House finally agrees to raise fuel prices

JAKARTA (JP): After a four-day debate plus intensive closed- door lobbying, the House of Representatives state budget task force finally agreed late on Friday to raise fuel prices by an average of 30 percent, as proposed by the government.

Under the decision, the price of gasoline will be increased to Rp 1,450 per liter (from the current price of Rp 1,150 per liter), automotive diesel to Rp 900 (Rp 600), and kerosene to Rp 400 (Rp 350). The three fuel commodities are the most widely used by the general public.

The price of industrial diesel and bunker fuel for industries will be maintained at 50 percent of the international market price.

"We agree to the government proposal to raise fuel prices by an average of 30 percent," House task force head Benny Pasaribu said at a meeting with Finance Minister Prijadi Praptosuhardjo.

Prijadi said that the price increase would be effective from June 15 as planned.

The fuel price increase is part of the government's measures to help maintain the 2001 state budget deficit at a safer level of around 3.8 percent of gross domestic product (GDP).

The sharp plunge in the value of the rupiah against the U.S. dollar and the rising domestic interest rate have threatened a budget deficit as large as 6 percent of GDP.

The government, therefore, has proposed a revision of the state budget in line with macroeconomic influences, particularly the rupiah exchange rate value and interest rate.

Without fuel price increases fuel subsidies could explode to around Rp 66 trillion, from the initial estimate of Rp 41.3 trillion, due to the drop in the rupiah.

To curb the deficit, the government has proposed the fuel subsidy be reduced to around Rp 60 trillion by raising fuel prices by an average of 30 percent.

The House task force decided that the 2001 fuel subsidy will total Rp 53.7 trillion.

The task force, however, was undecided over the size of the total volume of subsidized fuels that will be produced by the state-owned oil and gas company, Pertamina, this year.

For the time being, the legislators agreed to the government revised estimate of 52.7 million kiloliters. The government initially set 2001 fuel volume at 54.8 million kiloliters. The reduction was made after assuming that 20 percent of the volume could be saved through efficiency measures and curbing fuel smuggling.

"The issue on fuel volume will be further discussed by the House Commission VIII (on mining and energy)," Benny said.

Benny added that the debate on the budget revisions was expected to be completed on June 14.

"The fuel subsidy issue is the major, and most difficult, component of the budget revisions. Now that this issue has been settled, we have resolved 75 percent of the problem," he said.

The House initially demanded that the fuel subsidy be maintained at Rp 41.3 trillion, meaning that fuel prices could soar by around 100 percent. Legislators reasoned that the fuel subsidy could be cut to around 44 million kiloliters (the volume sold in 1996) by improving Pertamina efficiency and curbing fuel smuggling out of the country.

Pertamina and the government, however, insisted that such a move could create fuel scarcity. Pertamina also said that it was difficult to estimate the actual volume of fuel smuggled out of the country.

Coordinating Minister for the Economy Rizal Ramli warned on Thursday that the House task force's idea was not reasonable because raising fuel prices by up to 100 percent in the current political climate could trigger severe social unrest.

Raising fuel prices is a politically sensitive issue in the country. The downfall of former authoritarian president Soeharto in 1998 had been partly due to an increase in fuel prices.

The House then decided to hold a closed-door session late on Thursday, which involved intensive lobbying by Pertamina and the government.

On Friday, the legislators displayed a completely different mood than in earlier debating sessions. There was no longer any strong resistance to the government proposal for the 30 percent increase.

"This is the most reasonable and least risky alternative," said one legislator. (rei)