Tue, 15 Jan 2002

Government ready to raise fuel prices

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The government is now ready to raise fuel prices after all necessary preparations have been completed, according to Minister of Energy and Mineral Resources Purnomo Yusgiantoro.

"The talks are crystallizing now ... but, once again, the fuel prices hike is not my own decision. It's a Cabinet decision," he told reporters on Monday on the sidelines of the Gas 2002 Indonesia conference.

The government plans to raise fuel prices this month by between 20 percent and 25 percent. Many had initially expected the fuel price hike to take place early this month. The delay has caused various problems including the hoarding of kerosene, which is used by the underprivileged as a cooking fuel. Experts have called on the government to immediately raise the fuel prices to help end the hoarding and resultant scarcity of kerosene.

Purnomo said that the government had to make serious preparations before raising fuel prices including preparing a mechanism to launch the compensation fund to mitigate the effect of the fuel price hike on the poor, and to calculate the impact on the price of other basic commodities.

Purnomo said that the government would provide a compensation fund of around Rp 2.8 trillion (US$269 million), higher than the initial plan of Rp 2.2 trillion.

He said that hoarding would not threaten fuel supplies because the country's fuel stock was sufficient to cover demand over the next 25 days.

Fuel hoarding, especially of kerosene, has become rampant in the last few weeks as some hope to profit from selling their stock at the new prices.

Such activity is considered illegal under the country's new oil and gas law, with a punishment of three years in prison and a maximum fine of Rp 30 billion fine.

Purnomo also said the higher prices of other basic commodities due to the impact of the new fuel price plan remained within the range of government expectations of up to 10 percent.

Previously, the government, with approval from the House of Representatives, planned to increase fuel prices by an average of 30 percent, which was made based on an oil price assumption in the 2002 state budget of $22 per barrel.

But with the current plunge in international oil prices, Purnomo said that the government could afford to raise fuel prices at a lower rate while cutting the subsidy as initially planned.

The government will provide a fuel subsidy of Rp 30.37 trillion, as stipulated in the 2002 state budget.

Last year, the government allocated about Rp 54 trillion to Rp 56 trillion for the fuel subsidy.

Fuel prices are a very sensitive issue in the country. A hike in fuel prices was a contributing factor to the fall of President Soeharto in mid 1998.

Separately, economist Sjahril from the Alliance for New Indonesia blasted the government for delaying the fuel price hike, saying it only benefited profiteers who hoard and smuggle the fuel.

"The House had agreed with the hike plan on Jan. 1, as did the International Monetary Fund. So why has the government delayed the hike for another two weeks?" he said.