Groups say new rule on local procurement tough to enact

Several business associations said Wednesday they are worried about a newly signed presidential regulation on the procurement of domestic goods by state-owned institutions.

The new regulation requires a domestic products procured by such institutions to have a minimum of 40 percent of local content while also demands a preferential treatment given to bidders selling or using locally-made content.

The associations agreed at a meeting on Wednesday that they were wary of the government’s methodology for calculating a product’s local content and demanded that business have a voice in creating new government procurement procedures.

Indonesian Chamber of Commerce and Industry (Kadin) medicine and health equipment chief Budi Prasetio said that it would be hard for pharmaceutical industry to calculate the level of local components in medicines because most of its raw materials were imported.

The regulation, which was signed by the President on Aug. 6, was intended to force state institutions to buy more domestic products during their procurements, which may reach Rp 188.3 trillion (US$20.9 billion) in 2010.

Indonesian Foundry Industry Association president Achmad Safiun said there should be consensus among businesses in the same industry to set local content criteria.

“Take the steel industry for example. We import iron ore and machinery” he said, adding that procurement of domestic components would also require determining how products could be transported, whether using foreign or local ships.

Gunadi Sindhuwinata, Indonesian Motorcycle Industry Association chair and a senior Kadin official for domestic products, said that standardizing local content calculations was fine — as long as each industry did its own calculations.

Another concern raised by the associations was high assessment costs by appointed institutions such as Sucofindo and Surveyor Indonesia, which they said could reach Rp 15 to 20 million per component per a product.

The associations suggested that the costs should be paid for by the government.