US embassy cable - 03AMMAN2717

C O N F I D E N T I A L AMMAN 002717 
 
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