Costly chemicals<\/p>\n
The June 4 deregulation package exempted ethylene,
\npolyethylene, propylene and polypropylene, the building blocks of
\nplastics and synthetic fibers, from the scheduled tariff
\nreductions. It might be a simple coincidence that these
\nchemicals, of which almost US$800 million was imported last year,
\nare all produced by companies controlled by politically-well
\nconnected businessmen -- Prajogo Pangestu, Sudono Salim, Sigit
\nHardjojudanto, Bambang Trihatmodjo, Sudwikatmono, Henry Pribadi
\nand Ibrahim Risjad.<\/p>\n
Immunity from the tariff reduction schedule allows the import
\nduty on ethylene and propylene to remain at 25 percent and the
\nduty on polyethylene and polypropylene to stay at 40 percent
\nuntil both are cut to a maximum 10 percent in 2003. The ASEAN
\nFree Trade Area then comes into full operation with a tariff
\nrange of 0 to 5 percent on almost all manufactured goods.<\/p>\n
Last February, when the finance minister and the industry and
\ntrade minister slapped a 25 percent tariff on ethylene and
\npropylene, which are produced by PT Chandra Asri, the protection
\nwas supposed to be removed at the end of this month, but the
\nministers have since had to eat their words. Even the seemingly
\ntemporary tariff caused controversy by contradicting Indonesia's
\neconomic reform process.<\/p>\n
With polyethylene and polypropylene both protected by a 40
\npercent tariff, the government considered the ethylene and
\npropylene tariff increase a win-win policy. The polyethylene
\nindustry is, after all, dominated by Chandra Asri's annual
\ncapacity of 300,000 tons and PT Petrokimia Nusantara Interindo
\n(Peni) with 450,000 tons. The polypropylene industry is
\ncontrolled by PT Tri Polyta with an annual capacity of 340,000
\ntons. The Indonesian shareholders of Chandra Asri and Tri Polyta
\nare almost identical, comprising Prajogo, Bambang, Henry Pribadi,
\nSalim and Sudwikatmono. PT Peni is owned jointly by Sigit and BP
\nChemicals.<\/p>\n
Given the large imports of upstream and midstream chemicals,
\ntemporary protection of the petrochemical industry is warranted
\nto curb import growth amid the worrisome increase in the current
\naccount deficit. The deficit is estimated to reach $8 billion
\nthis year, almost 4 percent of the gross domestic product.<\/p>\n
However, permanent protection until 2003, as effected by the
\nlatest reform package, retards efficiency and, consequently, the
\ncompetitiveness of domestic industry. Given the wide use of
\nplastics and synthetic fibers by manufacturers, the tight tariff
\nprotection will increase costs for numerous downstream
\nindustries.<\/p>\n
The protection is raising eyebrows as well because most
\nupstream and midstream chemical plants are controlled by a few
\npolitically-well connected businessmen. For example, the
\ncountry's aromatics center, which will start manufacturing
\nparaxylene, benzene and olefin feedstocks in Aceh in 1998, is
\ncontrolled by Hutomo Mandala Putra through his Humpuss Group. The
\nmanufacture of ethylene dichloride and ethylene glycol is
\ncontrolled by Sudwikatmono, Salim, Risjad and Bambang. Plastic
\nfilm is dominated by Henry and Risjad.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/costly-chemicals-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}