Fuel price hike seen at 20-25%

Berni K. Moestafa, The Jakarta Post, Jakarta

The government said on Thursday it was expecting to raise fuel prices this month by an average of between 20 percent to 25 percent, down from the original proposed 30 percent price hike.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government may not need to raise fuel prices by an average of 30 percent to limit fuel subsidy spending to Rp 30.37 trillion (about US$2.9 billion).

"If given a range, it (the average price hike) could be 20 percent, 22 percent, up to 25 percent," Purnomo told reporters after a cabinet meeting.

But he added that neither the price range nor the date for the fuel price hike were set. The cabinet would have the final say, he said.

Using assumptions in the 2002 state budget, the government would need to raise fuel prices by an average of 30 percent to limit subsidies to Rp 30.5 trillion as opposed to Rp 53.77 trillion last year.

"But one assumption has changed, that is the price of fuel," Purnomo said, explaining this allowed for a lower than planned price hike.

World crude oil prices, he said, had weakened to between $19 to $20 a barrel compared to the $22 assumed in the state budget.

While lower crude prices translate into lower subsidy spending, Indonesia actually benefits more when fuel prices are high.

A member of the Organization of Petroleum Exporting Countries (OPEC), Indonesia is projected to earn Rp 44 trillion for crude oil exports, assuming however that prices average $22 a barrel.

Since the government foresees crude prices remaining weak throughout the year, it must take into account a shortfall in revenue from oil exports.

This will add pressure on efforts to keep the budget deficit at 2.7 percent of gross domestic product (GDP) this year.

Purnomo would not say how low oil revenues might fall this year. According to him, there is a possibility of a slight upturn in the second quarter on a seasonal rise in oil demand.

Slashing fuel subsidies is one savings area the government relies on to safeguard the budget's sustainability.

However, saving up on subsidies always comes at the expense of the poor, who must shoulder the subsequent surge in inflation.

To protect the lower income groups, and to reduce the risk of wide-spread protests against the fuel price hike, the government promised Rp 2.8 trillion for social compensation funds.

Coordinating Minister for the Economy, Dorodjatun Kuntjoro- Jakti said the funds aimed to support the poor with food, health, transportation, education, clean water, small- and- medium-sized enterprises, cooperatives and through empowerment programs for fishing communities.

Education would receive the biggest slice of the funds with Rp 1.28 trillion, followed by health and social support with Rp 570 billion and food support with Rp 500 billion.

Coordinating Minister for Social Welfare, Jusuf Kalla said Rp 2.8 trillion should be enough to alleviate living expenses for 55 million people among the lower income groups.

"The number of poor people in Indonesia makes up 19 percent of the entire population, or 40 million people," he said.

"If a (poor) person pays more for fuel, the same person will pay less for rice, education, medicines."

Last year, the government spent Rp 800 billion in compensation following the rise in fuel prices. Dorodjatun has said there were complaints that much of the funds had missed their targets.

He promised to audit the use of the funds, starting from last year's allocation.