Public to pay 40% more on fuel

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.