Andi Haswidi, Jakarta – Hit by rising oil prices, many factory-gate prices will have to rise by up to 10 percent early next year unless the government can reduce its chronic red tape so as to bring down the cost of doing business, says an association.
According to Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), firms would be forced to increase prices as a result of increasing production and logistics costs.
"The key to facing this situation lies in the effort to reduce the high costs caused by red tape so that the pressure from higher oil prices can be reduced," Sofyan said Thursday.
He said that at a recent meeting of association members, industry players estimated that the total cost of doing business would likely go up by 10 percent starting next month, making higher product prices inevitable.
For November, state oil company PT Pertamina has increased the price of diesel oil for industrial use by 6.4 percent to Rp 4,776 (52 US cents) a liter from Rp 4,489 a liter last month. It has also raised the price of automotive diesel by 3.7 percent to Rp 7,161 a liter.
Meanwhile, crude oil prices fell to US$97 a barrel Thursday after peaking at an all-time high of $98 per barrel Wednesday, although many analysts predict that prices will continue to increase.
"Most companies still have sufficient stocks of products and raw materials to last until the end of the year. So, the increase in prices will be effected gradually at the start of next year."
The price rises, he said, would affect a host of industries, such as the petrochemical industry, including plastic and synthetic fiber products, the transportation sector, and steel-dependent industries.
Benny Soetrisno, the chairman of the Indonesian Textile Producers Association (API), concurred, saying that increases in the prices of textile products were inevitable. However, the association was still calculating how much these would be as it had to take into account people's purchasing power.
"Purchasing power will come under pressure as the government plans to lift the fuel subsidy for private vehicles. So, we are still waiting to see what will happen," he said.
State Minister for National Development Planning Paskah Suzetta said earlier this week that if crude prices reached US$100 a barrel, limiting the sale of subsidized fuels for private cars would have to be considered next year.
Sofyan said that while the increases in oil prices were being felt all around the world, Indonesian companies were being hit harder due to the already high cost of doing business here.
Within the time available, he urged the government to help reduce the impact of soaring oil prices by overhauling the arduous processes for obtaining business permits, eradicating illegal administration fees and easing up the regulations on the use of alternative energy sources.
"It's hard for factories to shift to coal, for instance, as there are too many obstacles right from the start, including things like initiation permits, environmental permits, various local government regulations and the coal stockpiling requirement."