To ensure that the allocated fuel subsidies are sufficient, the downstream oil regulator has proposed a lower-than-requested margin of between 10 percent and 13 percent for subsidized fuel distributed by state oil and gas firm PT Pertamina this year.

Pertamina, which has been appointed to carry out subsidized fuel distribution for 2006, had requested a premium of between 15 percent and 19 percent above Mid Oil Platts Singapore (MOPS) prices to cover transportation and retail costs, as well as its profit margin.

Eri Purnomohadi of the Downstream Oil and Gas Regulatory Agency (BPH Migas) said recently that the agency had proposed a margin of between 10 percent and 11 percent for the distribution of kerosene and 13 percent for premium gasoline and diesel fuel.

"BPH Migas has presented its proposal in an inter-departmental meeting, which included the energy ministry and finance ministry," said Eri, who is a member of the public service obligation (PSO) committee dealing with distribution of subsidized fuel.

The minister of energy and mineral resources, which has the authority to determine the margin, is still in discussions with the Ministry of Finance on the appropriate margin, said Eri.

The calculation, however, should be completed before February, when the government is expected to disburse the fuel subsidies for the preceding month, he added.

The government officially stripped Pertamina of its monopoly over the distribution of fuel on Nov. 23 last year, but extended the current cost-and-fee mechanism with Pertamina until the year ended. Starting Jan. 1, the new tender system based on MOPS prices plus a premium was put in motion.

Pertamina's requested pre-tax margins, which translate to between Rp 500 (52 U.S. cents) and Rp 700 a liter, represents a twentyfold to twenty-eightfold jump on the Rp 25 per liter the company gets under the cost-and-fee mechanism.

Chairman of BPH Migas, Tubagus Haryono, has said that the margins to be awarded shall not exceed 15 percent, as this was the standard used in drafting the 2006 state budget.

The House of Representatives has approved the use of Rp 54.3 trillion in next year's budget to subsidize 17.08 million kiloliters (kl) of premium gasoline, 14.5 million kl of diesel fuel, and 10 million kl of kerosene this year.