Cement shortage puzzling

Cement shortage puzzling

President Soeharto did not mention anything about the current chaos
in the cement market in his speech when he inaugurated a new cement
plant in East Java yesterday. The cement issue might be too
insignificant for the President to comment on. But the bitter fact is
that the puzzling questions about the steep rise in cement prices since
July have remained unanswered. In the interim the cement prices have
increased further and further to reach more than twice as high as the
government-mandated local price references.

And the government seems powerless to do anything about the problem.

The consumers have accused the producers of profiteering. The
producers in turn have blamed the problem on speculation by
distributors, claiming that the volume of deliveries from their plants
are is than adequate to meet the domestic demand.

The government has persistently said that the cement prices should
not have risen so steeply because domestic production is running at the
normal rate and should be adequate to satisfy the domestic demand.
Moreover, the lid on cement imports has been opened to meet counter any
domestic deficit.

The more intriguing are the questions about the unusual cement
shortage in light of the fact that the marketing of the building
material, being considered a strategic commodity, has always been
regulated by the government. In addition, the government actually has
direct control of more than 75 percent of the national cement production
capacity because state companies account for over 33 percent of the
national capacity and the government owns 26 percent of PT Indocement
Tunggal Perkasa that accounts for 44 percent of the total capacity.

We cannot understand why the government seems to have always been
caught off guard whenever anomalies take place in the cement trade.
After all, this is not the first time such a questionable cement
shortage has occurred. Last November, cement also became a national
issue for similar reasons. The problem was solved only after the
government raised the local reference prices.

Judging from the arguments and counter arguments and the exchanges of
accusations, we can only come up with three painful assumptions.

First, the government has no accurate data on the real cement
capacity and actual cement production, nor on the domestic market
demand, and is not well informed of the mechanism of cement
distribution.

Second, the government is not really serious about maintaining
stability in cement prices, or is ambivalent in dealing with the major
cement producers.

Third, if the trading of such a heavily regulated strategic commodity
can degenerate into such chaos, there must be something fundamentally
wrong with the government's policy regarding the cement industry.

Business analysts, including those of the Ekonit economic and
business research group, have often suggested that the government expose
the cement industry to open market forces by abolishing the system of
market zoning and local reference prices and by opening up the domestic
market to imports. The government also should thoroughly investigate the
allegations by several new private investors that it is actually not so
easy to enter the cement industry. We have learned that even though the
industry is still open to new producers, new private-sector investors
often encounter "some barriers" to implementing their projects.

We think the latest cement crisis should prompt the government to
make an overall review of its policies regarding the cement industry and
trade, otherwise the government will find itself in an awkward and
seemingly powerless position every year. The first thing the government
should do now is to rule that cement imports will remain free because a
"stop-and-go " policy regarding imports will not encourage and not
provide ample time for independent trading companies to develop domestic
distribution networks.