Indonesia to Pull Out of OPEC

Indonesia to Pull Out of OPEC

By Anthony Deutsch
Associated Press
Thursday, May 29, 2008; Page D08

JAKARTA, Indonesia, May 28 -- Declining oil reserves and investment have forced Indonesia to quit the Organization of the Petroleum Exporting Countries even as other members cash in on soaring global prices, Energy Minister Purnomo Yusgiantoro said Wednesday.

Purnomo said Southeast Asia's only OPEC member no longer belonged among such exporting heavyweights as Saudi Arabia, Venezuela and Kuwait. Indonesia is the region's largest oil producer, but it has had to import for years because of aging wells and disappointing exploration efforts. The nation's oil production of roughly 1 million barrels a day is at its lowest level in 30 years.

"Indonesia is pulling out of OPEC," Purnomo told reporters, days after his government slashed fuel subsidies that have long protected the poor, forcing prices at the pump to jump by nearly 30 percent. "We are not happy with the high oil price."

Purnomo said the decision to leave OPEC was made by the cabinet of President Susilo Bambang Yudhoyono, who said this month that the country needed to concentrate on increasing production.

Indonesia, which was among the first to join after OPEC was founded in 1960, will remain a member until the end of the year. It will leave open the option of returning if it can build up a surplus. But right now, the energy minister said, we "are a consuming country."

Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said pulling out of OPEC will save Jakarta the $3.1 million annual fee but cost it some international prestige. "I don't see any substantive loss, other than on the prestige," he said. "They have been an oil importer . . . They really have not had much influence within the OPEC organization."

Former OPEC secretary general Subroto, who like many Indonesians goes by only one name, said giving up the seat on the 13-member body would strip the country of its ability to influence global oil prices during times of crisis. "If we remain in OPEC there is some obligation from other members, if problems arise, to assist us," he said, adding that in his mind there was "no benefit" to leaving.

Indonesia, which has subsidized fuel heavily for decades, was facing a deficit with global oil prices now hovering at around $130 a barrel. Its 2008 budget was drafted using an average price of $85 a barrel for the whole year -- a figure later revised to $95.

The government began reducing fuel subsidies in 2000, but it still spends billions of dollars to help consumers cover the costs of gasoline, diesel, and kerosene, which is used by low-income families for cooking.

Even after last week's hike, rich and poor alike still pay just $2.80 for a gallon of gas.

Purnomo said the long-term policy was to eliminate subsidies altogether, because they undermine market forces and encourage smuggling to other countries. But he said another increase was not expected this year.

Last week's subsidy cut triggered small, but rowdy protests by students and workers, but was hailed by economists who said Yudhoyono had taken the biggest step he could without threatening economic growth.