SINGAPORE: Indonesia's oil export revenue is falling far below government expectations as output drops to a more than 40-year low, piling pressure on authorities to confront a widening trade deficit fuelled by energy subsidies that encourage consumption.
Aging fields and years of scant new discoveries mean Indonesia is exporting less crude, bringing home to the former Opec member the US$22bil cost 4% of economic output last year of its generous subsidy programme.
Crude and oil products export revenue for the first two months of the year have fallen 23% to US$2.2bil compared with the same period last year, while oil imports by value are up 16%, according to the statistics bureau.
That has translated into an oil trade deficit of US$4.9bil so far this year, widening from US$3.2bil a year ago.
“Fuel consumption and imports are surging on cheap fuel, with subsidised prices some 60% below international prices, and buoyant domestic demand,” said Chua Hak Bin, head of emerging Asia economics global research at Bank of America Merrill Lynch.
“We expect the government to introduce some rationing scheme or hike subsidised fuel prices in the coming months to contain the escalating fiscal costs and widening oil trade deficit.”
President Susilo Bambang Yudhoyono could announce next week new measures to restrict the use of energy subsidies, which have provided Indonesians with the cheapest fuel in Asia.
But with elections looming next year, and memories of violent protests over fuel-price rises in 2005 and 2008, he is expected to bow to populist wishes and not scrap subsidies.
Instead, the president is considering a ban on the use of subsidised fuel by the nation's 11 million private cars, a move that could save the government US$8.6bil this year and erase a fiscal deficit, a presidential adviser said.
Indonesia's overall trade deficit widened to US$330mil in February, up from US$70mil the previous month.
Indonesia's state budget for 2013 has set an oil output target of 900,000 barrels per day, but the country's energy regulator SKKMigas said production was more likely to average around 830,000 bpd. That would be the lowest since 1969.
The government's take of total oil and gas revenues is expected to be about US$30bil or about 20% of the budget for this year, according to SKKMigas, sharply lower than the one-third that oil and gas sales contributed to state coffers each year back when Indonesia was a net exporter and a member of Opec.
Unless price increases can offset falling production or Indonesia can reverse the output decline, the contribution oil and gas makes to state will likely continue to fall.
Indonesia has often fallen short of production targets, with crude and condensate output declining at an annual rate of 3.8% between 1998 and 2011.
The production decline has mainly impacted exports as Indonesia now keeps the bulk of its output for domestic use, but it has also had to increase its imports of refined products as subsidies push up the use of cheap fuel.
Indonesia's crude export revenue will likely drop further this year as ample oil supplies weigh on prices while its top buyer Japan aims to reduce expensive oil imports for power use.
“This is definitely not great news for the trade deficit, but we have to remember that crude oil exports have not been a key driver of overall exports,” said Lim Su Sian, an economist with HSBC. Reuters