Two cement producers defend price increase

Two cement producers defend price increase

JAKARTA (JP): Two state-owned cement companies, PT Semen
Padang and PT Semen Tonasa, defended their recent decisions to
increase the prices of their products to exceed the government-
set local price references.

In a hearing with Commission VI of the House of
Representatives yesterday, president of Semen Tonasa Soebyakto
said his company's main concern was not to meet the government's
price references but to overcome cement shortages by raising
prices.

He acknowledged that his company did not consult with the
ministers of finance and industry before deciding to raise its
sales price.

"If we had to wait for the government's consent, we might have
faced serious losses as our production costs grew higher than the
reference price level, which was introduced early last year,"
Soebyakto said. "So, let's not talk about the reference pricing
system now. It's the government's business, not ours."

Sharing Soebyakto's view, president of Semen Padang Nizar D.
Kayo stated that his company suffered financial losses in the
first semester of this year because its sales price was 1.35
percent higher the production costs.

Nizar explained to the commission -- which deals with
manufacturing, mining and energy -- that during the January-June
period, his company suffered losses of Rp 225 million
(US$104,000).

Effective in July, the West Sumatra based Semen Padang, raised
its sales price by four percent to Rp 5,775 per 40-kilogram sack
at its warehouse. This resulted in the increase of cement prices
in the market place to about Rp 6,600 per sack, far above the
local reference price of Rp 5,930.

Soebyakto said the prices of the South Sulawesi-based Semen
Tonasa's cement at market places have also increased to Rp 6,600
per sack.

Criticism

However, a member of the commission, Iskandar Mandji,
criticized the two companies's unilateral decisions to raise
sales prices because the establishment of prices references was
aimed at stabilizing the market.

"Because your companies are state-owned, what you have done
could set a bad precedent. You decision indicates that state
companies are not concerned with the welfare of the public,"
Iskandar remarked.

Responding to Iskandar's comment, Nizar said the other mission
of state companies is to garner profits so that they will
continue to healthy operations.

"If my company continues to suffer from losses it cannot
expand to meet the increasing demand. On the one hand, we have to
stabilize cement prices but, on the other hand, we have to meet
increasing demand," Nizar said.

Currently, Semen Padang has a production capacity of 2.9
million tons per annum or 13 percent of the country's total
production capacity of 22.9 million tons, while Semen Tonasa's
annual capacity is 1.2 million tons.

Semen Padang is assigned to distribute its products in Sumatra
and Semen Tonasa in eastern provinces.

Indonesia's demand for cement this year is expected to reach
20.9 million tons. However, substantially increasing demand in
several provinces during this dry season has caused supply
shortages.

To meet increasing demand in eastern provinces, Semen Tonasa
has been committed to import 70,000 tons of cement from China and
50,000 tons of clinker -- a substance used in the production of
cement -- from South Korea and Thailand.

Demand for cement in Java, which accounts for almost 70
percent of the country's total cement utilization, is met by four
companies. They are PT Indocement Tunggal Prakarsa, the country's
largest cement firm with an annual capacity of nine million tons,
PT Semen Cibinong, PT Semen Nusantara and PT Semen Gresik. (rid)