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)