House demands higher fuel price increase

JAKARTA (JP): The House of Representatives state budget task force surprisingly demanded on Wednesday a much higher fuel price increase than that proposed by the government.

Head of the budget task force Benny Pasaribu said that the fuel subsidy for 2001 should be maintained at Rp 41.3 trillion, compared to the government's proposal of more than Rp 60 trillion.

This will result in a much higher fuel price increase than the 30 percent average increase planned by the government.

"The preliminary conclusion (of the task force) is that the fuel subsidy must be maintained at Rp 41 trillion ... There will be no increase in the fuel subsidy," Benny said at a meeting with Finance Minister Prijadi Praptosuhardjo.

The final decision is expected to be made today after the government responds to the task force recommendation.

The Rp 41.3 trillion fuel subsidy set under the current 2001 state budget was approved by the House early this year. But because of the sharp plunge in the value of the rupiah against the U.S. dollar, the fuel subsidy could increase to around Rp 66 trillion, causing the state budget deficit to widen to a dangerous level of 6 percent of gross domestic product (GDP).

In a bid to help maintain the deficit at a safer level, the government planned to reduce the fuel subsidy to around Rp 60 trillion, with a result that fuel prices would be raised by an average of 30 percent in the middle of this month.

Benny played down concerns that a much higher fuel price increase would trigger widespread social unrest. He reasoned that fuel subsidy had never been enjoyed by the lower-income people, instead it had only benefited fuel smugglers and higher- income people.

"If this is clearly explained to the people, I think they will support it," he told reporters following the meeting.

He also dismissed the idea that the House decision was aimed at accelerating the downfall of the beleaguered President Abdurrahman Wahid.

The House has been making maneuvers to force Abdurrahman to resign and hand over power to the popular Vice President Megawati Soekarnoputri.

"If the fuel subsidy is maintained at Rp 41.3 trillion ... there will be consequences ... (Fuel prices) must be raised even higher otherwise there will be a serious impact on the economy such as inflation," Prijadi remarked briefly before the end of the meeting.

"This (the House decision) has to be studied first," he added.

Meanwhile, Director General for Oil and Gas of the Ministry of Mineral Resources and Energy Rachmat Sudibyo, who accompanied Prijadi at the meeting, confirmed that the House decision would result in much higher fuel prices.

He explained that if fuel consumption volume for 2001 was estimated at 56.8 million liters, the price of premium gasoline would be increased to Rp 2,200 per liter (from the current price of Rp 1,150 per liter), automotive diesel to Rp 1,400 (from Rp 600), kerosene to Rp 1,000 (from Rp 350), bunker fuel to Rp 1,300 from (Rp 400), and industrial diesel to Rp 1,750 per liter. The price of the latter which is allocated for industries has been raised recently by 50 to 100 percent from the previous level of Rp 550 per liter.

Rachmat said that if the fuel consumption volume was set at 51.8 million liters, the price of premium gasoline would increase to Rp 1,900 per liter, automotive diesel to Rp 1,500, kerosene to Rp 900, bunker fuel to Rp 1,200, and industrial diesel to Rp 1,400 per liter.

The House made the controversial decision after the state oil and gas company Pertamina failed to convince the legislators that the real fuel consumption volume for 2001 should be set at 56.8 million liters, a figure that would affect the size of fuel subsidy.

The legislators had earlier insisted Pertamina provide the actual consumption volume, not figures collected from the company's various distribution channels in the country, on the grounds that the Pertamina figure could have been fabricated to accommodate the rampant fuel smuggling business. But Pertamina failed to respond to this demand.

Legislators said that because the country's industrial sector was still running at a low capacity, the consumption volume should have been much lower, pointing out that the actual consumption volume in 1996 when the economy was still booming was only around 44.3 million liters.

They were certain that the high consumption volume would only benefit fuel smugglers because much of the country's heavily- subsidized fuel products had been smuggled out of the country.

Pertamina Arifi Nawawi admitted that under the 56.8 million liter consumption volume figure, some five million liters were assumed to be smuggled.

Meanwhile, Rachmat told legislators that if the consumption volume was forced to be set lower, and the actual demand turned out to be much higher, Pertamina would be forced to introduce an allotment policy.

"This could trigger a long queue for fuel. Are we ready for that kind of risk?" He asked.(rei)