The Energy and Mineral Resources Ministry is proposing a Rp 37 trillion (US$3.1 billion) in subsidies for the distribution of subsidized fuels, an increase of 46.8 percent on the initial commitment.

This large increase reflects  the ministry's proposal to apply a  fixed  payment indexed to ICP oil prices to the distribution costs for subsidized fuels. This was presented by the ministry's director general for oil and gas, Evita Legowo, to the House of Representatives on Wednesday.

Evita proposes a fixed 'Alpha' figure of Rp 693.50 when the ICP (Indonesia Crude Price) is between $40-$50; and Rp 704 when the ICP is between $50-$60, since “Most of the components within the distribution costs are fixed.” Evita told the House of Representatives Commission VII on energy and mining.

Under the previous scheme, fuel subsidy allocation was set at Rp 25.21 trillion.

The Finance Ministry's director general for budgetary affairs Anny Ratnawati asked the hearing to look at the impact on the state budget.

“With the new proposal, the fuel subsidy will definitely increase to between Rp 36 and Rp 37 trillion,” she said, adding that Commission VII should look at this carefully as it would have a big impact on the state budget. “As we are facing a crisis, we predict also that tax revenue will decrease significantly,” Anny said.

Pertamina, the sole distributor of subsidized fuels, receives subsidies to cover the distribution of subsidized fuels including Premium gasoline, kerosene and diesel. This was previously calculated as a percentage of MOPS (Mean of Platts Singapore daily oil price traded). In 2008, Pertamina received 9 percent of MOPS to distribute subsidized fuels.

The average subsidy per liter on the three fuels last year was Rp 570 for Premium gasoline, Rp 685 for kerosene, and Rp 674 for diesel.

Evita said the government preferred to use a fixed figure to calculate the subsidy because the percentage mechanism could not calculate the  required figure accurately.

Pertamina’s trading and marketing director Achmad Faisal said that, as crude prices had declined, Pertamina’s subsidized fuels distribution would definitely incur losses if the Alpha remained at 8 percent.

He added that Pertamina had agreed with the energy and mineral resources ministry’s proposal.

“We only expect the proper margin, so we can operate normally,” Faisal said.

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