Protection for aromatics firm criticized

Protection for aromatics firm criticized

CILEGON, West Java (JP): A business leader expressed his worry
yesterday about the possibility of the government setting up a
new tariff structure to protect a politically well-connected
aromatics firm.

Aburizal Bakrie, chairman of the Indonesian Chamber of
Commerce and Industry, called on the government to harmonize the
messy tariff structure on imported olefin and its derivatives and
to not impose new protection measures on aromatics and aromatic
derivatives.

"If the government extends tariff protection to upstream
industrial products how can industries working at the midstream
and downstream levels compete in the global market," Aburizal
asked, after the inauguration of three petrochemical plants
affiliated with the Bakrie Group.

The three new plants are a purified terephthalic acid (PTA)
plant owned by PT Bakrie Kasei Corporation, a polyethylene
terepthathalate (PET) resin plant owned by PT Bakrie Kasei-PET
and a PET-film plant owned by PT Bakrie Diafoil.

Both PET-resin and PET-film are derivatives of PTA, while the
production of PTA needs paraxylene, an aromatic product, as a raw
material.

Currently, the import tariff on both paraxylene and PTA is set
at zero percent. However, there is growing concern that the
government might erect new tariff protection for paraxylene when
an aromatic plant controlled by the politically well-connected
Humpuss Group starts producing paraxylene.

Such concerns are not groundless, especially since the
government broke its own promise by protecting olefin products.

Last February, the government established a temporary 20
percent duty surcharge on imports of ethylene and propylene on
top of a 5 percent import tariff. Then, last month, the
government turned the temporary measure into a permanent one by
incorporating the surcharge into the tariff structure.

Both ethylene and propylene are produced by PT Chandra Asri
Petrochemical Center, which is believed to have strong political
clout.

Minister of Industry and Trade Tunky Ariwibowo said yesterday
that he would do his best to improve the chemical industry's
messy tariff structure.

"I will harmonize the tariff structure in due time. It is my
homework, and I continue to keep this in mind," Tunky said at the
inauguration.

However, Tunky did not state that the government would not
protect Humpuss's aromatic plant in Arun, Aceh. The plant, with
an annual production capacity of 370,000 tons of paraxylene and
160,000 tons of benzene, plans to start commercial production in
1998.

Aburizal, who is also chairman of the Bakrie Group, noted that
Bakrie plans to build the country's third PTA plant with the same
production capacity in 1998, even though the current PTA market
is not favorable.

"While PTA is not protected, we are worried that the
government may protect raw materials for PTA," Aburizal said,
adding that Bakrie Kasei plans to increase its annual capacity to
one million tons of PTA in 1998.

With its new PTA plant, Bakrie Kasei's annual capacity
currently stands at 600,000 tons of PTA per annum.

Bakrie Kasei is 51 percent owned by Mitsubishi Chemical
Corporation of Japan, 20 percent by PT Bakrie & Brothers, 19
percent by Japan Asia Investment Co. Ltd. and 10 percent by the
International Finance Corporation.

Director General of Steel, Machinery, Electronic and Chemical
Industries Effendi Sudarsono, also present yesterday, said the
government would maintain the existing tariff structure for
aromatic products.

"The government tries to be consistent in maintaining such
harmonized import tariffs," he said. (rid)