Protecting Chandra Asri<\/p>\n
Controversy and the PT Chandra Asri Petrochemical Center seem
\nto be inseparable. Waves of heated debates have accompanied its
\nUS$1.6 billion olefin project since 1991. The latest one was set
\noff when the company told the House of Representatives last week
\nthat the plant would not survive if its products were not
\nprotected from imports by tariffs of between 35 percent and 40
\npercent.<\/p>\n
The request for high tariff protection obviously seems strange
\nnow because the catchword among the business world over the past
\nfour weeks has been \"we should gear up for free, open trade\".
\nThat theme is related to the startup of the World Trade
\nOrganization, which will manage and administer the new
\nmultilateral trade system next month.<\/p>\n
The government itself has been drumming up enthusiasm among
\nthe private sector to prepare itself for the consequences of the
\nagreements reached by the economic leaders of the Asia Pacific
\nEconomic Cooperation forum in Bogor, West Java, last month on
\nfree trade in the region by the year 2020 at the latest. That
\nmeans the business sector should be geared up for fiercer global
\nmarket competition.<\/p>\n
The company's request for high tariff protection strengthens
\nour suspicion that the revival of the olefin project in 1992 was
\ndesigned primarily to tap the highly protected domestic market.
\nThis suspicion is to a certain extent reasonable because the
\ndomestic shareholders of the project are such politically-well
\nconnected businessmen as Prajogo Pangestu, Bambang Trihatmodjo
\nand Henry Pribadi. Moreover, these businessmen and a number of
\nother powerful entrepreneurs are also the owners of chemical
\nplants that produce intermediate materials.<\/p>\n
The company's arguments that the costs of the project were
\nhigher than for similar projects overseas are in part legitimate
\nbecause the investors have to bear almost all the capital costs
\nof supporting basic infrastructure. But we wonder whether these
\nadditional costs could not be offset by the local availability of
\nnaptha -- the feedstocks for the olefins. Other major olefin
\nproducers, such as Singapore, South Korea, Taiwan and
\nJapan,depend almost entirely on imported raw materials.<\/p>\n
Such high tariff protection is obviously not conducive to
\nstrengthening the competitiveness of the manufacturing industry
\nas a whole, given the extensive use of plastic materials for
\nnumerous industrial products. If ethylene, propylene and
\npolyethylene were granted high tariff protection, the cascading
\nimpact on the downstream industries would be quite damaging
\nbecause intermediate petrochemicals, which are currently produced
\nby plants also owned by politically well connected businessmen,
\nhave been protected by high tariff walls.<\/p>\n
The government has yet to decide on Chandra Asri's request and
\nMinister of Industry Tunky Ariwibowo said his office is still
\nassessing the problem. And the current debates show an
\nencouraging trend towards more transparency within the
\ngovernment-decision making process in that several ministers have
\npublicly stated their views about issues related to such
\npolitically-well connected business groups. In the past, most
\nministers \"preferred safety\" by avoiding comments that might
\nantagonize powerful business conglomerates.<\/p>\n
Minister of Investment\/Chairman of the Investment Planning
\nBoard Sanyoto Sastrowardoyo, for example, has been fully
\nconsistent with the statement he made last August about the need
\nto protect the olefin plant in view of its strategic importance
\nto the manufacturing sector. But Minister of Finance Mar'ie
\nMuhammad, referring to the government's deregulation policy
\npackage last June, clearly ruled out the possibility of such high
\ntariff protection.<\/p>\n
We think the government would ring a confusing signal if it
\nfully approved Chandra Asri's request. But tariff protection of
\nup to 20 percent for a maximum five-year period may be
\njustifiable if Chandra Asri is willing to fully disclose the
\nstructure of its costs. If Chandra Asri cannot compete with 20
\npercent tariff protection there must be fundamental flaws in its
\nolefin plant. After all, domestic industrial users are sure to
\nprefer local procurement to imports if the price difference is
\nnot very large because local purchases speed up deliveries and
\ncan reduce their inventory costs.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/protecting-chandra-asri-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}