Government denies plan to raise fuel prices

Aditya Suharmoko and Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Fri, 05/02/2008 1:33 PM  |  Headlines

State Minister for National Development Planning Paskah Suzetta has denied media reports the government is planning to raise fuel prices in June.

"There is no such a scenario... we will study the revised budget assumptions up to the second quarter of 2008 before deciding anything," Paskah said at the Finance Ministry on Wednesday.

On Tuesday, a lawmaker from the House budget committee and a businessman close to President Susilo Bambang Yudhoyono told The Jakarta Post that all key economics ministers had approved a plan to raise fuel prices by an average of 28.7 percent in June.

Under the plan, which is subject to further discussion with the President, the price of premium gasoline would be raised from the current Rp 4,500 (48 US cents) per liter to Rp 6,000, diesel would be raised from Rp 4,300 to Rp 5,500 and kerosene would be raised from Rp 2,000 to Rp 2,500.

Soaring crude oil prices have brought serious pressure to government spending. Using a US$95 per barrel oil price assumption, the government has allocated Rp 126.8 trillion, or about 12 percent of the its total spending, for fuel subsidies, bringing the budget deficit to Rp 94.5 trillion, or 2.1 percent of total GDP.

Analysts said fuel subsidies could soar to Rp 190 trillion if global fuel prices hovered above $110 a barrel.

Under a provision in the revised 2008 state budget, the government is allowed to raise fuel prices if the annual average Indonesian Crude Price (ICP) exceeds $100 per barrel and total annual fuel consumption goes above 37 million kiloliters.

Paskah said the state budget was still feasible as the West Texas Intermediate (WTI) crude oil price -- a benchmark for ICP -- was projected to average $101 per barrel this year.

The ICP between January and March stood at $103.1 on average, according to oil companies' data.

Elsewhere on Wednesday, the President said rising global energy prices posed a serious challenge to the economy in a country where fuel prices were subsidized.

"I'd like to be honest and frank that the problem we are facing is not light," Yudhoyono said in a televised speech in Jakarta as quoted by Bloomberg on Wednesday. "Problems relating to our economy are serious."

Coordinating Minister for the Economy Boediono also said the government was preparing options to anticipate the surge in oil prices. However, he refused to elaborate.

Finance Minister Sri Mulyani Indrawati said the government would opt for the choice that would minimize the impact on lower income consumers, whether it was limiting fuel consumption or raising fuel prices.

"We will calculate both the cost and benefit to the people in political and economic terms. We are making very detailed preparations for this," said Mulyani.

Economist Tony A. Prasetyantono said the government should raise fuel prices by a maximum of Rp 1,000 per liter so it would not reduce people's purchasing power.

Another economist, M. Chatib Basri, said the government should raise fuel prices by only 10 percent to take into consideration the high inflation rate.

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