Government expects to raise fuel prices in July

Government expects to raise fuel prices in July

JAKARTA (JP): The government plans to increase fuel prices in
July after a delay of three months from its original schedule of
April due to mounting opposition from the public, a senior
government official said on Thursday.

Director general of oil and natural gas Rachmat Sudibyo said
he hoped that after the three-month postponement the public would
be fully aware of the urgency to raise fuel prices and accept the
move.

"We're geared up to introduce the planned price rise in July,"
Rachmat said on the sidelines of a discussion on fuel price
increases -- a preliminary event for the Jakarta International
Energy Conference 2000.

The government initially planned to raise fuel prices by an
average of 12 percent on April 1 in a bid to cut subsidy spending
to around Rp 18 trillion (US$2.25 billion).

Raising fuel prices was a prerequisite to obtaining a loan
from the International Monetary Fund (IMF), which demanded cuts
on subsidy spending for the April-December period of the 2000
fiscal year.

However, due to massive demonstrations against the price
hikes, President Abdurrahman Wahid postponed the plan on the eve
of April 1.

Rachmat said the delay had not affected the government's
agreement with the IMF.

The agreement, he said, only referred to an increase in fuel
prices within this year without specifying a date.

"There was no pressure to raise fuel prices on April 1," he
said, adding that the delay was acceptable to the IMF.

The IMF has demanded the government gradually raise fuel
prices so that they eventually reflect international market
levels.

The fund argued that phasing out the fuel subsidy would
encourage more efficient energy choices.

According to Rachmat, the government plans to completely scrap
the fuel subsidy by 2003, the year the ASEAN Free Trade Area
(AFTA) commences.

He said the cost of crude oil accounted for some 80 percent of
current fuel prices, while operational costs made up the
remaining 20 percent.

The government plans to raise the price of Premium gasoline to
Rp 1,150 (14 U.S cents) from Rp 1,000 per liter, automotive
diesel fuel to Rp 600 from Rp 550 per liter, kerosene to Rp 350
from Rp 280 and bunker fuel to Rp 400 from Rp 350 per liter.

Rachmat said current fuel prices were too low and had
discouraged the country from utilizing alternative energy
sources.

During the crisis, he said, many factories had stopped using
gas and had switched over to subsidized fuel for their
operations.

He added that most of the subsidized kerosene and automotive
diesel fuel were being utilized by factories instead of by the
poor.

Oil and gas expert Ramses Hutapea said subsidized fuel prices
only distorted the country's industrial competitiveness as they
did not reflect an industry's strengths.

"If we are to subsidize industry then do it with tax relief or
incentives," he said.

Econit analyst Arif Arryman, meanwhile, said that compensation
in the form of better social safety net programs should
supplement any fuel subsidy cuts.

However, he noted that Pertamina should be forced to improve
efficiency.

Richard Claproth, assistant to the coordinating minister for
the economy, finance and industry, said the government had been
holding talks in various regions to explain the importance of the
fuel subsidy cut.

According to him, the government still holds to its original
plan to protect the poor from the fuel subsidy cut by providing
cash aid.

The government has said it will provide Rp 350 billion in cash
aid to be channeled through post offices throughout the
country.(bkm)