Merging fertilizer firms will lead to subsidy removal: Minister

Zakki P. Hakim, The Jakarta Post/Jakarta

The planned move by the government to merge all state fertilizer firms should help cut production costs and eventually ease the burden on the state budget by eliminating fertilizer subsidies for farmers, a senior official said.

"Merging the companies would make them more efficient. In the end, we will be able to reduce the subsidy, if not remove it totally," Minister of Industry Andung A. Nitimihardja told reporters.

Andung, who was speaking on the sidelines of his visit to the MM2100 industrial estate in West Cikarang, West Java, added that the move would be in line with the government's drive to remove all kind of subsidies, including those for fertilizer producers.

Andung went on to say that he was of the opinion that there should be a single player in the country's fertilizer industry, with the government being in charge of tariff-related issues. A single company would enjoy easier procurement of goods and services, research and development as well as marketing, he added.

Andung was responding to statements made by State Minister for State Enterprises Sugiharto, revealing plans to revitalize the country's state-owned enterprises (SOEs) through mergers and the setting up of holding companies for state firms in certain sectors.

The plan aims to improve the performance of state firms, many of which are in bad shape financially due to inefficiency, lack of professionalism and corruption. The plan is expected to start later this year, although no comprehensive strategy has yet been revealed.

At the moment there are five fertilizer manufacturers under South Sumatra-based holding company PT Pupuk Sriwidjaja (Pusri), and one regional joint venture firm PT ASEAN Aceh Fertilizer (AAF) in Aceh.

Pusri's subsidiaries are PT Pupuk Kaltim in Bontang, East Kalimantan, PT Petrokimia Gresik in Gresik, East Java, PT Pupuk Kujang in Cikampek, West Java, and PT Pupuk Iskandar Muda (PIM)-1 and PIM-2 in Aceh.

The government plans to allocate Rp 1.3 trillion this year to subsidize the country's fertilizer industry, about Rp 309 billion short of what the industry had requested.

In 2003, the industry produced 5.97 million tons of urea fertilizer, while national consumption was only 5.5 million tons.