House demands higher fuel price increase

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)