House agrees on 30% increase in fuel prices

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives budget committee approved on Monday a government proposal to increase fuel prices by an average 30 percent starting January next year, but delayed once again the completion of a crucial debate on the 2002 draft state budget.

The fuel price increase will reduce the government fuel subsidy and help ease the burden on the state budget.

"The 30 percent increase is final. We cannot afford an increase of more than that," committee chairman Benny Pasaribu said during the debate, which was also attended by Minister of Finance Boediono.

Benny also warned that the increase would be introduced gradually to avoid negative reactions from the public.

Fuel price increases have been a politically sensitive issue in the country as it affects almost all sectors in society.

The fuel subsidy reduction is part of the cash-strapped government's agreement with the International Monetary Fund, which has pledged a multibillion dollar loan to help the country resolve its economic problems.

Government spending on the fuel subsidy for next year is set to decrease from this year's Rp 53.77 trillion (US$5.33 billion).

The House budget committee, however, has yet to decide on the exact amount to be allocated for the fuel subsidy, pending further discussion on the subject.

The government previously proposed a Rp 32.92 trillion fuel subsidy.

Monday's session decided that the volume of fuel to be subsidized by the government would total 52.77 million kiloliters, which is below the 55.79 million kiloliters proposed by state oil and gas company Pertamina.

Pertamina had argued that its figure was based on the expected real fuel demand next year. But the House decision means that any excess demand would not be subsidized by the government, which would force Pertamina to sell at international prices.

The amount of fuel to be subsidized is 12.91 million kiloliters of premium, 19.97 million kiloliters of automotive diesel fuel, 1.7 million kiloliters of industrial diesel fuel and 6.85 million kiloliters of fuel oil.

During Monday's deliberation, the committee questioned Pertamina's ability to eradicate rampant fuel smuggling and improve the company's efficiency.

The massive government fuel subsidy has encouraged rampant fuel smuggling out of the country.

Director General for Oil and Gas Rachmat Sudibyo said that so far, although a special team had been set up to solve the problem, fuel smuggling had remained very difficult to deal with. He cited a low budget as the biggest obstacle.

Elsewhere, Benny ensured that despite the delay the committee would be able to complete the budget debate on Tuesday to allow the House plenary session to approve the proposed state budget on Wednesday, before the House starts its month-long recess.

"Hopefully the (plenary) meeting will go ahead as scheduled," he said.

The committee was supposed to complete the debate last week. The delay has raised concerns that the House might have to approve the budget after the recess period in December. This would create various problems, including difficulties for regional administrations to draw up their own budgets, which could in turn lead to fresh social and political unrest in the country.

"I hope there won't be any more obstacles (to finishing the job). We'll complete the debates tomorrow (Tuesday)," Benny said.

The committee had earlier approved the 2002 budget assumptions, which had to be revised amid the looming world economic slump. The assumptions include economic growth of 4 percent (from the original projection of 5 percent), a 9 percent inflation rate (from 8 percent), an exchange rate of 9,000 per U.S. dollar, Bank Indonesia promissory note (SBI) interest rate of 14 percent, oil price of $22 per barrel (unchanged).

The committee had also approved the various components of state revenue including tax revenue of Rp 219.63 trillion, and nontax revenue of Rp 82.25 trillion.

Tuesday's debate will focus on nonfuel subsidy issues including the planned subsidy for electricity, another sensitive and difficult issue.

The government has proposed a Rp 14.524 trillion nonfuel subsidy.