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)