Indonesia pulling out of OPEC

/ Source: The Associated Press

Declining oil reserves and investment have forced Indonesia to quit the Organization of Petroleum Exporting Countries even as other members cash in on soaring global prices, the energy minister said Wednesday.

Purnomo Yusgiantoro said Southeast Asia's only OPEC member no longer belonged among exporting heavyweights like Saudi Arabia, Venezuela and Kuwait.

"Indonesia is pulling out of OPEC," he 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."

Indonesia is the region's largest oil producer, but the nation of 235 million people has had to import for years because of aging wells and disappointing exploration efforts. A weak legal system and red tape has scared foreign investors away, even as consumption rises.

Purnomo said the decision to leave OPEC was made by the Cabinet of President Susilo Bambang Yudhoyono, who said earlier this month the country needed to concentrate on increasing domestic 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."

The nation's oil production of roughly a million barrels a day is at its lowest level in 30 years.

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 prestige on the international scene.

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

The government began reducing fuel subsidies in 2000, but 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, the rich and poor alike still pay just US$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.

Others argued that with the government still subsidizing 57 percent of retail transport and cooking fuels, it did not go far enough.

Indonesia joined OPEC two years after it was founded. An oil boycott by Arab members of the cartel against Western countries in 1973 was responsible for sparking an oil crisis, which quadrupled world crude prices to previously unknown levels.