Expansion of Indonesian factories to be disrupted

Expansion of Indonesian factories to be disrupted
Published: 15 January 2008

The Indonesia Cement Association (ASI) states expansion of cement factories this year will be disrupted if coal supplies to new factories and power plants cannot be secured by the government.  
If the government doesn’t secure coal supply through a special policy, cement prices will increase and this may upset the domestic cement market.  
As a consequence, consumer purchasing power, especially in the property and infrastructure sectors, would decline this year.  
Urip Timuryono,
Chairman of ASI, explained without clear regulation from the government, the soaring international coal price, especially low-rank coal price, would force cement producers to buy coal in accord with international market mechanism.  
The low-rank coal price at the moment soars by 100% to US$32-US$35 per ton.  
"Following the soaring international coal price, the government needs to provide incentives by lowering coal prices, especially for local transactions, so that domestic consumers will not be burdened by the increases in cement prices," he argued.  
Of 200Mt of coal produced every year, he exposed, only 20% allotted to meet domestic needs, while the rest was exported. This year, he continued, the cement industry would need 6Mt of coal.  
Therefore, cement producers grouped under ASI also urged the government to secure coal supply through a special policy (domestic market obligation or DMO) for the national manufacture industry.  
"Without the government interfering to secure coal supply, the expansion of cement factories will be curbed," he told.  
Furthermore, he added, the condition would boost domestic cement prices. "Therefore, the government needs to distinguish between the export price and the price applied to domestic manufacture industries. This kind of measure will not violate WTO regulations," he assured.  
When asked for confirmation, Vice President Director of PT Semen Gresik Rudiantara disclosed coal supply for new factories to fire power plants had been secured for a long term (25-30 years).  
Record by Bisnis shows several cement producers this year will develop new factories, such as  Semen Padang and Tonasa (US$670m),  Holcim (around US$300m), and revamp the existing ones, such as the second-phase revamp of Semen Andalas and Indocement factories. The total investments needed are estimated to reach US$1.5bn -US$2bn.