Govt set to raise fuel, electricity prices soon

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto confirmed yesterday the government would soon increase fuel and electricity prices to cut the government's large subsidies.

He said he had sent President Soeharto the proposals for price rises for both commodities and believed the President would approve the proposals soon.

"We are waiting for the President's approval for the price rises. I think the signal will come soon," he said on the sidelines of a seminar titled The Deregulation of the Electricity Sector organized by the Foundation of the Indonesian Institute for Energy Economics.

He said the government had no choice but to hike fuel and electricity prices soon since government revenues were declining sharply due to the economic slowdown while the costs of supplying fuel and generating electricity were rising sharply as a result of the rupiah's steep depreciation.

"The monetary crisis which has beset the country since last July has greatly depleted the government's resources.

"We'd do better to spend our limited funds on drugs, food and education rather than on fuel and electricity subsidies," Kuntoro said.

The minister added, however, that the fuel and electricity subsidies would be decreased gradually so as not to adversely affect people's economic activities.

Under the revised state budget for 1998/1999 that came into effect at the beginning of this month, the government plans to reduce fuel subsidies to Rp 7.453 trillion (US$1.49 billion) from the original projection of Rp 10.07 trillion.

Pertamina said yesterday its production costs for kerosene and automotive diesel fuel were Rp 1,000 per liter on the basis of an exchange rate of Rp 8,000 per dollar. Their sale prices are currently Rp 280 and Rp 380 per liter respectively.

Analysts predict the highest price rise will most likely be imposed on gasoline (premium) which at present sells for Rp 700 (8.75 U.S. cents) per liter.

In the 1996/1997 fiscal year the country used 9.9 million kiloliters of kerosene and 19.6 million kiloliters of automotive diesel oil.

Kuntoro added that the planned price rises were in compliance with the recent agreement on economic reforms between the government and the International Monetary Fund (IMF).

The agreement stipulates that the government will increase domestic fuel and electricity prices in the fiscal year 1998/1999.

The smallest increase will be imposed on kerosene, the most widely used cooking fuel. Households with a monthly electricity usage of up to 250 kilowatt hours will also be spared tariff increases.

Former Mines and Energy Minister Mohammad Sadli and Mari Pangestu, an economist at the Centre for Strategic and International Studies, said during the seminar that they fully supported any government move to raise fuel and electricity prices.

"Higher fuel and electricity prices will surely increase the economic hardships of people. But if we delay raising the prices the country may suffer from hyperinflation of 100 percent to 200 percent," Sadli warned.

Mari supported the idea of gradually phasing out the fuel and electricity subsidies. But, Sadli suggested a bold step to stop the subsidies once and for fall.

"We'd be better off suffering one very painful beating than a series of milder blows," Sadli said. (jsk)