Government at odds with IMF over fuel price hikes

JAKARTA (JP): The government and the International Monetary Fund (IMF) are still at odds over the questions of when and how much to increase the price of fuel and electricity.

Minister of Mines and Energy Susilo Bambang Yudhoyono told reporters on Friday that the IMF had proposed hikes on these two commodities as early as January, while the government preferred to delay them until April, the start of the new fiscal year.

"We hope there won't be any price adjustments until we have a new budget settled," Bambang said.

The government and the IMF, which is leading a massive international bail out program for Indonesia, are currently negotiating a new set of programs to lift the economy out of the current recession.

The government is expected to sign a new letter of intent sometime this month and present its budget in the first week of January.

The government last hiked the price of fuel in May 1998, by between 25 and 70 percent, on the recommendation of the IMF. The measure led to massive riots that forced the government to scale back the increases. The damage, however, was done, and the unrest helped force then president Soeharto to resign on May 21.

Bambang did not disclose the rate of increase sought for fuel prices, but said the IMF had suggested a 40 percent increase for electricity, a figure which the government felt was too high.

He said he accepted the IMF's reasoning on the timeframe and the rate of increase for electricity as aiming at strengthening the Indonesian energy sector.

However, most people could not afford such a big hike in the immediate future, he said, adding: "We can't just demand a flat hike of 40 percent for electricity."

While not disclosing the government's own proposed rates of increases, he said the hikes should distinguish heavy users such as factories and low users such as households which used less than 450 kilowatts per hour.

Bambang, nevertheless, accepted that price increases in fuel and electricity were essential to restructuring state oil and gas company Pertamina as well as state electricity company PT PLN, both of which come under his supervision.

The government and IMF were in agreement on the agenda of restructuring the two state companies, he said.

At the IMF's behest, Pertamina was audited earlier this year by independent auditor Price WaterhouseCoopers for the period from 1996 to 1998, the result of which revealed a US$2 billion loss due to inefficiencies.

PLN's last audit by a public accounting office disclosed losses of Rp 9.16 trillion (US$1.2 billion) in 1998, 15 times worse than the previous year.

Bambang said that while PLN's special audit had yet to be completed, the result of both audits form the basis on which the restructuring program would be directed.

Bambang said he expected Pertamina to show real changes within two years. "By then, another special audit of Pertamina must reveal inefficiency losses close to zero," he said.

Separately, Pertamina President Martiono Hadianto warned on Friday that fuel subsidies would soar unless prices were increased.

"I fear that as long as fuel remains subsidized, there will be a distortion in fuel demand," Martiono was quoted as saying by Antara, following a ceremony celebrating Pertamina's 42nd anniversary.

The oil subsidy in the current fiscal year ending March 31 is estimated to have surged to Rp 25 trillion ($3.6 billion) from Rp 10 trillion originally budgeted by the government.

The 1999/2000 budget was calculated using an average oil price of $10.50 a barrel, but oil prices have hovered above $20 a barrel for the most part of the year. The high oil prices represent a windfall for the government as well as a burden because it has to fork out more to subsidize local consumption.

Martiono said with domestic fuel prices relatively cheaper, people tended to be wasteful and this meant greater government spending on subsidies. (03)