Govt may scrap gas subsidies to state firms
JAKARTA (JP): The government yesterday considered eliminating its gas subsidy to some state-owned firms while maintaining its subsidy on fertilizer prices.
At a hearing with the House of Representatives's Budgetary Commission, Minister of Finance Mar'ie Muhammad said the government was sounding out the possibility of eliminating gas subsidies to state-owned fertilizer firms and other state-owned companies.
The gas subsidies would be eliminated to create competitive gas pricing and encourage more investment in the gas sector, Mar'ie said.
"If gas prices are low, and the returns on investment in the gas sector are also low, no one will be interested in investing money in that sector," the minister said.
The government subsidizes gas purchases by several state firms, including fertilizer makers.
The government requires state-owned oil and gas firm Pertamina to sell its gas to some state firms for $1 per million British thermal units, far below the commercial price of about $3. Pertamina then charges the government for the subsidy.
Mar'ie said the government's plan to eliminate gas subsidies was part of its program to reduce market intervention.
"Pricing cannot be set by a decree because it serves to distort the economy. Such government-set pricing usually looks good on the surface. If such a policy is maintained, it will eventually destroy everything," Mar'ie said.
The hearing, scheduled to close tomorrow, is deliberating the 1997/1998 budget and reviewing budgetary reports on the first half of the 1996/1997 fiscal year.
Questioned
The Budgetary Commission yesterday questioned the multi- subsidies on fertilizers, saying that they complicated calculations and encouraged inefficiency at fertilizer plants.
The commission suggested the government reduce gas subsidies, including those to state fertilizer firms.
Minister Mar'ie agreed with the suggestion.
"It is absolutely complicated to calculate, because fertilizer subsidies are currently given on inputs, that is the gas subsidies, and on outputs, that is price subsidies," Mar'ie said.
Mar'ie noted the government had spent Rp 47.5 billion (US$20.1 million) on gas subsidies to fertilizer firms in the first half of the 1996/1997 fiscal year.
The government's 1996/1997 budget allocates Rp 137 billion in subsidies to maintain a floor price for fertilizers.
"However, the fertilizer subsidy for the second half of the 1996/1997 budget alone will be higher than Rp 137 billion," Mar'ie said.
He said the possible increase in fertilizer subsidies would be caused by urea fertilizer output increasing from 3.5 tons to 4.4 tons in the current fiscal year, and the government paying more for fertilizers. (rid)