Government ready to raise fuel prices

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.