Gas Subsidies Not a Silver Bullet for Reducing Layoff Risks in Industry

The government’s plan to provide gas price incentives for industry is considered capable of helping to suppress the potential for layoffs, particularly in energy-intensive sectors such as ceramics. However, the policy is deemed insufficient to resolve the issue of layoffs triggered by various structural factors. Mohammad Faisal, Executive Director of CORE Indonesia, stated that rising energy costs, especially liquefied natural gas (LNG), have increased production costs for several industries. “The factors causing layoffs are actually far more complex. One of them is the increase in production costs caused by rising energy costs. Many industries depend on gas, for example the ceramics industry which is energy-intensive,” Faisal said on Monday (29/6). He noted that the surge in international energy prices has significantly raised production costs, prompting companies to implement efficiency measures, including workforce reductions. The government’s policy to lower industrial gas prices from around US$23 per MMBtu to US$13 per MMBtu is therefore seen as providing breathing room for businesses. “With government incentives in the form of subsidies so that domestic gas prices fall, it will certainly greatly help the industry and reduce the tendency for layoffs. Usually, when production costs rise, companies will make efficiencies, and the most common step is reducing the number of employees,” he explained. However, Faisal stressed that the gas subsidy only addresses one cause of layoffs. He explained that the recent spike in gas prices due to the escalating conflict in the Middle East is a new phenomenon, whereas the wave of layoffs has been ongoing for several years. “Can it completely overcome the potential for layoffs? Of course not, because the causes of layoffs are far more complex. This problem existed before the rise in gas prices due to the Middle East conflict,” he said. Faisal assessed that the government also needs to address other issues affecting industrial competitiveness, ranging from competition in domestic and export markets, unsynchronised industrial policies, to obstacles in importing raw materials and various trade barriers in export destination countries. “To suppress the potential for layoffs, besides providing energy cost incentives, the government must also look at other factors beyond the gas price increase that have been causing companies to implement efficiency measures,” he concluded.