Tue, 21 Jan 2003

Govt finally bows to public pressure and cuts fuel prices

The Jakarta Post, Jakarta

The government announced on Monday a reduction in fuel prices and discounts for certain electricity users following weeks of nationwide protests over the recent fuel and utility price hikes.

"The government today has set new prices for fuel to come into effect on Jan. 21 at midnight," Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti told a press conference following a cabinet meeting.

The price of automotive diesel is to be cut to Rp 1,650 per liter from the previous price of Rp 1,890 per liter, while the price of industrial diesel is reduced to Rp 1,650 from Rp 1,860. The price of heavily subsidized kerosene for industrial use is lowered slightly to Rp 1,800 from Rp 1,970.

The price of other fuel products, including premium gasoline and kerosene for domestic, stay the same.

"The new price for domestic oil products will be effective as long as world oil prices remain high," Dorodjatun said, pointing to an apparently impending U.S. attack on Iraq, and the situation in the Middle East and Venezuela as causes of uncertainty in the international oil market.

As a result of the price cut for industrial diesel, which is the primary source of energy used by state-owned electricity company PLN, the utility company would provide a monthly 2.5 percent discount for its customers in the business and industrial categories. The company would also provide incentives for household customers with capacities of 900 VA to use energy- saving light bulbs.

The government earlier this month decided to raise domestic fuel prices by between 3 percent and 22 percent, electricity prices by 6 percent every quarter, and telephone charges by an average of 15 percent to reduce costly subsidies and help ailing state-owned utilities.

But the simultaneous price increases angered both businesses, workers and other people, triggering weeks of protest. Some have even called on President Megawati Soekarnoputri and Vice President Hamzah Haz to step down.

Ex-authoritarian president Soeharto was forced to step down in 1998 due to widespread protests and riots that were partly triggered by an earlier fuel price hike decision.

The protests had prompted the government earlier to delay the increases in phone charges.

A number of organizations plan to continue their antigovernment protests despite the fuel price reductions, saying that they wanted a clean government. President Megawati has been strongly criticized over a decision to free former bank owners, heavily indebted to the state, from the possibility of prosecution for banking crimes committed in the past.

The country's international donors grouped in the Consultative Group on Indonesia (CGI), which convenes for a two-day meeting on Tuesday in the resort island of Bali to decide on fresh loans for the country, may not be happy with the price cut decision. The International Monetary Fund has long insisted the government eliminate expensive subsidies on fuel and electricity to create a sound fiscal management. Heavily subsidized fuel is seen as benefiting rich car owners and big business.

Indeed, the reduction in the prices of industrial diesel and electricity for industry seems to be a result of lobbying by the influential business groups that have been protesting the early January utility price hikes.

The government is trying to play down the impact of the new policy on the 2003 state budget.

Dorodjatun said that although the cost of the price reductions would be about Rp 1 trillion per month, it would not affect the budget deficit target as the government had extra money from the contingency fund, which was originally intended for emergencies.

The government would latter replenish the funds with the windfall profits from oil sales after obtaining the approval of the House of Representatives.