Public to pay 40% more on fuel

Dadan Wijaksana, The Jakarta Post, Jakarta

The public will pay up to 40 percent more for fuel by early next year, as the government insists on raising the price of the commodity in order to lower subsidy costs, Vice President Jusuf Kalla said on Tuesday.

The government has been facing increasingly higher subsidy costs, which has been soaring due to red-hot global oil prices.

"(The price hike is) projected to be about 40 percent," Kalla said on the sidelines of a seminar, adding that the government could no longer afford to shoulder greater subsidies for the commodity, which is largely enjoyed by car owners.

With the government maintaining fuel prices through the year, some Rp 10 trillion per month of the budget needed to be set aside for the subsidy, he said.

"That's the largest subsidy ever covered by the government in the history of this country.

"It is high time for the government to move away from populist measures that come at the expense of most people," said Kalla.

In the past, any effort by the government to raise fuel prices in order to cut down on the subsidy sparked protests, which often turned violent.

The sensitivity of the issue is such that former president Megawati Soekarnoputri decided against a price increase this year to preserve peace during the general elections.

However, concerns have been growing over the subsidy policy amid the surging global price of oil, which rose to an historic high of over US$55 per barrel several weeks ago before sliding recently.

On Monday, oil prices rose again with the North Sea Brent blend jumping by $1.18 a barrel to $45.75 and U.S. crude by 32 U.S. cents to $49.76.

The fuel subsidy is estimated to reach a whopping Rp 59.2 trillion this year on the back of the global oil price, against an initial projection of Rp 14.5 billion. In comparison, Rp 71.9 trillion has been budgeted for development spending this year.

The latest finance ministry data showed that the fuel subsidy has cost the government more than Rp 46 trillion as of Nov. 23.

In addition to being a huge burden on the cash-strapped budget, the fact that the subsidy is enjoyed largely by the haves -- and that it has encouraged the smuggling of subsidized fuel overseas due to wide price disparities -- has added pressure on the government to review the scheme.

A World Bank survey confirms that the subsidy scheme benefited the rich five times more than it did the poor.

Assuming a 2005 global oil price at $24 a barrel, the state budget has allocated a Rp 19 trillion fuel subsidy.

Minister of National Development Planning Sri Mulyani Indrawati assented that a fuel price hike of 10 percent to 40 percent was imminent next year, and that a government team was studying a modified, pro-poor subsidy scheme to replace the existing one.

However, Mulyani said any changes to the subsidy scheme would be consulted first with the House of Representatives before enacting.

Both Kalla and Mulyani said the provision of direct subsidies to the poor -- meaning additional subsidies in education, health care and others would be provided in exchange for fuel subsidy cuts -- was among the options being studied.