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Fuel Prices Expected to Increase 40% in 2005

Government Mulls Strategies to Ease the Economic Pain of Higher Energy Costs.

(12/12/2004) Unable to sustain the massive budget burden of subsidizing consumer fuel costs, it now is all but a foregone conclusion that Indonesian fuel prices will rise by as much as 40% sometime in 2005. While fuel costs have traditionally been subsidized in Indonesia, recent steep increases in the world market price of crude oil have created a gargantuan burden for the cash-strapped national treasury. Current crude oil prices of around $40 a barrell and subsidized consumer energy costs could result in a added US$6 billion cost to national coffers, if left unaddressed.

Something Has to Give

While it is expected that increases in the cost of premium, diesel oil and industrial fuel will rise sometime soon in 2005, the Government may leave kerosene prices unchanged to safeguard the tenuous position of the nation's poorest.

Meanwhile, the Government is actively seeking input from legislators and others on the least socially disruptive means of increasing fuel costs. A number of scenarios are under review including allowing local fuel prices to freely follow world cruise oil prices or, alternatively, retaining a program of partial subsidies. Experts in some circles have issued cautionary warnings that a sudden increase in fuel costs could result in supply chain problems and the hoarding of critical fuel supplies.

 

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