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Govt may end fuel subsidy next year
The government may entirely end subsidizing fuel prices next year by adjusting subsidized prices to market prices, but up to a certain limit, a senior Finance Ministry official says
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The government may entirely end subsidizing fuel prices next year by adjusting subsidized prices to market prices, but up to a certain limit, a senior Finance Ministry official says.
"In the future, we expect (subsidized fuels) to follow (the market prices) automatically up to certain ceilings (prices)," the ministry's head of fiscal policy, Anggito Abimanyu, told reporters on Monday.
"If prices go up, we will cap them to a maximum ceiling. But we have not determined the benchmark prices yet," Anggito said, adding the government would start subsidizing fuels if the prices surpassed these limits.
The plan was expected to ease the government's burden in financing fuel subsidies, with subsidy allocations depending on the volatility of world crude oil prices, he said.
On Tuesday, Brent North Sea Crude was sold at US$52.23 per barrel, while light sweet crude in NYMEX was at $54.90, AFP reported. The oil price had reached a record high of about $147 per barrel in mid-July.
The soaring oil prices in early 2008 forced the government to cut the subsidies and raise the price of fuels by an average 28.7 percent in May.
However, crude prices have since dropped as the world tilts into recession and economic downturn, reducing demand for oil.
The government early this month announced it would cut the price of subsidized Premium gasoline by Rp 500 per liter to Rp 5,500 starting Dec. 1 as this now reflected the market price.
It is extremely likely the government may further cut fuel prices next year to include kerosene and diesel fuel as well.
The House of Representatives has suggested the government cap the subsidies for fuel at a certain amount, while leaving them fluctuating based on the market prices. Such an approach, the House said, would relieve the burden of the cost of the subsidies upon the government.
Revenue saved from the subsidies could then be allocated to more beneficial expenditure, including improvement of education, infrastructure and health care programs, according to analysts.
In the 2009 state budget, the fuel subsidy allocation is set at Rp 57.6 trillion (US$4.94 billion), much lower than the Rp 126.8 trillion set in the revised 2008 budget.
Anggito said if the government could cut the subsidy for Premium gasoline and diesel, then it could shift its focus to subsidizing kerosene, which was more important for supporting the living costs of low-income people.
He said the government could not cut the price of subsidized diesel as the current price was far below the market price.
"Do not forget also that the exchange rate is currently soaring to above Rp 11,000," Anggito said, referring to the high costs the government had to bear for importing fuel.
