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June 2, 2008

More fuel price hikes likely

Due to the impact of fuel subsidies on the budget, Indonesia cannot rule out further hikes in fuel prices ahead of the 2009 presidential elections, Energy Minister Purnomo Yusgiantoro was quoted by Reuters as saying Sunday.

The government raised fuel prices by almost 30 percent last month, sparking protests in a country where millions are already suffering from rising energy and food costs.

While Indonesia still has some of the lowest fuel prices in Asia, the issue of fuel subsidies is politically sensitive given Indonesia is due to hold parliamentary and presidential elections next year.

"The increase is about fairness. Subsidised fuels have been enjoyed by the haves," rather than the have-nots, Yusgiantoro said on the sidelines of the Coaltrans Asia Conference on the resort island of Bali.

Asked whether the government could guarantee there would be no more increases in fuel prices before the next presidential election due by mid-2009, Yusgiantoro said that was not possible.

"We cannot guarantee, we never know what happens in the future," he said, adding that between 1965 and 2000, Indonesia had increased fuel prices on 30 separate occasions.

When the government more than doubled fuel prices in October 2005, consumption fell significantly.

Yusgiantoro also said that Indonesia, which has decided to leave the Organisation of Petroleum Exporting Countries (OPEC), may rejoin once it had lifted production and controlled consumption. But he did not give a timeframe or further details.

Meanwhile, Widhyawan Prawiraatmadja, a senior vice president with state-owned Pertamina  was quoted by AFP as saying that fuel subsidies in Indonesia are hurting the economy, sucking away precious funds which could have been better used in other areas such as health and economic development.

The country cannot go on indefinitely subsidising fuel and bold decisions are needed from the government to address the situation, said. "When you continue subsidising oil, there will be some distortion," he said.

"I think the government will have to start making some bold efforts to rectify this, otherwise this is going to continue and perhaps even get worse because of the distortion in the market," he said.

Indonesia's crude oil output has fallen in recent years due to ageing wells, a lack of investment and the absence of any major oil finds.

Its status as a net importer means it would benefit from lower oil prices, putting it at odds with other OPEC members, who favour higher prices.

Asia's only member of the oil cartel sees daily oil output of 927,000 barrels per day this year, down from 950,000 bpd in 2007.

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