Govt hints fuel price increase might be necessary next year

Sat, 09 Jul 2005, 00:00 WIB | Source: JP

Zakki P. Hakim, The Jakarta Post/Jakarta

Responding to the recent fuel shortage in some areas of the
country and increasing oil prices in the world markets, Vice
President Jusuf Kalla has hinted the government will have to
reduce the fuel subsidy next year if it wants the economy to
progress.

"Our best option is to do a price (assumption) adjustment,
which is not a popular move. But it would be even more unpopular
if we burned the subsidy (money) on the streets," he said in his
speech opening the 13th Gaikindo Auto Expo at the Jakarta
Convention Center on Friday.

Kalla said global oil prices -- which have already hit US$61 a
barrel -- would force the government to spend as much as Rp 135
trillion (US$13.79 billion) this year on the fuel subsidy, with
half of it going on the transportation sector.

"As a country, which is still considerably poor, we can't
provide a subsidy of Rp 135 trillion for this one commodity," he
said.

The government has allocated a fuel subsidy worth Rp 76.5
trillion, on the assumption that oil prices average $45 a barrel
and annual fuel consumption reaches 59.6 million kiloliters.

He said Indonesia had become the biggest socialist country in
the world through disbursing 27 percent of its state budget to
subsidize a commodity.

"Assuming oil prices continue to rise -- and car sales and the
U.S. dollar strengthen further -- we might have to pay a fuel
subsidy of Rp 200 trillion next year, or about 30 percent of our
state budget if it stood at Rp 600 trillion, without a price
adjustment," he said.

Kalla said such a condition would hamper the economy and
prevent the government from developing infrastructure such as
roads, schools and hospitals.

He said it would be awkward for owners of Mercedes-Benz,
Volvo, BMW, Toyota Crown and other premium brand cars to enjoy
the subsidized premium gasoline.

"You may feel it's convenient to purchase fuel at a low price.
But if the people cannot eat, they will throw (things) at your
cars," he said.

Premium cars, however, require the higher quality fuel
Pertamax Plus to maintain their engines.

Nevertheless, Kalla said reducing car production was not the
solution and measures to reduce fuel consumption should be
promoted.

His call met with the auto expo's emphasis this year on
environmentally friendly technology.

Several carmakers at the expo are displaying their latest
innovations featuring alternative energy, namely the Mercedes-
Benz A-Class F-Cell, Honda FCX-V4 and Toyota Fine-S and Prius
cutaway engine.

Association of Indonesian Automakers (Gaikindo) chairman
Bambang Trisulo urged the government to look into the possibility
of alternative energy sources straightaway.

"We're the only country in the ASEAN region that is yet to
decide whether we will use gas, palm oil or gas-alcohol (gasohol)
as an alternative fuel. It's time to speed up the use of
alternative fuel," he said.

He pointed to the lack of infrastructure, such as refilling
stations, as a factor that could prevent the use of alternative
fuels for Indonesian-produced cars.

"Even in Cambodia, where the infrastructure is worse than
ours, they have already decided to use gas. Why can't we?" he
said. (006)