New diesel oil policy needs govt approval

JAKARTA (JP): A new policy requiring industries in the eastern part of Indonesia to pay diesel oil at international prices will not be applied until the government gives its approval, state oil and gas company Pertamina said on Friday.

Pertamina's director of supply and domestic trade Harry Poernomo admitted that Pertamina had plans to hike the price of diesel oil to the international price level in the region, but he said under the existing regulation the plan should be approved by the government for implementation.

"It's simply a plan and needs ministerial approval," Harry told reporters.

He was responding to sharp protests from the Association of Indonesian Fishing Companies (Gappindo) against the planned hike.

According to Gappindo, an April 20 directive from Pertamina meant that industrial users of fuel, including fishing companies, would have to pay for Pertamina's diesel oil in American dollars and at the international price.

Gappindo asserted that the policy would force many fishing boats to stop operations and said it was against the government's drive to attract investors to the country's least developed areas.

Pertamina now sells diesel oil at Rp 600 per liter as against the international price of about US$250 per ton, or Rp 2,000 per liter.

Industry sources blamed Pertamina's new policy on recent stories of smuggled fuel, where foreign ships allegedly bought Indonesian subsidized fuel.

But Harry said it had nothing to do with the smuggling.

He said the plan was part of the country's preparation to gradually phase out fuel subsidies in anticipation of the ASEAN Free Trade Zone (AFTA) starting in 2003, which requires all ASEAN countries to revoke fuel subsidies.

ASEAN groups Indonesia, Malaysia, Singapore, Thailand, Myanmar, the Philippines, Vietnam, Brunei Darussalam, Laos and Cambodia.

"There will be no subsidies once our market is open," he said.

He said Pertamina was seeking to gradually reduce fuel subsidies for large industries, not only in the eastern part of Indonesia but across the nation.

"That includes industries with foreign investment, export- oriented companies and those operating in bonded trade zones," Harry said.

He said that Pertamina had recommended the plan to the minister of mines and energy, but thus far the ministry had given no definitive response.

Asked when Pertamina expected to start reducing fuel subsidies for large industries, he answered "it might very well be this year".

The government planned to raise fuel prices by an average 12 percent in April, but mounting public opposition forced President Abdurrahman Wahid to delay the plan.

Raising fuel prices is part of an agreement with the International Monetary Fund (IMF) in exchange for obtaining the fund's financial bail out.

The IMF asserted that Indonesia needed to reduce spending on subsidies and said it would also encourage energy conservation as well as diversification.

Analysts have blamed the subsidized fuel prices for nourishing fuel smuggling activities. (bkm)