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The government and House of Representatives agreed Monday to
cut next year's fuel subsidy spending estimate by almost Rp 1 trillion
(US$107 million), thanks to the program substituting liquid petroleum
gas (LPG) for highly subsidized kerosene.
The decision was taken during a working meeting between the government
and the House budget commission, which was convened to discuss the
basic macroeconomic assumptions for next year budget.
An earlier draft had set the fuel subsidy allocation for 2008 at Rp
46.7 trillion, compared to Rp 56.4 trillion this year.
For 2008, the government is hopeful of cutting the volume of kerosene
to 7.8 million kiloliters (mkl), from an earlier estimate of 8.6 mkl,
amid an intensification of the kerosene-to-LPG conversion program, said
Luluk Sumiarso, the director general of oil and gas at the energy
ministry, during the hearing.
Under the program, the volume of kerosene to be replaced by LPG will be
increased from 1.3 mkl of kerosene to 2.1 mkl by next year.
Consequently, fuel subsidy spending will be reduced by almost Rp 1
trillion to Rp 45.8 trillion.
The government launched the conversion program last year to reduce the
annual average consumption of 9.9 mkl of kerosene, which is mostly used
by low-income households for cooking.
During the hearing, it was also decided also that the government will
sustain the amount of gasoline and diesel to be subsidized at 16.95 mkl
and 11 mkl, respectively.
The subsidy cut runs counter to analyst predictions, which had agreed
that subsidy spending would have to increase in line with high global
oil prices.
Energy and Mineral Resources Minister Purnomo Yusgiantoro said in
response that the current high oil prices were only temporary, and that
there was no need for the government to revise its oil price assumption.
The government has set its oil price assumption for next year's budget
at $60 per barrel. Prices are currently hovering at around $80 a barrel.
"OPEC's decision to increase its oil output by 500,000 bpd last
November will later have an effect on global oil prices. This is just
temporary as a result of psychological concerns about a hurricane that
could hit the oil-producing area of the U.S.," Purnomo said.
AFP reported that world oil prices fell Monday in Asian trade. At 2:44
p.m., New York's main futures contract, lights sweet crude for delivery
in October, was 44 U.S. cents lower at $78.66 per barrel from $79.10
per barrel in late U.S. trade Friday, when the contract moved briefly
to a new high at $80.36.
Brent North Sea crude for November delivery was 28 U.S. cents lower at
$75.94 per barrel.
It was also suggested at the meeting that next year's oil output target
be revised downward to 1 million bpd from the previous target of 1.034
mbpd. No decision was taken on the issue, however.
More sessions to discuss the 2008 budget bill are scheduled for later
this week.
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