Rupiah's sharp fall may halt fertilizer production

Rupiah's sharp fall may halt fertilizer production

JAKARTA (JP): The country's fertilizer producers might soon be
forced to halt production because the sharp plunge in the rupiah
against the U.S. dollar has made raw materials unaffordable, a
fertilizer company executive has said.

Suhadi, president of state-owned PT Pupuk Sriwijaya (Pusri),
said that the price of natural gas, the main raw material in
fertilizer production, had more than tripled in rupiah terms
since July last year.

He said that fertilizer companies bought gas priced in dollars
from state oil and gas company Pertamina but sold their produce
in rupiah on the domestic market.

In July last year the rupiah was trading at around Rp 2,500
against the U.S. dollar, but since then has been on an almost
continuous dive. Earlier this week it was trading at as low as Rp
15,000 to the dollar as a result of political uncertainty and
social tensions.

If this situation persists, "fertilizer plants can only
continue production for the next four to six months," Suhadi
said.

He said the country's five state-owned fertilizer producers
spent US$12.5 million each month on natural gas purchases from
Pertamina.

Pusri and PT Pupuk Kaltim spend $4 million on gas each month,
while PT Pupuk Kujang, PT Pupuk Iskandar Muda and PT Petrokimia
Gresik each spend $1.5 million.

The fertilizer industry actually pays less to Pertamina than
some other customers because the government subsidizes their
purchases to curb fertilizer price increases. However, he said
the subsidy was inadequate in the face of the current exchange
rate.

Pertamina currently sells natural gas to PT Asean Aceh
Fertilizer, Pupuk Iskandar, Pupuk Kujang and Pupuk Kaltim at $1
per million British thermal units (btu).

It charges Pusri IB $1.5 per million btu and Pusri II, III and
IV $1.85 per million btu. Petrokima Gresik pays Pertamina $2 per
million btu.

Suhadi said fertilizer demand had risen by 30 percent in the
Java since the rice planting season began.

In addition to the subsidy on natural gas, the government also
subsidizes the sale of three common fertilizers -- urea, ZA and
superphospate 36 -- to assist farmers boost the country's food
production.

The government also reintroduced a subsidy for kalium chloride
fertilizer (KCL) last month to further boost rice production.

Separately, the director general of metal, machine and
chemical industries in the Ministry of Industry and Trade,
Effendi Sudarsono, said yesterday that the production capacity of
local fertilizer manufacturers would reach 6.5 million tons this
year.

Effendy said that the industry was currently running at 90
percent of its total production capacity.

The government has ordered the companies to direct between 4.1
million and 4.5 million tons of fertilizer toward domestic food
production but will allow any surplus to be exported, he said.

The South Sumatra-based PT Pusri became the holding company of
the four state-owned fertilizer producers last year when the
government consolidated the companies in a single business group.
(das)