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March 12, 2008

Minister warns over soaring oil subsidies

Indonesia Energy Minister Purnomo Yusgiantoro said oil subsidies could hit 100 trillion rupiah ($10.90 billion) this year on the back of soaring crude prices, warning it was unclear how long the nation could withstand such pressure, Reuters reported.

Asia-Pacific's only member of the OPEC oil exporters' cartel, Indonesia however needs to import 30 percent of its domestic fuels consumption due to  its flagging output and limited refining capacity.

"We will face problems that could affect other sectors, which is the price of goods and services. Prices of goods and services will go up," the minister was quoted as telling reporters.

Indonesia's annual inflation edged higher to 7.4 percent in February after spiking to 7.36 percent a month earlier, the highest since September 2006's 14.6 percent on the back of high prices of food staples.

Fuel price increases are a sensitive issue in Indonesia. In 1998, a big rise in fuel prices triggered rioting that helped topple former President Suharto.

The administration of President Susilo Bambang Yudhoyono moved in 2005 to increase fuel prices, but prices remain highly subsidised and with an election due in 2009 the government has so far ruled out a similar move.

High global oil prices at a time of dwindling oil production at home are likely to push the cost of subsidising domestic fuel prices up by 132 percent to 106.2 trillion rupiah this year, compared with the original budget forecast, a draft revision of the government budget shows.

Indonesia's ageing wells and lack of investment in the energy sector have turned Southeast Asia's biggest economy into a net crude oil importer, although it is still a net energy exporter, thanks to a huge supply of natural gas and coal.

More on Indonesia


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