TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Govt proposes to reduced fuel subsidy
Given recent trends showing a decline in oil prices, the government has proposed to cut budget expenditure on the fuel subsidy by 43
Change Size
Given recent trends showing a decline in oil prices, the government has proposed to cut budget expenditure on the fuel subsidy by 43.76 percent for 2009.
President Susilo Bambang Yudhoyono told lawmakers Friday that next year's fuel subsidy allocation was set at Rp 101.4 trillion, way below the estimated Rp 180.31 trillion for this year.
The figures are based on the assumption that crude oil prices will average only US$100 per barrel.
"The assumed oil price has been adjusted in line with the declining world oil price lately. Hence, the subsidy budget for electricity has also dropped," Yudhoyono said when delivering his state address to the House of Representatives.
For next year, electricity subsidy spending has been capped at Rp 60.4 trillion, while other subsidies on food commodities, fertilizers and seedlings will amount to Rp 32 trillion.
The government's kerosene-to-liquefied petroleum gas (LPG) conversion program will be a priority to help save subsidy costs.
State oil company PT Pertamina distributed free LPG stoves to 9.34 million low-income families and small businesses by June 30, Bloomberg reported, as part of the drive to replace the more expensive kerosene as the fuel for cooking.
That's 22 percent of the overall target aimed to be achieved by 2011.
In an attempt to limit the negative impact of high oil prices on the state budget, the government was forced in May to increase subsidized fuel prices by an average of 28.7 percent, in order to reduce the budget cost of the subsidies.
The 2009 budget draft does not rule out the possibility of the government raising the prices again, in particular should the oil price exceed $160 per barrel.
The government has also proposed a mechanism to control the disparity between the prices of domestic subsidized fuels and global market prices.
It stipulates the ratio between domestic prices and international prices will be maintained at a constant level when the Indonesia Crude Price (ICP) -- the country's benchmark oil price -- reaches $160.0 per barrel.
The ratio will be 58.5 percent for premium gasoline, meaning the subsidized premium gasoline price at home should represent 58.5 percent of the international price. The ratio for kerosene has been set at 23.4 percent, for diesel 52 percent.
The draft budget states that these ratios are also needed to prevent subsidized fuels from being smuggled.
The chairman of the House's working committee on budget assumptions, Harry Azhar Aziz, said that the committee and the government were already in agreement over the scheme.
"We need this mechanism to prevent a sudden change of budget allocation because of skyrocketing oil prices," said Harry.
Harry, however, said the government and the house would need to discuss further about the ratio figures and the ceiling ICP that would be used as a basis for this mechanism.
In the draft, the government also proposes a quota of 36.8 million kiloliters for subsidized fuels, down from the estimated subsidized fuels consumption in 2008 of 40 million kiloliters.
