Jakarta – Indonesia would have to cut energy subsidies at the beginning of next year despite probable protests unless oil prices retreat, Vice-President Jusuf Kalla said on yesterday.

Indonesia keeps consumer and business costs for products ranging from petrol to power artificially low through government subsidies, but soaring oil prices mean the programme weighs ever more heavily on the cash-strapped government's budget.

Indonesian energy costs "must be hiked if the oil price is still like this", Mr Jusuf told Reuters in an interview. He said the move would probably come in January or February.

"There is no other way. We are also giving the wrong kind of subsidies, if we don't raise the price. The subsidies go to the users of oil who drive luxurious cars or factories that should compete," he said.

Mr Jusuf, a businessman and former minister, took office in October with President Susilo Bambang Yudhoyono, who was elected in place of Ms Megawati Sukarnoputri.

Ms Megawati had one of her roughest periods in office in early 2002 when nationwide protests involving tens of thousands of Indonesians broke out over plans by her government to cut subsidies, eventually forcing it to backtrack.

Mr Jusuf said that while the new government would try to explain the need for the subsidy cuts and work to protect the poor when the changes are made, "some groups still will protest, like students and workers. But there is no other way".

"If the oil price still goes like this, the subsidies ... will be around 60 trillion rupiah (S$11 billion)." At this rate, the subsidy would account for about 15 per cent of projected government spending for the year.

He said there was a possibility of avoiding cuts in the subsidies if the global market price for oil falls. "There is an indication that the world oil price may go down to US$47. Hopefully, there will be a better situation in Iraq, Palestine, which will definitely lower the price," he said.

"We will decide the timing based on three things. The price of oil at that time, the dollar rate, and the amount of subsidies that need to be absorbed. We can't decide this in November." International oil prices were staying close to US$49 (S$81) a barrel yesterday.