Cement price increase gets mixed reactions

Cement price increase gets mixed reactions

JAKARTA (JP): The government's recent decision to increase the
local reference price of cement by 40 percent was received with
mixed reactions by government officials and business people.

Minister of Public Works Radinal Moochtar said yesterday that
the increase would not affect the development of the government's
public works projects.

"The cement price increase will not affect any of our on-going
projects because the contracts were signed long before the
increase," Radinal told journalists after meeting with visiting
South Korean Minister of Construction and Transportation Myung Oh
at his office yesterday.

Radinal said the price increase, effective last Friday, was
made just in time, when the new fiscal year of 1995-96 started.
Therefore, contractors will be able to use the new prices as
their reference in their bidding for the government's new
projects in 1995-96.

"What I'm worrying about is that, even though the reference
price has been increased, cement producers still cannot not
provide enough supplies on the market," Radinal said.

Last year, the country's nine cement producing companies, with
a joint annual production capacity of 22.9 million tons, could
not yet satisfy the growing domestic demand, which significantly
surpassed the projected demand of 20.9 million tons.

The government was then forced to import about 1.4 million
tons of cement and clinker -- a substance used in the production
of cement -- to meet the increasing demand. However, the imports
did not force the price to decline.

Data at the Ministry of Trade show that the average cement
prices at market places in January were recorded at Rp 9,026
(US$4.08), well above the government-set prices of Rp 6,555.

Investment

Maryadi Darmokumoro, president of the state-run toll road
operator PT Jasa Marga, said the official increase of cement
prices will force his company to reevaluate the investment value
of toll roads.

"The increase of cement prices will, of course, result in the
escalation of costs for the construction of toll roads. Thus, it
is necessary to adjust the value of investments in toll roads,"
Maryadi was quoted by Antara as saying.

He said that with previous official cement prices, the planned
investments for toll road construction were estimated to average
Rp 10 billion per kilometer. However, the exact investment value
would differ from one toll road to another, depending on the
amount of cement to be used.

The Indonesian Builders Association (Gapensi) yesterday voiced
its concern over the new reference prices, saying that it can
seriously affect the businesses of small and medium-scale
contractors.

Gapensi's Chairman Agus Kartasasmita called on the government
to revise the values of its projects which have been awarded to
Gapensi members, saying that the official cement price increase
will result in the escalation of costs in the construction.

"We have no problems with private-owned projects because we
can renegotiate with their sponsors," Agus said.

He said the cement price increase will benefit only cement
producers, not the consumers, especially those of Gapensi
members.

He said that 85 percent of Gapensi's 37,000 members are small
and medium-scale contractors.

Atyadi Mochtar, chairman of Gapensi's Semarang chapter, even
called on the government to revise the new reference prices,
saying that the 40 percent increase is too high.

"The ideal increase should be 10 percent, not 40 percent,"
Atyadi said.

Meanwhile, Faisal Basri, the director of the Management and
Economic Development Institute of the University of Indonesia,
said that the increase of cement prices will only create an
oligopolistic market, where producers can set cement prices at
whim.

He said the government-set reference price can not yet
guarantee that cement producers will not sell their product above
the set price. "A sanction should be given to those who violate
the set price."

Retailers in a number of cities yesterday sold cement above
the new reference price. In Semarang, for instance, cement was
sold at between Rp 11,000 and Rp 11,5000 per 40-kilogram sack,
well above the new reference price of Rp 8,290 for the city.
(rid)