Oil Price Hikes Wreak Havoc With Fuel Subsidy Budgets

Jakarta Globe, Ririn Radiawati Kusuma | December 26, 2010        

State oil and gas company Pertamina looks set to lose money if the rise in crude oil prices continues, an official said.

A Caltex oil refinery near Brisbane, Australia. Oil prices
hit $91.41 per barrel on Sunday, the highest in two years,
on the back of rising demand during an unusually cold winter
 in Europe, and Indonesia is worrying about the effect of
 high prices on 2011state spending. Bloomberg Photo 

Pertamina spokesman Mochammad Harun said the company’s bottom line would take a hit as oil prices grew beyond the government’s allocation for fuel subsidies in 2010.

“We are still calculating what we have to pay to replace the subsidy allocation from the government,” he told the Jakarta Globe on Sunday.

Oil prices hit $91.41 per barrel on Sunday, the highest in two years, on the back of rising demand during an unusually cold winter in Europe.

Analysts said the cold snap, which happened earlier than expected, saw some speculators move to increase the oil price.

“OPEC estimated that the highest demand will happen in the end of December,” Rudi Rubiandini, an energy analyst from Institut Teknologi Bandung, said on Sunday.

Price rises, he said, would continue until mid-January before returning to normal in early February and hitting their lowest demand in May.

Crude oil prices will impact Indonesia’s oil subsidy allocation in December, Rudi said, as demand during the Christmas and New Year holidays would increase up to 10 percent above average. The current price is higher than the $80 per barrel mark the government wrote into its 2010 state budget.

The government and House of Representatives agreed on Dec. 9 to add 1.87 million barrels to the allocation of subsidized oil. Evita Legowo, directorate general of oil and gas at the Energy Ministry, said the government had already saved Rp 7.7 trillion ($855 million) as the average oil price earlier in 2010 was lower than the projected $80 per barrel.

The government allocated Rp 88.9 trillion in the stage budget to cover fuel subsidies this year, though Evita said it might only end up spending Rp 81.1 trillion after the addition in December.Harun confirmed the fuel subsidy allocation would not exceed the state budget allocation.

“The country will not lose anything, but on our side, we have to replace the loss caused by the oil price hike,” he said.

Rudi estimated Pertamina would pay Rp 750 billion more to meet the extra fuel demand in the final days of 2010.