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Ministry proposes compensation for certain industrial sectors

Industry Minister MS Hidayat has proposed that the Finance Ministry slash the import tariff for heavy machinery to compensate for the sharp increase in the price of electricity

Khoirul Amin (The Jakarta Post)
Jakarta
Wed, May 21, 2014

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Ministry proposes compensation for certain industrial sectors

I

ndustry Minister MS Hidayat has proposed that the Finance Ministry slash the import tariff for heavy machinery to compensate for the sharp increase in the price of electricity.

'€œThe government should provide an incentive for certain industrial sectors affected by the electricity rate hike so that they can compete with their Southeast Asian counterparts ahead of the AEC [Asian Economic Community], which will be launched at the end of 2015,'€ Hidayat said after a hearing with members of the House of Representatives on Tuesday.

He said that lower import tariffs on imported machines would help affected companies keep down production costs, thus, locally manufactured products would be able to compete with those from other ASEAN countries.

Hidayat said his ministry proposed that kind of policy should be for certain industrial sectors that used the types of heavy machinery not manufactured domestically.

'€œWe are still in talks with the Finance Ministry,'€ he said, adding that the electricity rate hike had forced his ministry to slash this year'€™s industry growth target.

The Industry Ministry had lowered the growth target for non-oil industry from its initial target of 6.4 percent to below 6 percent.

The output of the medium and large industrial sector in the first quarter (Q1) of this year fell by 0.02 percent compared to the fourth quarter (Q4) last year, according to the ministry'€™s data.

However, the January-March figure rose by 3.76 percent compared to the same period last year.

Hidayat said that besides fiscal incentives in the form of import tariff reduction, his ministry also urged the government to perform stricter surveillance on imported goods, which would prevent smuggling.

Institute for Development of Economics and Finance (Indef) economist Enny Sri Hartati said previously, however, that the electricity hike would not have a significant impact on industrial growth, explaining that the industry'€™s was not competitive because of infrastructure bottlenecks.

Voicing similar concerns, House Commission VI chairman Airlangga Hartarto said Tuesday that the competitiveness of the industrial sector was determined by its supporting infrastructure.

'€œI think in terms of AEC, Singapore, Malaysia and Thailand are better prepared because they have better infrastructure. Their products will flood the market,'€ he said.

Airlangga added that developing infrastructure was the only way to boost industrial competitiveness, rather than just through incentives to cushion the effect of the electricity rate hike.

On May 1, the government issued a controversial policy that saw electricity rates for large-scale industry increase by either 38.9 percent or 64.7 percent, depending on power consumption.

For companies listed on the stock exchange that use more than 200 kilovolt amperes (kVa), known as Group I3, tariffs will rise by 38.9 percent. Meanwhile, those using up to 30,000 kVa, known as Group I4, will see a 64.7 percent increase.

The tariff increases will be phased in gradually every two months from May until the end of the year.

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