Government to cut subsidized fuel price

Responding to a fall in global crude oil prices, the government will cut the price of subsidized Premium gasoline by Rp 500, or 8.3 percent, effective Dec.1, and continue to adjust it monthly, economic ministers announced Friday.

The cut will bring the price of Premium to Rp 5,500 per liter. The government has decided to keep the prices of subsidized diesel and kerosene for December unchanged.

Acting Coordinating Minister for the Economy Sri Mulyani Indrawati said the decision was in response to falling crude oil prices and to help ease people's burden because of high commodity prices in the recent months.

"The decrease is expected to revive consumer spending as well as the business climate. This will also counter the impact of the global financial crisis on our economy," Mulyani said after a meeting at the presidential office.

The central bank says the economy is entering a slowdown in the last quarter of the year as the global turmoil begins setting in. Year-on-year growth is projected at 5.9 percent in the quarter, less than the 6.4 percent recorded in the third quarter.

Energy and Mineral Resources Minister Purnomo Yusgiantoro said the government would also adjust the prices of subsidized fuels -- gasoline, kerosene and diesel -- every month to keep in line with global crude prices.

He was quick to add however, that in the event of a spike in global prices, the government would cap the price of subsidized gasoline at the current Rp 6,000 per liter.

In May, the government raised the prices of Premium gasoline, diesel and kerosene by an average of 28.7 percent due to skyrocketing global oil prices at the time.

Crude oil prices have since dropped by more than half after hitting record highs of more than $147 per barrel in July.

On Thursday, Brent North Sea crude for December dropped US$1.13 to $60.74 on London's Intercontinental Exchange (ICE), AFP reported. Light sweet crude for December delivery in New York fell $1.32 to $63.98 a barrel.

The current subsidized prices for diesel and kerosene are Rp 5,500 and Rp 2,500 per liter respectively, while the prices of non-subsidized ones, sold to industry, are Rp 6,065 per liter for diesel and Rp 6,687 per liter for kerosene.

Despite the price cut, Mulyani said the allocation for the fuel subsidy in the state budget would remain at Rp 57.6 trillion for the three types of fuel, with the possibility of change in the composition.

The reduction will only be effective until the end of 2008, she said, adding the government would consult further with the House of Representatives on monthly price adjustments and the impact on the 2009 state budget.

"The government will conduct monthly evaluations to monitor various indicators affecting fuel prices, including global prices, the currency exchange rate and fuel consumption, so we will still be able to sustain the fuel subsidy from the state budget," Mulyani said.

Politically, a fuel price cut would provide a major popularity boost for the current administration led by President Susilo Bambang Yudhoyono and Vice President Jusuf Kalla, ahead of next year's general elections.

Source: http://www.thejakartapost.com/news/2008/11/07/govt-cut-subsidized-fuel-price.html