GOVT'S OIL PRICE ASSUMPTION AT US$100 SEEN AS TOO LOW

By Andi Abdussalam

Jakarta, Aug 15 (ANTARA) - The government is considered to be too optimistic in setting the oil price assumption at US$100 a barrel for the 2009 state budget amid oil price volatility.

        Besides, the oil lifting the government has set at 950,000 barrels per day is also seen as lower than it should have been in an expanding draft state budget which for the first time reaches over Rp1,000 trillion.

        "As the government is to increase the allocation for the education sector by 20 percent in the 2009 state budget, it should set the oil price assumption at US$110 and oil lifting at one million barrels per day," Drajad Wibowo of Commission VI of the House of Representatives (DPR), which deals with financial, banking and national development affairs, said.

        The National Mandate Party (PAN) politician made the remarks in response to President Susilo Bambang Yudhohono's state of the nation address on the Draft 2009 Stage Budget and Financial Notes before the DPR's plenary session here on Friday.

        The Indonesian Chamber of Commerce and Industry (Kadin) concurred with Drajad Wibowo, saying the Indonesian Crude Price (ICP) assumption at US$100 per barrel in the draft 2009 state budget is too optimistic.

        During the first semester of 2008, the world crude price jumped by 40 percent to US$147 a barrel. But in the last two months it has fallen 20 percent to below US$115 per barrel.

        The recent fall of the oil price has been taken into account by the government in setting the domestic oil price assumption for the state budget at US$100 a barrel.

        "I think, the decline would not continue in 2009," Kadin chairman MS Hidayat said. He said an ICP assumption at US$110 per barrel would be more realistic.

        However, according to Dradjad Wibiwon, the government's oil price assumption at US$100 for the draft 2009 state was actually relatively good.

        "I think the oil price assumption at US$100 is OK because the oil price in the world market is difficult to predict. A price at a range between US95 and US$120 per barrel is reasonable enough," he said.

        Dradjad, who is a politician from the National Mandate Party (PAN), said the polarization of the world crude price was quite high where oil price could increase by several tens of percent in only a few months.

        "This is beyond the economists' ability to predict," he said suggesting that in line with its plan to allocate 20 percent of the state budget to the educational sector, the government should however set the Indonesian crude price at US110 per barrel.

        "It should not happen that the government is forced to finance the education expenditure base on the budget with loans. So, there should be adjustment between the oil lifting and the oil price," he added.

        The government should have set the country's oil lifting at about one million barrels per day, instead of the 950,000 as it has assumed for the 2009 Draft State Budget, Dradjat said.

        "I was surprised to hear that the oil lifting was set at only 950,000 barrels per day," he said.

        Drajad said the oil lifting target of 950,000 barrels per day was not in line with the president's statement when he gave the Cepu oil field to Exxon Mobile.

        "When transferring the Cepu oil field to Exxon Mobile, the president said the oil field would begin to produce at the end of 2008 and in 2009 production would have been increasing. So, in 2009, the oil lifting should have reached one million barrels per day," he said.

        He expressed hope that the Budgetary Committee of the DPR would correct the government's oil lifting target for 2009 and raise it to one million barrels per day.

        Virtually, the government's decision to set the oil price assumption at US$110 per barrel and the oil lifting at 950,000 barrels per day was also based on agreements between the government and the DPR.

        House speaker Agung Laksono said the DPR and the government had agreed in previous meetings set the Indonesian crude price for the 2009 state budget at a range between US$95 and US$120 a barrel.

        According to Coordinating Minister for Economic Affairs Sri Mulyani, the ICP assumption at US$100 per barrel is realistic

        Besides, the DPR and the government also agreed the Indonesian crude lifting to be set at between 927,000 and 950,000 barrels per day and the rupiah exchange rate at Rp9,000-Rp9,200 per 1 US dollar, he said.

        Therefore, the House according to Agung Laksono, has asked the government not to overreact to the volatility of the world's crude price and not to hastily change the basic assumption of average domestic oil price in the draft 2009 stage budget.

        "The House is of the opinion that the world economic turbulence and crude price volatility tend to develop to an uncertain level and difficult to predict," House Speaker Agung Laksono told the DPR's plenary session.

        According to President Susilo Bambang Yudhoyono, the government's oil price assumption was still within the price range approved by the DPR, namely between US$95-$120 per barrel.

        The president said that the selected average oil price at US$100 per barrel in 2009 is a reflection of the latest world oil price movements and the latest projection.

        "Nevertheless, the government feels that it is important to still protect the state budget against the risk of an upward movements of oil price that can always happen, just as what we have experienced during the last 18 months," the head of state said. (T.A014/A/HAJM/A/E002) 15-08-2008 19:30:28