US embassy cable - 03AMMAN2716

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002716 
 
SIPDIS 
 
E.O. 12958: DECL: 05/07/2008 
TAGS: EFIN, JO 
SUBJECT: JORDAN HIKES CONSUMER FUEL PRICES 
 
REF: AMMAN 2569 
 
Classified By: Ambassador Edward W. Gnehm.  Reasons 1.5 (b) and (d) 
 
1.  (C)  Summary. The GOJ raised prices of oil derivatives 
and by-products an average of four to eight per cent 
effective May 7, 2003.  Finance Minister Marto and other 
senior officials confirmed publicly and privately that this 
was the first installment in a plan to raise consumer 
prices of petroleum products to world levels -- exactly as 
agreed with the United States last year.  Initial public 
reaction to the decision has been muted.  End Summary. 
 
2.  (u)  The Cabinet decided on May 6 to raise consumer 
prices of virtually all oil derivatives and by-products 
effective May 7.  Price increases include: 
 
-- Cooking gas cylinders up from $3.53 to $4.23 
-- Gallon of regular petrol from $1.47 to $1.60 
-- Gallon of first-grade petrol (super) from $1.97 to $2.13 
-- Gallon of unleaded petrol from $2.27 to 2.40 
-- Gallon of kerosene and diesel from $0.64 to $0.69 
-- Metric Tons of fuel oil used in industries will rise 
   from $108.57 to $115.62 
 
3.  (u)  Finance Minister Michel Marto told the press that 
the government took the new measures "because all aid to 
the Kingdom from the United States, Japan, and the European 
Union is contingent on implementing our agreement with the 
International Monetary Fund (IMF) calling for the 
completion of reforms which started in Jordan in the past 
years."  He added that when the government prepared the 
2003 state budget it calculated the world market price for 
oil at $26/barrel, but in the past four months Jordan had 
to pay as much as $30 per barrel. 
 
4.  (u)  Reiterating points made by Prime Minister Abu 
Ragheb to the press last week (ref), Marto said that this 
was the first of a series of price increases that would 
eliminate subsidies on oil products.  He said, for 
instance, that a cylinder of gas costs at least $4.94 to 
produce.  With annual sales of 24 million cylinders of gas 
in the Kingdom, this means an annual loss of about $35.25 
million to the treasury.  Marto was quoted in al-Rai, the 
leading Arabic daily, as saying, "The government will 
gradually increase prices of oil products so that in three 
years time there will be no more subsidies." 
 
5.  (c)  In a May 7 meeting with ECON/C and a visiting U.S. 
Treasury team examining Iraqi accounts in Jordan, Marto 
elaborated that the Government's decision had been cleared 
by the King.  He confirmed that it was the first step in 
the plan described to the United States in November 2002 to 
raise consumer prices of petroleum taxes to international 
levels (including an appropriate tax) over a three-year 
period.  He said this initial increase would generate 
additional revenues of JD 4.5 million per month ($55 
million/year).  Additional increases would follow the 
schedule given to the United States.  Marto said that when 
he told the IMF mission chief about the price increases on 
May 6, the staffer praised the decision as further evidence 
of Jordan's ability to deliver on its commitments and meet 
its IMF targets. 
 
6.  (sbu)  In addition to the oil products price increase, 
the cabinet authorized an increase from 2 to 4% in the 
General Sales Tax (GST) rate applied to food and other 
basic commodities.  The cabinet also approved imposition of 
a 5% tax on interest income earned on bank accounts, which 
had previously been tax-exempt.  Marto said this rate would 
be raised to the income tax rate over time. 
 
7.  (C) Comment:  Synchronized with the price increases, 
the Public Transport Regulatory Commission raised fare 
schedules for public transportation vehicles using diesel 
and petrol fuel.  This is the fifth such increase in 
consumer prices over the past three years.  Marto predicted 
grumbling, but acceptance by the public, particularly in 
the context of the economic fallout on Jordan of the war in 
Iraq.  So far, we have seen no negative blow-back from the 
decision on the streets or in the press, though there was a 
run on filling stations overnight that led to long waiting 
lines throughout the city. 
 
8.  (C)  In post's considered opinion, the commitment 
Jordan made in November to raise oil product prices to 
world levels is solid.  In addition to the public 
statements of the government's intention, this is a policy 
of the King that will not change when governments or 
ministers change.  Planning Minister Awadallah, an economic 
policy confidant of the King, also told ECON/C on May 5 
that the King is completely on board with the policy of 
eliminating fiscal distortions, including Jordan's 
historical dependence on cheap oil, and will ensure that 
this policy is implemented. 
GNEHM