INDONESIAN GOVT LIKELY TO RAISE FUEL PRICES IN JUNE

By Andi Abdussalam

Jakarta, May 1 (ANTARA) - Amid the upward trend in crude prices in the world market which have reached US$120 per barrel, the government is likely to raise domestic oil prices in June in an effort to reduce subsidy and alleviate the state budget's burden.

        "The fuel oil price hike issue will eventually be decided politically. To take the decision is not easy," Energy and Mineral Resources Minister Purnomo Yusgiantoro said on Wednesday.

        The government is still studying a proposal by the Indonesian Chamber of Commerce and Industry (Kadin) for an increase in the prices of subsidized fuel oil as part of efforts to address skyrocketing fuel subsidy due to the surging global crude prices.

        The global crude prices which are hovering at US$120 a barrel are expected to push up fuel subsidy to more than Rp125 trillion.

        "President Susilo Bambang Yudhoyono has hinted that raising the prices of subsidized fuel oil is the last option," the minister said.

        An ANTARA source said on Tuesday evening however that the finance ministry was now evaluating a plan to raise subsidized fuel oil prices by 28.7 percent in June.

        It was said that the price of premium gasoline would be raised from Rp4,500 to Rp6,000 per liter, diesel oil from Rp4,300 to Rp5,500 per liter and kerosene from Rp2,000 to Rp2,300 per liter.

        The source said with the proposed fuel oil price hikes the government would be able to save up to Rp25.877 trillion in fuel oil subsidy funds from the state budget.

        About Rp11.5 trillion of the Rp25.877 trillion saved would be allocated as cash assistance funds for 19.1 million poor families in the June 2008 - May 2009 period with each family to receive Rp100,000 per month.

        Observers said the government's plan to raise fuel oil prices by an average 28.7 percent next June is unfair to small people because it will be a hard financial blow to them, though the government will provide cash assistance.

        "This reflects the government's unwillingness to work hard. If it handles fuel oil issues well, it can avoid losing funds. Raising prices will only harm the interest of small people," Ichsanuddin Noersy said.

        Noersy mentioned that the government should first work hard to minimize oil theft through cost recovery, examine the difference between oil production at rigs and the volume of oil in tankers, probe oil corruption, optimize production, open new investment opportunities, revitalize oil refineries and reorganize the downstream oil sector.

        "If the government has done all these but still bears a new burden, then it can proceed with raising fuel oil prices," Noersy added.

        Noersy said that small people would bear the brunt of the oil price increases although the government would introduce various programs for the poor. The subsidy program for the poor is temporary in nature while the impact of oil price hikes would be permanent. "The government should not announce the fuel oil price hikes at will," he added.

        Criticism was also raised by economic observer Tony A Praseyantono. He said that the average increase of 28.7 percent in fuel oil prices is too high and could cause panic among the people.

        He said he agreed with the government's intention to increase fuel oil prices based on its need to reduce its fuel oil subsidy but before doing it the government should also take into account the people's objective and psychological conditions. "I think, psychologically, a logical increase should not exceed Rp1,000 per liter because it would be objectively acceptable to the people," he said.

        So, he said, the increase should not merely be based on mathematical assumptions but also on considerations of the people's financial capability.

        The Organization of Land Transportation Operators (Organda) has also rejected the government's plan to raise fuel oil prices by 28.7 percent. "I absolutely reject the plan. Even now, transportation cost takes 30 percent of our income per capita while in many developed countries, the portion is only 10 percent," Organda chairman Murphy Hutagalung said.

        Murphy said, fuel oil price increases were normally always followed by hikes in transportation rates. But under the current circumstances where people's purchasing power had declined, operators could not raise their rates.

        At the same time, public transportation operators would also be affected as the prices of spare parts would go up as well. "It happened in 2005 when fuel oil prices increased but the world oil price then had not risen like it has now." he said.

        In the meantime, an economist of PT Bank Danamon, Anton Gunawan supported the government's plan to raise subsidized oil prices. "If the government has a plan to increase domestic oil prices it should not delay it because otherwise it would create uncertainty and would harm the country's economy," he said.

        He said the government should raise the oil prices soon because it would provide certainty for investors. "The bond market is waiting for it," he added. (T.A014/A/HAJM/B003) 2. 21:00. (T.A014/A/A014/B003) 01-05-2008 00:21:50