President Susilo Bambang Yudhoyono his Thursday budget speech said the government would next year allocate Rp 46.7 trillion (US$4.9 billion) to fuel subsidies, down from the Rp 56.4 trillion allocated in this year's budget.
Purnomo said the 17 percent drop in fuel subsidy spending would not result in a rise in domestic fuel prices, as the drop was the outcome of a reduction in the consumption of the highly subsidized kerosene.
""That's why the (kerosene to LPG) conversion program needs to be successful, as it will significantly cut kerosene usage in households. We need this program to remain on track,"" Purnomo said Thursday.
The conversion program, first launched last December, should help the government reduce the volume of kerosene sold to households to 8.6 million kiloliters (kl) next year from 9.9 million kl this year.
In the past, any fuel subsidy allocation cuts when fuel consumption remained high normally led to a hike in domestic fuel prices.
As part of efforts to promote LPG usage to low-income households, which traditionally use kerosene, the government has decided to allocate Rp 2.4 trillion in the 2008 state budget bill to provide free gas stoves and LPG cylinders.
The president announced that electricity subsidy allocations would also be cut by 14.1 percent to Rp 27.8 trillion from this year's allocation of Rp 32.4 trillion.
Purnomo said the cut was unlikely to result in a hike in electricity tariffs, with state electricity firm PT PLN engaging in a number of efficiency programs, including the use of more coal and gas in generating power in addition to oil-based diesel.
All the subsidy calculations for next year are based on an oil price assumption of $60 per barrel, with a total oil output of 1.034 million barrels per day.
Commenting on the $60-a-barrel price tag, while the current global market place is around $70, Purnomo said it was a reasonable assumption given that regional conflicts in Nigeria and Iran were expected to be settled by next year, along with a more conducive global macroeconomics condition.
On the oil output prediction, which is higher than this year's 950,000 barrels per day, Purnomo said the government was hoping that ExxonMobil's Cepu block in East Java, Inpex's Mahakam block in East Kalimantan and ConocoPhillips' block in South China Sea would come onstream next year.
In another part of the 2008 state budget, the government decided also to cut the budget for the Energy and Mineral Resources Ministry by 800 billion to Rp 5.6 trillion.
However, the government expects the energy sector to increase revenue by 7.3 percent to Rp 153.3 trillion, from this year's target of Rp 142.9 trillion.
