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)