KPPU to monitor cement industry

KPPU to monitor cement industry

Eva C. Komandjaja, The Jakarta Post, Jakarta

The Business Competition Supervisory Commission (KPPU) said on
Tuesday that it would keep a watchful eye on cement producers in
Indonesia, due to suspicions over a cement cartel in the country.

Didik J. Rachbini of KPPU said that the three largest cement
producers in this country -- PT Semen Gresik, PT Semen Cibinong
and PT Indocement -- which hold over 75 percent of the market
share, were capable of controlling cement prices in the country.

Therefore, according to Law No. 5/1999, two or three producers
holding more than 75 percent of the market share should be
constantly monitored by KPPU.

From 1998 to 2003, cement prices in the domestic market have
doubled. According to KPPU data, Cement produced by Semen Gresik
was priced at approximately Rp 210,000 (US$25) per ton, while in
2003, it rose to around Rp 400,000. Other cement brands like
Indocement and Semen Tonasa also showed a similar trend.

Didik said that although inflation had raised the prices of
some goods, an increase in cement prices should not be that high
because raw materials such as limestone are not expensive.

Therefore, KPPU suspected that the rise in cement prices over
the past five years did not represent a rise in production costs,
but control of prices executed by a cement cartel operating in
Indonesia.

Semen Tonasa research and development director Darusman
Mawardi denied the existence of a cartel, saying that the
doubling in prices was reasonable because equipment, utility and
labor costs were relatively high. He admitted that raw materials
for the industry were cheap, but they only accounted for around 1
percent to 2 percent of the overall calculation of the cement
prices.

Besides a dubious increase in price, Didik also mentioned that
KPPU found dumping practices, done either within the country or
in exports. KPPU found that cement was sold at higher prices in
areas where the cement factories are located, but is cheaper
outside.

Semen Gresik marketing director Hasan Baraja explained that
the practice was a marketing strategy because local people were
loyal to the local brand.

"For example, if Semen Cibinong dared to sell its cement in
Surabaya at the same price as Semen Gresik, I guarantee that no
one would buy it, not even a bag. It is the same for exports,"
said Hasan.

Data from KPPU showed that in 2003, cement for export was sold
at Rp 263,000 per ton, far lower than the local price mentioned
above.

Hasan further explained that, currently, cement industries
experienced an excess in production of 15 million tons per year
because local demand was far lower than the production capacity
due to the country's slow economic growth after the monetary
crisis in 1997.

Therefore, to win competition in the overseas market
particularly with cheaper products from China, Hasan said Semen
Gresik had to export cement at a lower price than the local rate.

Meanwhile, Darusman said that in other countries, the ceiling
price of cement was determined at $50 per ton to protect both the
consumer and the cement industries. He said that the price of
cement in this country was still lower.

Summarizing the hearing, Didik said that KPPU, an antimonopoly
watchdog, would continue to monitor cement producers in the
future, for fear of oligopoly practices. He encouraged cement
producers to raise their efficiency, to cut their production
costs, thereby lowering the selling price.