Government must regulate cement industry: Experts
Government must regulate cement industry: Experts
JAKARTA (JP): In the absence of appropriate legislation, the
government needs to outrightly regulate the cement industry to
prevent collusion among cement producers, experts said yesterday.
Herb Plunkett, a consultant in the Trade Implementation and
Policy Project at the Ministry of Trade, said here yesterday that
the regulation is necessary to prevent abuses of market power.
Plunkett suggested that the government license production to
limit the number of production sites that can be controlled by
any one group, both regionally and nationally.
A number of critics have said that the two largest private
cement producers -- PT Indocement Tunggal Prakarsa and PT Semen
Cibinong -- have acquired a controlling market share by colluding
with other cement producers and abusing their market power.
Currently the Salim Group, through Indocement, and Hashim
Djojohadikusumo's Semen Cibinong control practically all of the
country's cement production and distribution.
Due to their oligopolistic stronghold on the market, the
producers can control cement prices, without abiding by the
government's set prices and leaving cement users at their mercy.
To deal with the pricing problem, Plunkett suggested, the
government could require producers to post ex-factory prices for
cement. This, he said, would allow them to offer a uniform
delivered price which they would be free to vary at will.
"The addition of uniform prices is not administratively
complex. The regulator must ensure that cement can always be
purchased on an ex-factory plus freight basis by nearby buyers
and allow producers to offer a delivered price," Plunkett said at
the conference on economic deregulation in Indonesia.
In addition to retail prices of cement, the government's
latest regulation on cement prices -- called local reference
prices-- also includes the ex-factory price, set at Rp 6,350
(US$2.87) per 40 kilogram sack for all nine cement producers.
"These changes may be interpreted as an attempt to improve the
operation of the existing system," Plunkett said.
A number of local economists, including Rizal Ramli and Kwik
Kian Gie, have called on the government to abolish its pricing
policy as it is based artificial pricing and not market forces.
Plunkett, however, warned of the danger of completely
deregulating the cement industry in the absence of a national
competition policy in Indonesia, saying that it could result in
unregulated, market-collusion practices.
Larger firms, he said, could temporarily reduce prices in
certain markets to drive out smaller firms and thereby increase
their market share. Then they could more easily collude with
other producers to increase prices to the detriment of consumers.
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