House proposal on higher fuel price rise rejected

JAKARTA (JP): Coordinating Minister for the Economy Rizal Ramli said on Thursday that the demand of the House of Representatives to maintain the fuel subsidy at Rp 41.3 trillion (about US$3.75 billion) was not realistic as it would cause current fuel prices to double.

Rizal said that such a price hike amid current social and economic conditions would create serious problems.

Speaking to reporters following a Cabinet meeting, he said that Finance Minister Prijadi Praptosuhardjo had been tasked with convincing legislators that the idea of raising fuel prices by 100 percent was not a wise move considering the current situation.

"Under the current social and political situation, it is not wise to raise fuel prices by 100 percent. If this happened, there could be devastating social and political implications," he said.

Raising fuel prices is a politically sensitive issue in the country. Former president Soeharto was toppled following a massive increase in fuel prices in March, 1998. The current beleaguered President Abdurrahman Wahid has been under pressure from the House to step down.

The House state budget task force earlier proposed that the fuel subsidy in the 2001 state budget should be maintained at Rp 41.3 trillion, compared to the government proposal of around Rp 60 trillion.

The Rp 41.3 trillion subsidy was proposed by the government in January and approved by the House. But because of the sharp plunge in the rupiah, the subsidy would jump to Rp 66 trillion, threatening the 2001 state budget deficit to widen to a dangerous level of as high as 6 percent of gross domestic product.

In a bid to help maintain the deficit at a safe level, the government proposed to the House to cut the subsidy from Rp 66 trillion to Rp 60 trillion by raising fuel prices by an average of 30 percent in the middle of June.

But the House insisted on a lower fuel subsidy on the grounds that much of the heavily-subsidized fuel products had been smuggled out of the country. Legislators said that the fuel subsidy must be minimized to discourage fuel smuggling.

Rizal agreed that fuel smuggling must be stopped, but the fuel subsidy must be cut gradually, not drastically as demanded by some legislators.

Both the government and the state oil and gas company Pertamina failed to convince legislators on Wednesday that the Rp 60 trillion fuel subsidy was a reasonable figure.

Legislators said that the 56.8 million liters of domestic fuel consumption projected by Pertamina for 2001 was not the real fuel demand because much of it had been "allocated" to fuel smugglers.

Since the start of the debate on the fuel subsidy proposal between the House task force and the government on Tuesday, legislators had insisted that Pertamina provide them with data on the real domestic fuel demand.

The size of the projected fuel volume will decide the amount of taxpayers' money allocated for the fuel subsidy.

On Thursday, the House task force failed to reach an agreement with the government on the fuel subsidy issue after Pertamina failed once again to convince legislators about the volume of real domestic fuel consumption.

Head of the House task force Benny Pasaribu said late Thursday that a final decision was expected to be made on Friday.

Meanwhile, Director General of Oil and Gas of the Ministry of Mineral Resources Rachmat Soedibyo said during the meeting that if the fuel subsidy was set at Rp 41.3 trillion, and consumption volume set at around 44 million liters for 2001 as demanded by some legislators, fuel prices had to be raised by an average of 77 percent.

Rachmat said that if consumption volume was set at 56.8 million liters, as projected by Pertamina, maintaining fuel subsidy at Rp 41.3 trillion would result in a 170 percent jump in fuel prices.

Separately, director general of financial institutions of the finance ministry Darmin Nasution said that the amount of fuel subsidy to be paid by the government to Pertamina in the first six months of this year already reached Rp 35.17 trillion.

He said that if the fuel subsidy was maintained at Rp 41.3 trillion, the subsidy for the next six months would have to drastically reduced to around Rp 1 trillion per month, compared to the previous amount of around Rp 5 trillion per month. (rei)