Indonesia sees costly oil stretching fuel subsidy

ROME (Reuters) - Record oil prices are causing a major problem for Indonesia by adding to the billions of dollars it spends on subsidizing fuel, a senior Indonesian oil official told Reuters on Sunday.

Indonesia, Asia's top diesel and gasoline importer, provides heavy subsidies for fuel that help shield consumers from the price of crude oil, which hit a record high of $117 a barrel on Friday.

That is higher than the price of $95 a barrel assumed by an Indonesian budget commission, which earlier this year raised the budget allocation for oil subsidies in 2008.

"At $117 a barrel, we will spend more," said Maizar Rahman, head of Indonesia's delegation to the International Energy Forum, a gathering of oil producers and consumers taking place until Tuesday.

"It takes the money we need for other projects. It is a big problem."

Indonesia is Asia-Pacific's only member of the OPEC oil exporters' group, but because of flagging output and limited refining capacity about 30 percent of its domestic fuel consumption is covered by imports.

Attempts in Indonesia to increase fuel prices are very sensitive. In May 1998, a big rise triggered rioting that helped topple former President Suharto.

Even so, as an oil producer it is more fortunate than some Asian countries in coping with high prices, Rahman said.

"We are a little bit lucky because we are producing oil, but for other countries it's harder," he said.