Govt presses ahead with fuel price hike
The Jakarta Post, Jakarta
Despite potential objections from the House of Representatives, the government will press ahead with its plan to increase domestic fuel prices, saying it is only trying to fulfill the fuel subsidy allocation as required by the 2005 state budget.
"We respect the House, but the government must implement the budget, which the House passed into law, and which limits the subsidy to Rp 19 trillion," Vice President Jusuf Kalla told reporters on Thursday. "We have yet to meet this target."
The figure was stated in the 2005 state budget, and approved late last year by the House with an assumption that oil prices would average US$24 per barrel.
Kalla explained that without the hike expenditure for fuel subsidies would reach Rp 100 trillion -- taking into account the present oil price of more than $45 a barrel -- which is far more than the amount allocated in the budget.
Against this backdrop, the government has no alternative but to hike fuel prices in the near future, Kalla said, though he refused to say when the hike would actually be implemented.
Kalla asserted that both he and the President were not worried that such an unpopular decision would tarnish their image. "Our image would be worse if we could not deliver good education and health services because of lack of funds," he replied diplomatically.
Under the so-called compensation program, the government would allocate some Rp 10 trillion in welfare expenditure -- mostly on education and healthcare -- in addition to the Rp 7.8 trillion already set aside under the 2005 state budget.
Still, the government's plans will likely meet opposition from some legislators, who have voiced fears over the impact of the price rise on the poor. Top government officials and the House's budget committee were still discussing the issue at 9.30 p.m. on Thursday.
Among the main stumbling blocks in the lawmakers approving the plan is a request by the Commission for an audit of Pertamina's fuel production costs in order to calculate more accurately subsidy allocations for fuel prices.
Based on a rough calculations by the Ministry of Finance, with fuel costing about Rp 2,870 per liter, assuming an oil price of $35 per barrel, and with a current market price of Rp 1,810 per liter, this means that the government is paying a subsidy of Rp 1,000 per liter.
Roes Aryawidjaja, deputy to State Minister of State Enterprises for telecommunication, energy and strategic industries, warned that it would not be easy to accurately calculate Pertamina's production costs, as the state-owned firm is not only obliged produce and distribute fuel for commercial purposes, but also for public service obligations (PSO) also.
Roes added that a clear separation between production costs for PSO and for profit will only be applied sometime this year, meaning that the government will only be able to calculate real production costs for fuel sometime next year.
Elsewhere, Minister of Trade Mari Pangestu said her ministry has taken necessary measures to ensure the distribution of basic food items and to prevent price hikes due to higher fuel costs.
"We have met with related trade associations, and they have given a guarantee to provide sufficient stocks of their goods both before and after the fuel price increase," she said.
In Surabaya, former president Megawati Soekarnoputri expressed her disappointment over the government's plan, saying it was unnecessary and not in line with Susilo's promises during the presidential election campaign.
Although she could understand the government's rationale for the hike, Megawati said that it should not come at the expense of the people.
Meanwhile, observations by The Post have revealed that a shortage of kerosene -- mainly used by low-income people -- has spread throughout the city.
Several kerosene agents had run out of stock two days ago, and said that supply tanks, which usually come once a week, have not been arriving on time.