Government at odds with IMF over fuel price hikes

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)