US embassy cable - 05AMMAN7283

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007283 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE ALSO FOR EB/ESC/IEC 
 
E.O. 12958: DECL: 09/11/2015 
TAGS: EPET, ENRG, PGOV, EAID, PREL, JO 
SUBJECT: UNSCHEDULED FUEL PRICE HIKE IMMINENT 
 
REF: A. AMMAN 5849 
 
     B. AMMAN 5725 
     C. AMMAN 5451 
     D. AMMAN 5311 
     E. AMMAN 5228 
 
Classified By: CDA David Hale for reasons 1.4 B, D. 
 
1.  (C)  SUMMARY:  Minister of Finance Adel Al-Kodah told 
Charge September 11 that the Government of Jordan (GOJ) would 
institute a second, unscheduled fuel price hike September 20, 
after consulting with the King on the subject the same day. 
The King had earlier explained to Charge that he was 
determined to accelerate the planned cuts, in light of higher 
world oil prices and the failure to gain additional 
assistance from Gulf states.  (After agreeing to the new 
schedule, PM Badran got cold feet over the weekend and had to 
be persuaded by the King's advisors late on September 10 to 
go forward with the new plan.) 
 
2.  (C)  The price increase -- likely to be about 12 percent 
for diesel -- would partially offset the continued rise of 
crude oil costs since the government last presented an oil 
subsidy-elimination plan to the IMF in June (Ref D).  This 
would be an additional increase since prices first rose July 
9; two other planned increases would continue on schedule in 
2006 and 2007.  The Minister did not state that the plan 
would achieve parity with world market prices.  Noting riots 
in Yemen earlier this year after the announcement of price 
hikes, Al-Kodah expressed the hope that advance planning 
would prevent such a reaction in Jordan, but complained that 
Gulf neighbors who could afford to give Jordan more oil were 
acting as if they were not fully cognizant of what the 
implications were for the region if fuel price hikes sparked 
riots here.  Al-Kodah plans to be in Washington September 21 
for World Bank/IMF Meetings and returns to Jordan on 
September 27.  END SUMMARY. 
 
Budget Revenue and Expenditure Picture Good 
------------------------------------------- 
 
3.  (C)  In a brief pull-aside from a signing ceremony, 
Minister of Finance Al-Kodah explained to Charge that the 
GOJ's FY 2005 budget planning was coming along, with revenues 
now projected to come in at not less than 355 million 
Jordanian Dinars (USD $500 million) above the original 
budget.  He also explained that the GOJ had succeeded in 
reducing capital expenditures by JD 200 million (by not 
starting new projects) and cutting general expenditures by JD 
220 million. (NOTE:  This tracks the austerity measures 
outlined in Refs A, B.  END NOTE.) 
 
Need to Keep Fuel Subsidies in Check 
------------------------------------ 
 
4. (C)  Turning to fuel subsidies, Al-Kodah noted that the 
GOJ had already saved JD 115 million with the July 9 fuel 
price hikes (Ref C).  But in a special consultation with the 
King earlier in the day to review fuel subsidies, a decision 
had been finalized to announce a cabinet-approved fuel 
increase on September 20.  Al-Kodah said this fuel price rise 
would save the GOJ about JD 40 million (USD $56.4 million). 
If the GOJ uses the same formula it did in the last price 
hike (Refs C, E), this would mean an additional increase in 
diesel and heating fuel of about 12 percent.  Al-Kodah 
explained the increase became necessary as the GOJ's revised 
budget projection of crude oil prices at USD $50/barrel (from 
an original of USD $42/barrel) was overshadowed by what 
appeared to be a projected average market price of about USD 
$64-65/barrel for the remainder of the budget year. 
 
Jordan's Gulf Oil Grants:  "Hardly Any Effect" 
--------------------------------------------- - 
 
5.  (C)  Regarding cash grants from Saudi Arabia, Al-Kodah 
said these had already been offset by oil price rises and 
consequently had "hardly any (net positive) effect" on 
Jordan's fiscal picture.  The Saudis were donating USD $22 
million a month since May 2005, he noted, but the donation 
was fixed in cash at a time when world oil prices were much 
lower, and when translated into actual oil, was far lower 
than the 50,000 barrels of oil per day the Saudis had been 
donating.  Charge referred briefly to high-level USG efforts 
to convince counterparts in Saudi Arabia, Kuwait and the UAE 
to donate more oil to Jordan.  The GOJ's further elimination 
of fuel subsidies might help convince potential donors that 
Jordan was sincere in its plans to end its dependency, he 
noted. 
 
6.  (C)  Referring to fuel price riots in Yemen and 
subsequent clashes that left a number of people dead, 
Al-Kodah said that the Gulf state leaders should look closely 
at what happened in Yemen when price hikes were announced. 
These issues have consequences that can seriously affect the 
region, he said.  He averred that Jordan would try to plan 
carefully to minimize any negative reactions to the price 
hikes, but could not say whether Jordan's streets would 
accept the price hikes or, conversely, stage demonstrations. 
 
7.  (C)  COMMENT:  Timed to follow widespread reports of fuel 
price increases worldwide in the wake of Hurricane Katrina, 
frequent references in the press to oil at $100/barrel, and a 
number of fuel hike increases in major world economies that 
heavily subsidize fuel prices, this fuel price increase has 
the appearance of being almost inevitable.  The big question 
for a government looking at a yawning deficit -- which 
Al-Kodah conservatively estimated might be 7.5 percent of GDP 
-- is whether the price hike will be enough. 
HALE