Govt buys CPO from local firms at world price

JAKARTA (JP): The government paid international prices for crude palm oil (CPO) it purchased from local private companies and then sold it domestically to help stabilize the soaring prices of cooking oil, sources said over the weekend.

A source at the State Joint Marketing Office (KPB) said the government had bought 20,000 metric tons of CPO from three private firms: PT Darmex, PT Musim Mas and PT Bukit Kapur Reksa. It paid export prices for the CPO and then sold it at domestic prices to private refineries to process it into cooking oil.

The cooking oil will then be distributed to traditional markets to force the price of cooking oil down to below Rp 5,000, the source said.

"It is only a temporary move to guarantee a sufficient supply of cooking oil and to stabilize its prices, at least in Jakarta and other parts of Java," he said.

But he questioned the decision by which the government subsidized private companies.

He said the government bought cooking oil at US$660 per ton and received nothing in return because the companies did not pay the required 40 percent export tax.

"It should not be this way. It only benefits certain parties," he said.

Previous reports said that Darmex and other CPO exporters rerouted some CPO allocated for domestic markets, especially Java, to export markets.

Meanwhile, Kompas reported Saturday that one CPO refinery in Riau owned by PT Duta Palma, a subsidiary of PT Darmex, had been set fire to by local people who alleged the company had refused to sell its products locally.

The source said that not all CPO produced by state plantation companies (PTPNs) went to the domestic market as required by the government.

"The government should ensure that all CPO produced by PTPNs goes solely to the domestic market," the source said.

Minister of Forestry and Plantations Muslimin Nasution said he had ordered KPB to sell all CPO produced by PTPNs on the domestic market, but to no avail.

"It is not that simple. There are invisible hands which actively rule cooking oil distribution," Muslimin said.

He added that domestic consumption of CPO stood at 3.2 million tons per year, while PTPNs produced 1.8 million tons.

"PTPNs' CPO production is not enough to supply the domestic market. So we do need help from private companies," he said.

Another source at a private CPO producer said his company had been forced to sell CPO to the domestic market at Rp 3,500 per kilogram, the same level as the price of CPO from PTPNs.

"If we sell CPO overseas at $660 per ton minus an export tax of 40 percent, we can get 39 U.S cents per kilogram, or Rp 5,655 per kilogram at Rp 14,500 per U.S dollar. But we sell it to the domestic market at Rp 3,500 per kilogram. Imagine the potential losses we suffer.

"I still cannot understand why the government has ordered small producers like us to sell CPO locally, but it pays export prices for CPO produced by those giant producers," he said.

Last month, the government cut the distribution chain for cooking oil and made KPB and state distribution company PT Dharma Niaga responsible for ensuring the supply of essential commodities around the country.

The director general of domestic trade at the Ministry of Industry and Trade, Ilchaidi Elias, said the government would raise export taxes on CPO and its byproducts to between 50 percent and 60 percent from this week to prevent a further increase in cooking oil prices.

He said the increase in the export tax, which is currently set at 40 percent, was important to help slow down an export boom which has caused cooking oil shortages on the local market.

The chairman of Indonesian Palm Oil Producers Association (GAPKI), Derom Bangun, said Saturday the association would ask the government to reconsider its plan of raising export taxes for CPO and its byproducts.

He told The Jakarta Post from his home in Medan, North Sumatra, the planned export tax increases, if materialized, would heavily hurt the country's palm oil industry and discourage foreign investment in the sector.

This in turn would lead to a decrease in the government's foreign exchange earnings.

"I am optimistic that the government will review its plan. The 40 percent export tax for CPO is already too burdensome to us," Derom said.

He noted that many producers had become frustrated over the inconsistencies in the government's palm oil policy.

Derom said the country's palm oil producers called on the minister of industry and trade in a meeting on Tuesday not to hastily change the government's crude palm oil policy to avoid the perception among investors that Indonesia was inconsistent in its policies.

The producers also proposed that the government not raise export taxes to stabilize cooking oil's prices on the local market before trying other alternatives, including buying buffer stock.

"The current 40 percent export tax for CPO should provide the government with enough funds to purchase a buffer stock to stabilize cooking oil prices in Jakarta and several other big towns," Derom said.

He also noted that the current increase in cooking oil prices resulted mainly from disruption in the distribution system caused by the recent riots and not through a shortage in supply. (gis/jsk)