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. (rid)