Historically, oil and gas revenues have exceeded fuel subsidy expenditures and regional transfers, the exception being those years with large increases in international oil prices. Table 1 summarizes how these factors have come together over the past decade. It illustrates first the magnitude of oil and gas revenues, and then how these resources flow out of the central government’s budget: first, in the form of retail fuel and electricity price subsidies; second, through the fraction of oil and gas revenues that are transferred to sub-national governments as shared revenues, with additional shares of oil & gas revenue flowing to some producing regions; and third, 26 percent of oil and gas revenues projected for each year (net of projected revenue sharing) are transferred to sub-national governments as a ‘general allocation fund’ (DAU) with some additional funds transferred to oil & gas- producing regions. The first two types of transfer operate _ex post_ , with the expenditures reflecting the actual costs of the subsidies and the actual oil & gas receipts, respectively. The third type of transfer, the DAU, is determined _ex ante_ . It depends on the oil & gas revenues projected when parliament passes the initial budget for the coming fiscal year. It does not adjust to reflect realized revenues.

**Table 1.  Central government oil and gas revenue and expenditure cash flows** _<u>US$ billion</u>_

||**2000**|**2001**|**2002**|**2003**|**2004**|**2005**|**2006**|**2007**|**2008***|
|---|---|---|---|---|---|---|---|---|---|
|Oil and gas revenues|10.3|10.2|8.6|9.4|12.2|14.3|22.0|18.5|26.0|
|_less:_||||||||||
|Fuel subsidies|6.5|6.7|3.5|3.5|7.8|9.9|7.0|9.2|13.9|
|Electricity subsidy|||||0.3|0.4|3.3|3.6|6.6|
|National balance|3.8|3.5|5.1|5.9|4.2|4.0|11.7|5.7|5.4|
|_less:_||||||||||
|DAU (26% of APBN projected net<br>oil & gas revenue)|0.6|0.9|2.0|1.9|1.9|1.3|1.5|4.4|4.4|
|Oil and gas revenue sharing|1.5|1.5|1.2|1.5|1.7|2.8|3.1|2.6|3.6|
|Centralgovernment balance|1.1|0.2|2.1|2.3|1.4|-0.2|4.1|-1.3|-1.9|
|_Memo items:_||||||||||
|IDR crude oil price|29|25|22|29|34|52|64|70|95|
|Oil lifting (thousand bpd)|1,405|1,273|1,320|1,092|1,072|999|1,000|899|927|

* 2008 revised budget (APBN-P), except for the DAU allocation, which is based on the initial budget (APBN) for all years. _Source: World Bank calculations using Ministry of Finance data._

In 2007, oil production fell short of even the relatively low, initial targets. However, international oil prices were significantly above expectations and more than offset this shortfall by supporting oil and gasrelated tax revenues. Tax revenues, which reflect profitability after production sharing, were slightly higher than the government had projected. This was more than offset by the shortfall in non-tax revenues, which largely reflect the government’s production-sharing receipts. This shortfall was driven by movements in recoverable production costs and the distribution of production across different oil & gas fields with their differing production contracts. Lower non-tax revenues meant less revenue to transfer from the central government to producing regions. But higher oil prices meant higher energy subsidies — about 33 percent more than projected. Finally, the technical aspects (discussed above and in Section 4) of the inter-governmental revenue transfer arrangements under the DAU meant that these transfers remained at their initially budgeted levels despite the difference between realized oil & gas revenues and the initially budgeted amounts (Table 2).

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