Four factors cause cement mart distortion
Four factors cause cement mart distortion
JAKARTA (JP): Oligopolistic practices, collusion between
producers and distributors, regional zoning of marketing and the
government-set local price references are major causes of annual
cement market distortion in the country.
"Those four factors should be eliminated if we want to solve
the country's continual cement shortages," economist Rizal Ramli
told reporters here yesterday.
Shortages occur every year, particularly during a dry season
when construction activities increase, even though the domestic
utilization of cement is lower than the country's total
production capacity.
Domestic demand for cement, according to Minister of Industry
Tunky Ariwibowo, is estimated at 20.1 million tons this year,
while the country's cement companies have a total production
capacity of 21.3 million tons per annum.
Rizal said that oligopolistic practices within the cement
industry allows the companies to set prices at whatever level
they wish.
He said that the producers, one of which controls nearly 50
percent of the market share, frequently urge the government to
increase local price references to unreasonable levels on the
grounds that production costs have increased.
Citing an example, he said that when the electricity billing
rates rose by 11 percent early last year, "they urged the
government to raise cement prices by nine percent, far higher
than 1.65 percent. This was their actual increase in the cost of
production resulting from the power hikes."
He said that costs for cement production in Indonesia are
actually low because it is supported by the low costs of energy
and labor combined with an abundance of raw materials.
Rizal, who is also the managing director of a consulting and
research agency Ekonit, said that it was intolerable to allow a
single private producer to control more than 30 percent of
domestic cement market share because it is against the
Constitution.
PT Indocement Tunggal Prakarsa, a company controlled by tycoon
Liem Sioe Liong, operates production units with a total capacity
of about nine million tons per annum, more than 42 percent of the
country's total capacity.
"The government, therefore, should lift the barriers for the
entry of everyone into the cement industry to reduce the
domination of a single producer," he said.
"The government should also stop providing licenses for the
expansion of a major producer or allowing it to acquire other
cement companies," he said.
He said that, now, the most important thing was restructuring
the industry with an aim of increasing efficiency.
The government should also abolish the price reference system,
which benefits producers rather than consumers, he said.
The recent increases in cement prices in several parts of the
country indicate that the reference system is not effective.
Two state-owned cement producers, PT Semen Padang and PT Semen
Tonasa, told the House of Representatives last week that they had
unilaterally raised prices to cope with increasing production
costs. Minister of Industry Ariwibowo said this week that their
unilateral actions were not against regulations.
"The current price references actually make cement producers
enjoy extremely high profit margins at an average rate of more
than 30 percent," Rizal said.
He explained that one of the country's major cement producers
enjoyed a gross profit margin of 45.8 percent or a net profit
margin of 40 percent in 1991. The decrease of its gross profit
margin to 34.9 percent last year was mainly caused by its
acquisition by another producer.
"The high profits resulted from a combination of high price
levels and low production costs," he said.
Rizal also said that the separation of ownership between
producers and distributors will reduce the oligopolistic power of
producers while encouraging competition among retailers.
He said the regional zoning of marketing has also given more
power to producers in controlling the market.(05)