Standardization of chemical industry tariffs sought

JAKARTA (JP): Minister of Industry and Trade Tunky Ariwibowo said standardization of tariffs is still a problem in the chemical industry and pledged immediate action.

The government apparently faces particular difficulty in the harmonizing of the tariff structure for olefin and its derivatives.

"I know there is a problem and it is the homework I have to do. I will issue a new policy on tariff harmonization in the very near future," Tunky said.

The June deregulation package, which stipulates the conversion of all surcharges to a tariff scheme has wreaked havoc with the tariff structure in the chemical industry. The conversion will become effective on July 1.

According to the June deregulation package, both ethylene and propylene are currently protected by a 25 percent import tariff each. Previously, they were protected by a 5 percent import duty and a 20 percent surcharge each.

Polyethylene and polypropylene -- derivative products of ethylene and propylene -- are subject to a 40 percent import tariff each. Both products were previously protected by a 20 percent import tariff and a 20 percent surcharge each.

The ethylene and propylene industry is dominated by politically well-connected PT Chandra Asri Petrochemical Center, which has an annual production capacity of 510,000 tons of ethylene and 240,000 tons of propylene.

The polyethylene industry is dominated by Chandra Asri with a annual capacity of 300,000 tons and PT Petrokimia Nusantara Interindo (Peni) with 450,000 tons. The polypropylene industry is controlled by PT Tri Polyta, with an annual capacity of 340,000 tons.

The Indonesian shareholders of Chandra Asri and Tri Polyta are almost identical, comprising Prajogo Pangestu, Bambang Trihatmodjo, Henry Pribadi, Anthony Salim and Sudwikatmono. PT Peni is owned jointly by Sigit Hardjojudanto and BP Chemicals.

The increase in tariff protection at the upstream level burdens industrial firms operating at the downstream level, which will then transfer such additional costs to customers.

Lower

The Federation of Indonesian Plastic Industries has called on the government to lower import tariffs on chemical products at the upstream level.

"Tariffs on ethylene and propylene should be at the range of 15 percent or ... 20 percent at the maximum. We have submitted a proposal on that matter to the government for the sake of tariff harmonization," the federation's chairman, Umar Hasmi, was reported by Bisnis Indonesia as saying.

He suggested that the government lower the import tariff on polyethylene and polypropylene to 30 percent each from 40 percent.

The new tariff structure for ethylene and propylene and their derivatives have raised a number of questions for industries working in the downstream segment of the chemicals sector. For instance, whether polyethylene copolimer and cable grade, which are not yet produced here, are also subject to a 40 percent duty each.

Minister Tunky has said that the tariff protection for Chandra Asri is meant to encourage local ethylene consumers to make long- term purchasing contracts with the company.

Responding to the federation's call, the government is currently mulling over waiving the import duty on ethylene since most domestic consumers have signed long-term purchasing contracts with Chandra Asri, which cannot meet all of the domestic ethylene demand of some 800,000 tons per annum.

Tunky said at a hearing with the House of Representatives here last week that because most consumers have made long-term purchasing commitments to Chandra Asri, he would "sit together" with the finance minister to discuss the matter.

"We have encouraged domestic consumers to make long-term contracts and it has worked out. That's why it is not necessary to protect Chandra Asri anymore," Tunky said.

"As our policy has worked, even though with a little pressure. we have promised those which have made long-term purchasing contracts (with Chandra Asri) some help," Tunky continued.

He explained that such help will be in the form of a lower import duty for ethylene considering the fact that Chandra Asri cannot satisfy all domestic needs. (rid)