Government cancels plans to set international fuel prices

JAKARTA (JP): A senior government official indicated on Friday that the government had canceled its controversial plan of imposing a dual pricing system for fuel, under which foreign investors and export-oriented companies would have had to buy fuel at international prices.

Director general of oil and gas at the Ministry of Energy and Mineral Resources Rachmat Sudibyo said the government would impose a uniform pricing scheme for all industries in light of its plan to increase fuel prices.

The government said last month it had formulated a proposal requiring foreign investors and export-oriented companies to buy fuel at international prices. Meanwhile other firms, especially small and medium size companies, would continue enjoying the government's subsidies.

The proposal defines export-oriented companies as companies which sell more than 50 percent of their products in export markets.

The plan has drawn protests from the industries, which warned that it would encourage fuel smuggling, as well as discourage export activities and investment.

"After making some observations we have decided not to impose fuel prices in several categories. There will only be one pricing scheme," Rachmat told reporters after a meeting at the ministry.

He said the government realized the policy was unfair towards foreign investors and export-oriented companies.

"It's unfair that foreign investors have to pay higher costs than local firms while both in fact sell their products on the domestic market," Rachmat said.

Under the state budget, the government has to increase fuel prices by an average of 20 percent on April 1 to reduce the fuel subsidy by Rp 4.3 trillion (US$430 million) to between Rp 44 trillion and Rp 45 trillion in the 2001 fiscal year.

But, thus far, the government remains undecided as to whether it will raise the fuel prices on schedule.

Separately, President Abdurrahman Wahid said on Friday the government had been forced to raise fuel prices by the International Monetary Fund (IMF), which had pledged a US$5 billion bailout package for Indonesia.

Abdurrahman added that the IMF had wanted the government to entirely scrap the fuel subsidy and other subsidies over three years.

"But we have insisted to the IMF that if the fuel subsidy is to be scrapped thoroughly and immediately, the public will suffer," the President said.

Therefore, he added, the government would raise fuel prices only gradually but the timeframe for the measure as well as the amount of the increase would have yet to be decided by the Cabinet at a meeting scheduled for Monday.

"Fuel subsidies will be scrapped gradually and in consideration of the public's situation," Abdurrahman said after holding a prayer at a mosque in South Jakarta.

The plan for a fuel price increase has already drawn protests from many politicians and analysts, warning that it could provide greater ammunition for Abdurrahman's political opponents to hit the President and eventually unseat him.

The President is already in an embattled position following the recent censure issued by the House of Representatives over his alleged involvement in several financial scandals.

Fuel prices have always been a sensitive issue in the country The fuel price increase in May 1998 caused public protests, assisting the tumult which ultimately toppled then-president Soeharto. (jsk)