Government cancels plans to set international fuel prices

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)