Govt may drop duties on drilling equipment

Ika Krismantari, The Jakarta Post, Jakarta

The government plans to scrap import duties and taxes on oil and gas drilling equipment to help boost spending on exploration.

The finance minister will abolish 27.5 percent of taxes ``soon,'' Anggito Abimanyu, head of fiscal policy at the ministry, said in Jakarta Tuesday after meeting Indonesian Vice President Jusuf Kalla and Energy and Mineral Resources Minister Purnomo.

``There's not much change to the state's budget from the new policy. The change is in the cash flow of oil and gas producing companies," he was quoted as saying by Bloomberg.

Indonesia is trying to reverse a decade-long slide in oil production prompted by maturing fields and a lack of exploration.

Meanwhile, Purnomo said earlier in the day that the government would announce whether it would press ahead with its plan to restrict the sale of subsidized fuels to public transportation vehicles and motorcycles or drop the proposal altogether in early January, a senior official says.

The minister said Tuesday that his ministry and other relevant ministries were still studying the proposal, and expected to make a decision in early January.

"We are doing this because the decision will not only have an effect on the economy, but also major social and political consequences," he said.

"We are also monitoring the movement of global oil prices as the plan was proposed because of fears that the continued surge in oil prices to around US$100 a barrel next year would have a serious impact on the budget," he added.

When asked whether the proposal would be dropped now that oil prices were currently hovering at around $90 per barrel, the minister refused to say, insisting that the decision would be made based on the outcome of the interdepartmental meetings.

The proposal was first made public by Director General of Oil and Gas Luluk Sumiarso, who said that the government was considering restricting the sale of subsidized 88-octane Premium gasoline to public transportation vehicles and motorcycles, with private motorists being required to purchase the new, more expensive 90-octane gasoline.

He said that the proposal would likely be put into effect in the first quarter of 2008 in order to prevent the 2008 budget deficit spiraling out of control, given that oil prices are expected to continue to rise next year.

However, the proposal has drawn protests from members of the public and some economists, who say it will not only lead to high inflation but also social chaos.

Amid the growing opposition, the government appeared to back away from the proposal, saying it would need more time to discuss it and see whether there were any better options available.