Three synthetic fiber manufacturers - PT Teijin Indonesia Fiber Corp., PT Indonesia Toray Synthetic and PT Sulindafin - have invested Rp 72 billion (US$7.13 million) on new machinery to cut costs and boost competition.
The new machinery, which will run on natural gas instead of costly and dated electricity, will reduce overall operational costs for the companies.
"These companies want to replace their *old* machines, which use electricity as an energy source, with *the new machines that use natural* gas to generate power," the secretary-general of the Indonesian Synthetic Fiber Producers Association (Apsyfi), Kustardjono Prodjolalito, said Monday.
Teijin, Indonesia Toray and Sulindafin had spent Rp 16 billion, Rp 32 billion and Rp 24 billion respectively on the upgrades, which will help them manufacture rayon, polyester and nylon among other products, he said.
The new machines are capable of slashing between 5 and 10 percent of the current energy costs incurred by the companies, he said.
While there were 18 synthetic fiber manufacturing companies in Indonesia in 2007, there are now only 12, with a lack of competition, including in terms of energy, leading to the closure of some players.
He said the companies had applied for a 10 percent discount on all the new machinery under the government subsidy program aimed at revamping the sector.
The domestic synthetic fiber industry is already facing a 10 percent hike in production costs, with global crude oil prices rising from $40 per barrel at the beginning of this year to around $70 per barrel by the third quarter this year.
If the government finally allows state-power firm PT PLN to increase power prices, then the synthetic fiber companies still using electricity-powered machines will feel the pinch.
PLN is still internally discussing a series of price-hike scenarios to be put to the government, with the hope being the price increase will be applied early next year.
PLN's average power rate is about Rp 630 per kilowatt per hour (kWh), while the average production cost reaches Rp 1,100 per kWh.
"So, these new machines will definitely reduce production costs, which will assist competitiveness," said Kustardjono.
The 12 producers have a combined capacity to produce 80 percent, or 1 million tons, of the installed capacity of 1.25 million tons per annum.
The industry's utilized capacity this year stands at between 60 percent and 70 percent, or between 750,000 tons and 875,000 tons, due to the impacts of the global downturn.
Despite inconclusive talks at PLN, the state electricity firm is likely to increase electricity rates by 20 percent.
Indonesian Textile Association (API) deputy chairman, Ade Sudrajat, said a 20 percent increase in electricity prices would cause operational costs in the textile industry to rise 6 percent.
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