New fuel prices threaten textile industry

New fuel prices threaten textile industry

JAKARTA (JP): The government's decision to raise fuel prices
beginning Sunday could trigger a mass shut down of textile firms
as the rise in production costs resulting from the fuel hike
could further jeopardize their operations, the Indonesian Textile
Association (API) said on Friday.

API chairman Lili Asdjudiredja said that many textile firms,
which were already on the brink of collapsing following the
government's move last year to raise electricity prices and
workers' wages, would face more financial problems with the new
fuel price increases.

"This (fuel price hike) could sound the death knell for many
textile firms," Lili told The Jakarta Post.

He said the latest decision to raise fuel prices, effective as
of April 1, would result in a production cost increase of only 7
percent for textile companies.

But as fuel prices surge, prices of raw materials would also
soar, sending overall production costs up by between 15 percent
and 20 percent, he went on.

Local synthetic fiber producers already plan to raise the
price of their products by between 5 percent and 13 percent, in
line with the new fuel prices.

"We'll be seeing many textile firms starting to collapse in
June and July," Lili estimated.

He said that textile firms, both big and small, serving only
the domestic market were the most vulnerable.

Earlier this month, the government decided to cut its fuel
subsidy for industry by setting prices at 50 percent of the
international market prices. Based on current international
prices, the new price for diesel will be about Rp 1,000 per liter
or an increase of 60 percent from the current price of Rp 600 per
liter.

Foreign investors in the mining and petroleum sectors, as well
as foreign-flagged ships are required to pay full market prices
as of April 1.

The decision is aimed at saving the government some Rp 4.3
trillion (about US$413 million) in fuel-subsidy spending this
year.

But Lili argued that the move might backfire on the
government.

He said the fuel price hike would lower Indonesia's
competitiveness in the global textile market.

He also warned that the textile industry may not be able to
meet its export target this year of $7.8 billion.

"We estimate exports this year will come in at between 20
percent and 30 percent below our target," he explained.

He said the textile industry could tolerate pricing and
taxation policies better, were it not for rampant corruption
among government officials.

According to him, the textile industry has to pay 29 different
types of bribe to government officials and that these account for
some 22 percent of the sector's production costs.

"With regional autonomy having come into effect, this practice
may even spread to the regions," he added.

Separately, Hadi Budoyo, a director of the fishing concern PT
Daya Guna Samudra, also expressed concern over the fuel price
hike.

"Fuel is a very sensitive issue to the fishing industry," he
explained.

He said that for the fishing industry, the cost of purchasing
fuel could amount to 40 percent of the industry's total costs.

Hadi said his company would cut back on the operation of some
of its fishing fleet to use fuel more efficiently.

"Because we have to be more efficient in our operation, we may
not be able to meet some of our fishing targets," he added.

However, Hadi was unable to tell how the hike in fuel prices
would effect his company's sales revenue.

He added that it would become more difficult to estimate
production costs as fuel prices would now fluctuate in line with
market prices.

"We don't know how Pertamina is setting the fuel prices, so we
will have to watch price movements in the market," he said
referring to the state oil and gas company which holds a monopoly
over the sale of fuel.

Late Friday, House of Representative Speaker Akbar Tandjung
urged the government to delay the April fuel price increase.

"The House wants the government to act more wisely in raising
fuel prices, and to hold intensive campaigns on the price
increase first," Akbar was quoted as saying by Antara.

The government already postponed fuel price hikes for the
public twice since last year, taking into account the yet harsh
economic conditions.

The secretary general of the Ministry of Mines and Energy,
Djoko Darmono, said the government had already discussed the fuel
price increase with industry representatives.

So far, he said, the government had received no complaints on
the issue.

"We will go ahead with the price increase on April 1," Djoko
said.

A presidential decree providing for the hike was to be signed
by President Abdurrahman Wahid on Friday, he said.

Djoko said that industry consumed about 23 percent of the
country's total fuel consumption, which was around 51 million
kiloliters last year. (bkm)