The fuel price dilemma

Unable to resist the pressures at home but forced to yield to the International Monetary Fund's demand for an end to its fuel subsidies, the government has resorted to the half-measure of a two-tiered fuel tariff system.

Under the system announced on Monday, the price of fuel used for industries, international shipping and general mining will be raised by between 50 percent and 100 percent, effective next month. Exempted from the increase are kerosene, premium gasoline and automotive diesel fuel -- in short, those fuels that are widely used on a day-to-day basis by the population and have in effect become basic necessities for most Indonesians.

As Minister of Energy and Mineral Resources Purnomo Yusgiantoro explained, the government considered it wise to postpone raising the price of these fuels until Oct. 1 in order to prevent the already fragile political and social situation from worsening.

On first impression it may appear the Cabinet, which made the decision on Monday, has chosen a wise way out of the dilemma facing the government. Raising fuel prices at a time when pressure is mounting on President Abdurrahman Wahid to step down would certainly provide added ammunition to his opponents. On the other hand, not raising prices -- which is tantamount to ignoring the IMF's demand that Indonesia stop handing out subsidies to this vital sector -- would antagonize the international institution and further jeopardize the country's economic recovery.

According to the state budget, the government is obliged to raise fuel prices for all consumers by an average of 20 percent by April 1 to lessen its subsidy burden by some Rp 4.3 trillion -- or about US$409 million -- to Rp 41.3 trillion this fiscal year. Apparently, the government has deemed it wise to raise industrial fuel prices higher than expected in order to lessen the social impact of the price increase.

Foreign mining and petroleum investors and foreign-flagged ships, according to the minister, account for a mere 0.3 percent of the country's annual fuel consumption, which totaled 51 million kiloliters last year. Industrial customers account for about 23 percent of the nation's total fuel consumption, while the remaining 77 percent is consumed by households and transportation companies.

As the minister explained, the policy to maintain fuel prices at gas stations is aimed at making cheap fuel available to transportation companies that serve the public. However, since the government obviously cannot prevent affluent car owners from buying fuel at gas stations, the authorities are considering slapping some additional taxes on luxury car owners to compensate for the subsidies they enjoy at gas stations.

Through these measures, the government hopes to meet its target of reducing its subsidy burden by Rp 4.3 trillion this year -- something that not everyone sees as a probability. Whether that target can be attained depends in part on how effectively the scheme can be supervised in its implementation. With the resourcefulness certain dishonest individuals have shown in the past, the possibility exists that the cheaper fuel intended for the public will somehow be siphoned off to benefit industrial users.

Also, a respite of a mere six months for the general public before they too will have to pay higher prices for their fuel does not seem like much. Given that the prices of essential commodities often take their cue from kerosene and gasoline, an increase in the prices of these commodities should not be discounted.

Let us hope, though, that this decision on fuel prices does not lead to more trouble for the government and the country. It will serve us well to understand that the government was left with no other option. Since it cannot altogether please both the public and the IMF, it seems the government is compelled to travel the middle road where it can accommodate the wishes of both, even if only halfway.