VZCZCXYZ0003
PP RUEHWEB

DE RUEHAM #2525/01 1001350
ZNR UUUUU ZZH
P 101350Z APR 06
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 9486
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC 0260
RUEHXK/ARAB ISRAELI COLLECTIVE

UNCLAS AMMAN 002525 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG PGOV SOCI EPET JO
SUBJECT: JORDAN FUEL PRICE HIKES, "SAFETY NET" IMPLEMENTED 
 
REF: (A) AMMAN 2496;  (B) AMMAN 2452;  (C) AMMAN 1986 
 
SENSITIVE BUT UNCLASSIFIED.  HANDLE ACCORDINGLY. 
 
¶1.  (SBU) SUMMARY: Businesses, consumers, and government 
offices were moving rapidly April 9 to adjust to the fuel 
price hikes approved by the cabinet April 8 and implemented 
at midnight (see ref's).  In addition to a JD 61.7 million 
($87 million) "social safety net" program (Ref C) already in 
effect, the GoJ plans to spend JD 38.8 million ($54.7 
million) this year to keep electricity rates constant, 
bolster wheat subsidies for bread, and pay for the ancillary 
charges connected to government-controlled gas 
transportation and distribution.  Having saved the budget an 
annual expenditure on oil subsidies of $415 million (Ref C), 
the GoJ committed $142 million in one-time costs, much of 
which may be continued if the price of oil remains above $60 
per barrel.  Business contacts took the fuel hike regime in 
stride, looking to how it would affect domestic and 
international competitiveness.  QIZ owners in the low-margin 
textile business complained the new round of subsidies hurt 
recruitment of Jordanian workers to their factories.  Press 
coverage and commentary reflected public skepticism.  END 
SUMMARY. 
 
¶2.  (SBU) Rate hikes were in line with plans that had been 
circulated since March (Ref C), except that unleaded and 
premium gas increases were slightly higher than originally 
planned, apparently to offset what turned out to be the 
lowest rate increase of all - an 11.7 percent increase in 
regular gasoline to $2.30 a gallon.  (A listing of the rates 
is contained in para 11.) 
 
¶3.  (U) In public statements explaining the cabinet 
decision, the GoJ emphasized its commitment to lifting 
"severe pressures" on the budget resulting from fuel 
subsidies.  The government's Petra News Agency announcement 
explicitly linked this price hike to a series of such 
increases in a strategy to completely liberalize the fuel 
derivatives market by 2007.  GoJ announcements also 
highlighted cabinet decisions to put off an increase in 
electricity rates, and to further subsidize the price of 
wheat, thus effectively holding bread prices steady. 
 
¶4.  (U) Press coverage of the price hike coupled factual 
reporting with sample reactions by consumers, business 
leaders and government officials.  Separate reports of 
Islamist-led demonstrations in reaction to the hikes' 
implementation were buried on inside pages.  Initial 
editorial commentary reflected the public's perception of 
inequity.  Chief Editor Taher Odwan wrote today in the 
independent opposition Arabic daily Al-Arab Al-Yawm: "The 
government's justifications for stopping a large part of the 
support to the oil bill are very objective.., but that does 
not nullify the fact that the citizen, at the end of the 
day, is the one who is paying the price."  He concludes with 
a strong-worded proposal for tax reform to capture a greater 
share of capital gains. 
 
Other Subsidies, Social Safety Net 
---------------------------------- 
 
¶5.  (SBU) According to Ministry of Finance Secretary General 
Hamed Kasasbeh, the GoJ will spend a total of JD 61.7 
million ($87 million) for a "social safety net" program (Ref 
C) that officials confirmed had begun April 9.  Kasasbeh 
also listed JD 38.8 million ($54.7 million) in expenditures 
to pay for the cabinet-approved continuation of bread and 
electricity subsidies and other aspects of the government- 
controlled fuel refining and distribution system, as 
follows: 
 
-- JD 4.8 million to go to the Ministry of Industry and 
Trade (which purchases and sells wheat at reduced prices) to 
lower the cost of wheat by 11.56%; 
 
-- JD 24 million to electricity generating companies to keep 
electricity prices constant this year (avoiding a price 
increase that had been planned earlier for 2006); 
 
-- JD 4.5 million to oil and gas distributors, to offset 
their fuel costs and extra financial burdens; and 
 
-- JD 5.5 million to offset added costs of transporting 
crude oil via truck from Aqaba to the refinery in Zarqa. 
 
¶6.  (SBU) An aide to Ministry of Finance SecGen Kasasbeh 
explained to Econoff that a "social safety net" program 
would provide funding to Jordan's lower-income families.  He 
said a total 710,000 families (3.6 million individuals) were 
estimated to qualify for the program aimed at families with 
a total income of less than JD 1,000 ($1,410).  The aide 
said the program would continue for as long as international 
oil prices stood above $60 per barrel.  The formula for 
relief was set in three brackets of JD 400.  Family members 
with a total annual income of less than JD 400 ($564) could 
qualify for a payment of JD 25 each, up to a family limit of 
JD 150 ($212).  This payment would be split, half paid in 
April and half in September.  The per-person payments go 
down to JD 15 for family member income brackets of JD 400- 
800, and JD 10 for JD 800-1000. 
 
¶7.  (SBU) Payments will be made either through government 
payroll and pension systems or, for private sector families, 
at Jordan's 400 post offices.  Application forms were 
available at post offices on April 9, and some families had 
already filled them out and submitted them, according to the 
Ministry of Finance Sales and Income Tax Department, which 
will vet such private applications against tax records and 
make each payment through the same post office where 
application was made. 
 
Business Reaction 
----------------- 
 
¶8.  (SBU) Rudain Kawar, CEO of Kawar Group which includes a 
major transportation logistics company, said that he 
expected truckers to pass on the fuel rate increases almost 
immediately.  Kawar has a profitable business refining 
vegetable oil, mainly for export via truck to Iraq.  The 
company board had already met, he said, to review general 
plans for adjusting to the fuel price hikes.  He believed 
the board would soon settle on a salary/wage price increase 
in the range of 10-15 percent.  This would help employees 
deal with the hit to their household budgets, including 
expected inflation, he noted.  In the end, the prices his 
company charged in Iraq for vegetable oil would have to go 
up, which would make the company less competitive with 
others, including those who produce or trans-ship vegetable 
oil through Kuwait, he concluded. 
 
¶9.  (U) Halim Abu Rahmeh, CEO at the Jordan Exporters 
Association, said he believes that while in the short run 
Jordanian exporters would feel the negative impact of the 
price increases of fuel products, the long-term effect would 
be neutral since fuel product prices would reflect global 
rates and Jordanian exporters would become at par with world 
producers.  He added that Jordanian businesses need to find 
their comparative advantage.  A CEO of a major QIZ factory 
complained that the government's constant program of 
subsidies made it difficult to recruit Jordanians.  Instead, 
the predominantly garment manufacturers were hiring overseas 
contract workers who could produce at three times the rate 
of the average Jordanian.  The CEO is working with 35 other 
company heads to find 5,000 more Jordanians to join the 
factories.  Subsidies were not helping, he noted. 
 
¶10.  (SBU) Juma Abu Hakmeh, Director General at the Jordan 
Chamber of Industry, believes the effect of fuel hikes is 
decidedly negative, and estimates the cost to the 
manufacturing industry to be high.  He emphasized the added 
cost to industries that rely on fuel oil or diesel to heat 
up furnaces, such as pottery, ceramics, steel and cement. 
Fuel energy makes up about 30% of the cost of such 
industries - thus, their cost would go up by about 10%. 
Abu Hakmeh estimated that the inflationary effect would add 
between 1.5-2.0 percentage points to the annual inflation 
rate.  He did not hear of any strikes in the manufacturing 
industry in response to an IAF call for such industrial 
actions. 
 
Oil Derivative Rate Hikes 
------------------------- 
 
¶11.  (U) The rate hikes for Jordan's most commonly used oil 
fuel derivatives are listed below.  Ministry of Energy 
SecGen Khaldoun Qutishat said some of these prices were 
already using an "international parity pricing" (IPP) basis 
(Ref B) in a pilot program (jet fuel, heavy fuel for 
industry, and asphalt).  The cabinet has still not taken a 
decision on IPP pricing, he added. 
 
Gasoline (regular grade) increased 11.7% from 0.385 to 0.430 
JD/liter (equivalent to roughly $2.30/gallon) 
 
Gasoline (super grade) increased by 19.8% from 0.505 to 
0.605 JD/liter (roughly $3.23/gallon) 
Gasoline (unleaded) increased by 17.4% from 0.545 to 0.640 
JD/liter (roughly $3.42/gallon) 
 
Diesel for vehicles and heating increased by 43.2% from 
0.220 to 0.315 JD/liter (roughly $1.68/gallon) 
 
Diesel for ships, local and foreign, did not change and 
stayed at 370 JD/metric ton (roughly $522.6/metric ton) 
 
Fuel oil for electricity increased 65.0% from 100 to 165 
JD/metric ton (roughly $233.05/metric ton) 
 
Fuel oil for industrial use and for local and foreign ships 
increased 25.0% from 180 to 225 JD/metric ton (roughly 
$317.80/metric ton) 
 
Jet Fuel for the use of RJ (Royal Jordanian Airline) 
increased 7.2% from 0.345 to 0.370 JD/liter (roughly 
$1.98/gallon) 
 
Jet Fuel for foreign airlines increased 2.7% from 0.365 to 
0.375 JD/liter (roughly $2.00/gallon) 
 
Jet Fuel for local airline, other than RJ, increased 1.4% 
from 0.365 to 0.370 JD/liter (roughly $1.98/gallon) 
 
Jet Fuel for chartered flights increased 1.3% from 0.385 to 
0.390/liter (roughly $2.09/gallon) 
 
Kerosene increased 43.2% from 0.220 to 0.315 JD/liter 
(roughly $1.68/gallon) 
 
Cooking gas (liquid propane ga), per 12.5KG cylinder, 
increased 13.3% from 3.75 to 4.25 JD/cylinder (roughly 
$6.00/cylinder) 
 
Asphalt increased 27.2% from 173 to 220 JD/metric ton 
(roughly $310.73/metric ton) 
 
HALE