Sunday, 12 October 2014


The Government through the Ministry of Energy and Mineral Resources [ESDM] and Commission VII of House stipulated meeting outcome on basic assumption of oil-gas and electricity subsidy in State Budget 2015.

One of the stipulations was to increase lifting of oil production to 900,000 barrel per day. The target was higher than Government’s proposed 845 bph. Lifting for gas remained unchanged i.e. 1,248 million barrel per day [poepd] so the lifting figure for oil gas became 2.148 million boepd.

The oil lifting was significant because in the past years the realization was only around 735 thousand bph; but considering additional production from the newly operated Cepu block next year, it was felt that oil lifting of 900 thousand bph was attainable.

Subsidy for oil-fuel was agreed at Rp. 1,500 per liter for bio-diesel and Rp. 2,000 per liter for bioethanol. Meanwhile the subsidy for LGV was the same as Government’s proposal, i.e. Rp. 1,500 per liter. Apha oil had the same subsidy as Formula of Budget 2013. However subsidy for electricity was not discussed and to be discussed separately.

Acting Minister for ESDM/Coordinating Minister for Economy Chaerul Tanjung responded positively to the decision. Minister of Finance believed that increase of oil production could contribute positively to state’s income. By calculation, every 10,000 barrel per day increase of oil could increase Government’s income by Rp. 7 trillion; such was from nontax state’s income [BPNP] and oil-gas taxes.

About increase of domestic production target, Finance Minister Chatib left it to the ESDM Minister to pursue the target, because price of oil was also considered.

Every price reduction Indonesia Crude Oil Price by USD 1 per barrel would. Reduce budget annually around Rp. 2 trillion – Rp. 3 trillion. As known, today Indonesia was highly dependent on imported fuel to fulfill need for subsidized oil.

Such was related to the agreement between the House Budgeting Board on quota for subsidized oil next year but less than the previous assumption at 48 million KL.

In quota of 46 KL per year was inclusive of premium gas 29.45 million KL, solar oil 15.7 million KL and Kerosene 0.85 million KL. It was projected that 46 KL sufficient for meeting people’s need. Even if there was shortage of oil supply in some regions, it was caused by smuggling.

It was the Government’s duty to control oil-fuel distribution to resent smuggling. Smuggling was exercised freely and openly in Indonesia. Reduction of oil consumption quota of oil would be enhanced by increased price of subsidized oil. Most probably the Joko Widodo Government would increase oil price.

Originally the government proposed quota for subsidized oil amounting to 48 million KL by assuming increase of total vehicles and no restrictions of subsidized oil consumption. The proposal was based on the consideration that by next year there would be 1,2 millions of new cars and 9 million new motorcycles on the road.

Consumption of subsidized oil could be reduced if the new Government take radical measures such as increasing price of subsidized oil to Rp. 3,000 per liter which would drastically reduce consumption.

Reduced consumption of subsidized oil would jack up state’s revenues because size of subsidy was lessened. The saved fund could be used for executing the Indonesia Educated Card [KIP] and Indonesia Healthy Card [KIS] plan.

KIP and KIS would enlighten the burdens of life of the low class people when price of subsidized oil was increased next year. Part of the cash could even be spent on buying non subsidized oil to support people’s daily activities.

Reduced subsidy would lessen budget portion for health in APBN State Budget which would jack up national economic growth and promote people’s welfare. Under the management of a professional cabinet, the best achievement could be expected and benefited by all. (SS)

Business News - September 19, 2014

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