Businesses are cautiously welcoming the government's plan to provide incentives for industries willing to convert from oil to using other alternative sources of energy amid high oil prices, which seem to be on course to breaking the US$100 mark a barrel.
While praising the approach, the Indonesian Chamber of Commerce and Industry (Kadin) warns incentives may not be enough as conversion attempts are still marred by the availability of alternative commodities, environmental issues and redundant regulations.
"There is the need for a holistic approach to addressing the energy conversion issue so all levels of government will support it," Kadin chairman Mohammad Hidayat told The Jakarta Post on Sunday.
Hidayat said the manufacturing industry in particular was facing a serious threat from rising oil prices, with the cost of logistics estimated to increase by 5 to 10 percent next month, which would further damage the penetration of products.
The issues hampering energy conversion, he said, include fresh capital injection for technology conversion, supporting infrastructure for coal distribution, the availability of gas, biofuel costs, environment and redundant conversion regulations.
"Using coal, in particular, has some repercussions on the environment, but there is the pressing need for cost efficiency. That is why the government must provide a national policy so there will be uniform treatment of the issue across the nation."
Although the type of energy conversion incentives are still being examined, the incentive plan was introduced last Friday by Coordinating Minister for the Economy Boediono. However, he said incentives would likely be in the form of tax cuts and ease on regulations.
Sofyan Wanandi, the Indonesian Employers Association (Apindo) chairman, shared Hidayat's opinion, saying it was tough for factories to shift to coal as there were too many obstacles including initiation permits, environmental permits, local government regulations and a coal-stockpiling requirement.
In the meantime, he said, the manufacturing industry was forced to make production cost adjustments due to the oil price surge, which could lead to many companies increasing the price of their products by up to 10 percent from the beginning of next year.
Energy analyst Kurtubi added converting to coal also involved the problem of delivery timeliness from coal producers to factories due to the lack of supporting infrastructure, especially in logistics.
"However, converting to coal is still the most probable scenario as other alternative sources of energy are harder to obtain," Kurtubi said.
Chatib Basri, head of University of Indonesia's Economic Research Center, said no specific calculations on the impact of oil prices on industries could be made as yet.
"Preparing incentives would be the right approach. However, it would be significantly more useful if the government continues to eradicate the red tape that contributes to the high cost of conducting business here," he said.