State budget safe until oil price reaches $125

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Fri, 04/18/2008 12:43 PM  |  Headlines

The 2008 state budget will withstand heavy pressure from skyrocketing oil prices until the Indonesian Crude Price (ICP) averages US$125 per barrel, a senior official says.

The director general of oil and gas at the Energy and Mineral Resources Ministry, Luluk Sumiarso, said the government did not need to worry about plugging the swollen fuel subsidy because it was still expecting to enjoy a surplus from oil price hikes at $125 a barrel.

ICP is the country's oil price benchmark used for oil transactions and state budget assumptions. The ICP is usually slightly lower than the global price of oil.

The ICP price from January and March averaged $103.10 per barrel, according to ministry data. This was lower than the widely used U.S. crude oil benchmark, WTI, which averaged $105.46.

Still, the ICP has surpassed this year's state budget assumption of $95 per barrel. Using this assumption, the government allocated Rp 126.82 trillion for fuel subsidies and Rp 60.29 trillion for electricity subsidies this year.

The figures are almost triple previous estimates.

Luluk's remarks come as global oil prices hover at a new historic high of $115 a barrel, sparking concern for the sustainability of the state budget.

He did not say what measures would be taken if the ICP's average surpassed $125 a barrel.

Energy and Mineral Resources Minister Purnomo Yusgiantoro ruled out Thursday the option to raise domestic fuel prices to ease the subsidy burden, reiterating the government's pledge to not do so until 2009.

Rather than increasing fuel prices, Purnono said, the government would intensify efforts to slash the amount of subsidized fuels on the market, using various programs including "control cards" for households eligible for fuel subsidies.

This year, the government capped the amount of subsidized fuel at 35.5 million kilo liters (kl), down from 38.6 million kl last year.

Responding to whether the government should impose a windfall profit tax on oil producers (who are benefiting the most from the oil price hike), Purnomo said this would only be applicable to certain contracts.

"We are studying the state of the contracts because we should uphold the integrity of contracts.

"We are in talks with some producers to revise the fiscal terms and conditions, but we are not going to apply it (the windfall profit tax) in general," he said.

He said the current production split (of 85:15 in favor of the government) still benefited the government.

The Indonesian Petroleum Association (IPA) vice chairman Sammy Hamzah said a windfall profit tax was actually understandable, although prior discussions with producers were needed to make sure it would be mutually beneficial.

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