Indofarma wants higher prices for its drugs

Rendi A. Witular, The Jakarta Post, Jakarta

State-owned pharmaceutical company PT Indofarma urged the government to allow it to raise the prices of its drugs as the company had been overly burdened by rising production costs.

Indofarma president Eddy Pramono said on Wednesday that an alternative would be to exempt the company from paying 10 percent value-added tax (VAT).

He was quoted by Antara as saying that without the above measures, the company could not boost its profitability.

"We are only asking the government for a 10 percent increase (in the prices of drugs)," said Eddy.

Based on Indofarma's unaudited financial report, sales in 2002 increased by 14 percent to Rp 700 billion (US$78.65 million) from Rp 602 billion in 2001.

But due to the rising production cost, the company's net profit was estimated to fall by 16 percent to Rp 100 billion in 2002 from Rp 120 billion in the previous year.

Eddy did not elaborate on why production costs have increased but other manufacturing companies have also complained of similar problems due to various factors including rising wages and energy costs.

For 2003, the company has targeted sales to increase to Rp 800 billion.

The company is upbeat on the target as it plans to spend Rp 50 billion on capital expenditure to increase production by building a new manufacturing unit in South Sulawesi.

Thus far, Indofarma sales composition comprise 80 percent generic drugs and 20 percent branded drugs.

Eddy also said Indofarma expected the government to fix a definite schedule for the company's privatization program because if the government continued to postpone the program, it would discourage foreign investors.

The government has been planning to privatize Indofarma for the past two years, but the plan has hit repeated snags including unfavorable market conditions and political meddling.

"I have met several officials from the Ministry of State Enterprises and I have urged them to give us an assurance on the divestment plan. The uncertainty would surely have a negative impact on our investment climate," said Eddy.

Currently there are four investment companies that have expressed interest in buying a majority stake at Indofarma including Korindo consortium from South Korea, Suny Corp. consortium from China, Washington Soul Pattinson Ltd. consortium from Australia and Bhakti Investama from Indonesia.