Subject to our own creation

Shortages in cement supplies have occurred practically every year since the early 1970s. Each time the result is an increase in prices to well above the local reference prices set by the government. Each time this is followed by a "dialog" between the government and cement producers, who usually propose an increase in local reference prices. And each time their demand is met.

As we pointed out in this column last week, this upward spiral of pricing is a recurring quandary. It is an annual problem which has actually never been resolved. Each time, the solution addresses only the end part of the problem. Cement producers usually end up the winners, at the expense of cement users all over Indonesia.

And it is happening again this year. Cement prices have increased to above local reference prices. Not surprisingly, cement producers blame shortage of supply as the cause, simultaneously giving out hints that an increase in supply is not encouraged by the current reference prices. The proposal to the government is: Increase the reference prices and the supply will increase.

We can presume that the government will announce a new list of (increased) local reference prices within the next few weeks. We can presume that supply will meet demand soon afterwards, at a higher level of prices. And again it will be hard to refute the allegations that this whole annual event is engineered by producers in collaboration with distributors.

All of this has been recurring in that sequence since 1974, when the government laid the foundation for an oligopolistic market for cement through a ministerial decree signed by the then minister of trade, Radius Prawiro. That ministerial decree, No. 05A/Kp/I/1974, dated 15 January 1974, has been renewed several times. Other ministerial decrees have been issued to supplant it. The foundation, however, has never changed.

It is the foundation for a producers' cartel, in which only a few producers supply the market through a state-controlled distribution system. The government sets their selling prices, but their market is effectively protected. Cement producers do not need to compete in an open market, as each producer is provided with a specific market area where nobody else is allowed to enter. Even wholesale distributors and retailers in each specific area are accredited by the state.

All this was justifiable in the beginning because of the shortage of a domestic supply of cement. At that time, the domestic cement production capacity could not adequately meet the increasing domestic demand. At the same time there were indications that worldwide demand exceeded world supply. By effectively protecting their market against "intruders", the government could expect producers to increase their production capacity and thus avoid a situation in which Indonesian economic development would be subject to world price fluctuations or even manipulation.

The national production capacity has indeed been increasing. Every cement producer has grown substantially, to the extent that they are now comparable in size to world cement producers. Indonesian economic development is proceeding practically unhampered by fluctuations in world cement prices. The initial goal of the ministerial decree was thus achieved many years ago. The protection, however, remains to the extent that the state itself, and the rest of the nation, has become subject to a circumstance of its own creation.

The time is long overdue for the oligopolistic power of cement producers in this country to be harnessed. By now -- after having been securely protected for more than 20 years -- they should be able to compete fairly, not only in the domestic market but in the global market as well. As long as the protection is there for them to enjoy we will all remain the victims of annual cement "shortages" and price increases.