Southeast Asia

Aug 30, 2005

Indonesia grapples with oil crisis

JAKARTA - The Indonesian government plans to slash fuel oil usage in an effort to boost the country's currency, which has been depreciating.

The government plans to reduce fuel oil consumption, settle the oil exploration contract for the Cepu Block, and alter subsidies, Coordinating Minister for the Economy Aburizal Bakrie said after a cabinet meeting.

"A new problem is the management of the real sector by reducing oil consumption by power plants which will have a substantial positive impact," he said.

He said that building of non-fuel oil Unit I at the power plant in Cilacap would be completed by the end of this year, and Unit II in April next year, each having a capacity of generating 330

megawatts. The 660-MW Unit I of Tanjung Jati B power plant is scheduled for completion in January next year, while Unit II in June. The construction of two hydro-power plants respectively in North Sumatra and South Sulawesi, will also be ready to operate soon, he said.

Aburizal said 175 million tons of fuel oil had been used in producing 100 megawatts. If fuel oil consumption by industries is reduced, the amount of dollars for importing fuel oil will also be reduced, which in turn will eventually raise the rupiah value.

President Susilo Bambang Yudhoyono in the meeting, he said, had also called for a switch of the target of its fuel subsidy from products directly to the people. He said efforts had to be made to ensure that the poor would enjoy the subsidy.

He said fuel oils are elastic products, which means that an increase in their price would result in a reduction in their consumption. "If fuel oil consumption drops, expenditures on oil imports will also drop," he said.

He said President Yudhoyono in the meeting had also called for immediate settlement of the exploration contract on the Cepu Block, adding that the President hoped it could be settled as scheduled on September 25 this year.

He said if Indonesia could increase its oil production, its oil imports would decline to make the country change from a net importer to a net exporter.

Aburizal had to spend Rp10 trillion (US$967 million) a month if the oil subsidy for this year reached Rp120 trillion.

He said the country would suffer a loss of Rp10 trillion for each month of delay in production.

(Asia Pulse/ANTARA)

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