Olefin maker asks for 40% in tariff protection

Olefin maker asks for 40% in tariff protection

JAKARTA (JP): PT Chandra Asri Petrochemical Center, the
company constructing the country's first olefin project, said
yesterday that it needs government protection in the form of a
40-percent duty on similar imported products.

"The imposition of an import duty of 35 percent to 40 percent
for seven to eight years will be fine. The rate can then be
gradually reduced by four percentage points per year," a company
director, Peter Gontha, told Commission VI of the House of
Representatives in a hearing here yesterday.

However, he said that any decision concerning protectionist
measures will be up to the government.

Chandra Asri is expected to start operating its factory in
Cilegon, West Java. Once operational, they will manufacture
olefin products, including ethylene and propylene, the
intermediate petrochemicals used to make polyethylene and
polypropylene, which can be used to make plastics, tires,
synthetic fiber, pesticides, synthetic rubber, house wares and
detergent.

Peter said his company operates in a strategic industry,
applying efficient technology. Its production will also create
jobs for some 800,000 people in the downstream industries.

"The project will support the development of downstream
industries in the country," he said.

Affect

He argued that the imposition of higher tariffs on olefin
products will affect the prices of downstream products but said
that the "impact will be little."

If the tariff is set at 30 percent, consumers will have to
bear an additional cost of 0.1 percent for sugar which is
packaged with plastic film, he said.

The price of plastic bottles for shampoo and similar products
will be 0.8 percent higher if the tariff is set at 50 percent, he
said.

State Minister of Investment Sanyoto Sastrowardoyo said
recently that the government would provide tariff protection for
Chandra Asri, which has made a huge commitment to manufacture
strategic products with the employment of thousands of people.

The government currently imposes a 20 percent import duty and
20 percent surcharge to protect local polyethylene and
polypropylene products, while ethylene and propylene are free
from duties.

According to Peter, as a beginner in the petrochemical
industry, Chandra Asri will face stiff competition with
established overseas players which are able to launch dumping
products.

"We need the protection and I'm relieved that I can discuss
the matter with legislators directly. I always wish to do so with
the government," he said, adding that his company has faced
strong offenses since the construction began in 1991.

The US$1.7 billion plant in Cilegon, West Java, is expected to
start operation and production next year. The project was
originally begun by three national business groups -- Barito
Pacific, Napan and Bimantara -- in 1989 but its construction was
temporarily suspended in 1991 when the government announced its
plan to control the inflow of offshore commercial loans. In 1992,
Marubeni Corp. of Japan and two Hong Kong-based multi-national
companies took over Chandra Asri and turned it into a wholly
foreign investment project to allow more overseas financing.

Chandra Asri, as a foreign project, is not subject to the
government's ruling on the ceiling for overseas borrowing.

The Far East Economic Review, a Hong Kong-based economic
magazine, reported early last year that the ownership of the Hong
Kong firm was divided among Barito's chairman Prajogo Pangestu,
Bimantara's chairman Bambang Trihatmodjo and Napan's chairman
Henry Pribadi, while the Japanese share-holding was funneled
through another holding company, Japan Indonesia Petrochemical
Investment Corp. The magazine also reported that the company
would remain Indonesian-controlled as Projogo, Henry and Bambang
would share a 75 percent stake, while Marubeni and Japanese
chemical maker Showa Denko were to own 25 percent.

Prajogo, Henry and Bimantara's executive Peter F. Gontha are
still the president and directors of the company, while Bambang,
who is one of President Soeharto's sons, remains the chief
commissioner of the company.(icn)