Govt planning to remove all fuel subsidies

Adianto P. Simamora, The Jakarta Post, Jakarta

The government said on Wednesday that due to continuing budgetary constraints it planned to entirely remove fuel subsidies and to raise power prices by an average of 6 percent every quarter starting next year.

The plan would raise the maximum prices of fuel sold at gas stations from the current 75 percent to 100 percent of international market prices.

"We'll reduce fuel subsidy spending next year to Rp 15.87 trillion (about US$1.74 billion), or down 52 percent from this year's spending of Rp 30.5 trillion," Minister of Energy and Mineral Resources Purnomo Yusgiantoro told the House of Representatives' Commission VIII on energy affairs during a hearing.

Exempted from the new pricing policy is kerosene for household use -- currently sold at Rp 600 a liter and which the government plans to subsidize until 2004.

The new pricing scheme requires the House's approval.

Fuel pricing policy is seen as a politically sensitive issue as consumers here have long been accustomed to generous subsidies.

But since the 1997 economic crisis, the government's priority has shifted to paying off its debts, forcing it to gradually eliminate fuel subsidy spending from the state budget.

To avoid recurrent violent protests every time it plans to hike fuel prices, the government has pegged them to world market prices since January of this year.

State-owned oil and gas company Pertamina, which purchases and distributes fuel, announces monthly price adjustments based on the Mid Oil Platt Singapore (MOPS) average price movement.

Purnomo added that subsidies on electricity would also be reduced with an average 6 percent increase in power charges every quarter starting next year.

The planned increases in fuel and power prices drew immediate criticism from the Indonesian Consumers' Foundation (YLKI).

"The government seems to forget that our local purchasing power is far lower than that in other countries," YLKI executive Muhammad Iksan said while urging the government to delay the plan.

Lili Asdjudirejo, executive director of the Indonesian Textile Association (API) agreed, adding that the rise in energy costs would undermine the ability of local producers to compete with imported textile products.

"We hope our government will make the right decision and consider the fate of local industry," he said, explaining that local producers were already burdened by various unnecessary and often illegal charges.

The labor intensive textile industry is among the worst hit by the economic crisis and a gloomy global export market has now further eroded the chances of a recovery.

Djimanto, the secretary-general of the Indonesian Footwear Association (Aprisindo), suggested that the government consider the woes of domestic industry and postpone the fuel price hikes.

"We agree to the plans for subsidy cuts. However, next year isn't the right time as many local firms are still suffering heavy losses," he argued.