Government to end subsidies on jet fuel
JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said on Monday the government would scrap subsidies on jet fuel next month in adhering to its pledge to lift all fuel subsidies.
"The government is committed to gradually lifting all subsidies on fuels. Subsidies on aviation gasoline will be lifted in January 1999," Kuntoro said in a news conference after the installation ceremony for Martiono Hadianto, former director general of customs and excise at the Ministry of Finance, as new president of state oil and gas company Pertamina. He replaces Soegianto.
The government raised prices of fuel up to 71.34 percent on May 5 this year -- with jet fuel increased to Rp 600 (8 U.S. cents) from Rp 420 -- in line with its bailout agreement with the International Monetary Fund.
Following a public outcry, the government backtracked on the fuel hikes with the exception of jet fuel.
Before the increase, jet fuel was heavily subsidized and prices were maintained at rates significantly lower than international ones.
The price of jet kerosene closed at US$12.98 per barrel, or about Rp 608 per liter, on the spot market FOB Singapore on Friday, down from $14.8 per barrel on Tuesday.
According to Pertamina data, the country's annual consumption of jet fuel averages 8,500 liters, less than the production of Pertamina's refineries of 15,000 liters annually.
Kuntoro said earlier this year that with an assumed crude oil price of $14.5 per barrel and an exchange rate of Rp 6,000 per dollar, the government needed at least Rp 9.5 trillion in fuel subsidies for the current fiscal year.
He said fuel subsidies could increase by Rp 5 trillion every time the exchange rate declined by Rp 1,000 against the dollar.
The rupiah, which plunged to its lowest level of Rp 17,000 against the dollar in January, has rebounded to a range between Rp 7,500 and Rp 8,000 in the past three months.
In his speech at the installment ceremony, Kuntoro said Martiono, 53, was faced with the daunting task of improving the company's efficiency and maximizing the development of the oil and gas sector for the public's benefit amid slumping oil prices.
Martiono will also have to ensure the country's largest state company's readiness for global competition.
Martiono, a chemistry graduate of the Bandung Institute of Technology and the holder of a MBA from the University of Oregon, promised to continue the programs initiated by his predecessor in rooting out corruption, collusion and nepotism and improving efficiency.
He will face an uphill struggle to spruce up the tattered public image of the company, derided as the cash cow of former president Soeharto's family and its network of cronies.
The company recently divulged 159 of its contracts entered into with Soeharto's family and cronies. Most of the contracts have been retendered, renegotiated or annulled by Soegianto.
Asked if he would reshuffle the company's board of directors, Martiono responded: "What's the reason? We have to look at the case objectively. The principle is that there should be unity of programs and vision (among board members)."
Martiono was appointed by President B.J. Habibie from four candidates, which also included the president of publicly listed state tin mining company, Erry Riyana Hardjapamekas, and president of state gas distribution company Qoyum A. Tjandranegara.
Businessman Fadel Muhammad said Martiono was a tough, brave man who would be able to eradicate entrenched monopolistic practices.
"I also want him to open free competition in the country's oil and gas industry." (jsk)