Monday, 6 April 2015


The fall in oil prices lately, which has reached USD50.60/barrel (WTI) and USD 60.60/barrel (Brent) for futures contract of April, directly affect the downstream petrochemical industry, because the raw materials purchased are in US dollars, while sale value of the final products is in Rupiah. Therefore, the government seeks to find a solution to this condition so that it does not have a major impact on the downstream petrochemical industries. Especially at this time, the rupiah was quite depressed against the US dollar, which reached IDR 13 thousand per 1 USD. This statement was made by Minister of Industry, Saleh Husin, after opening a seminar on “The Impact of Oil Price Decline on the Petrochemical Industry in 2015,” in Jakarta, on Thursday (March 5).

Meanwhile, responding to the demand of the petrochemical industry association so that he sale of raw materials up to the sale of products from up stream to downstream in converted to Rupiah, Industry Minister said that he would discuss it first with the business, how the policy will be implemented, and what benchmark/reference will be used. “This issue will be discussed, and we will ask employers (associations) for approval,” he explained.

In his speech, he said that based on its characteristics, the petrochemical industry is classified as capital-intensive, technology-intensive, and energy-intensive industry, so there is a need for a strategic step in a continues development. With a population of 250 million people and the support of natural resources as raw material for the petrochemical industry, both non-renewable and renewable, Indonesia has the potential to be a center for the development of petrochemical industry in ASEAN and Asian strategic environments. Based on data of January 2014, Indonesia has total reserves of 7,549 billion barrels of oil consisting of 3,692 billion barrels (proven) and 3.857 billion barrels (potential); Total gas is 152.89 trillion cubic feet consisting of 104.71 trillion cubic feet (proven) and 48.18 trillion feet (potential); as well as 21 billion tons of coal reserves.

Meanwhile, the potential of unexplored coal reserves is 104 billion tons. “We expect that these resources can be used optimally in the country to support industrial development of the industry, in general, and the petrochemical industry, in particular,” said Saleh.

Director General of Manufacturing Industry Basis of the Ministry of Industry, Harjanto, stated that on one hand, the petrochemical industry still faces problems, such as lack of production capacity, so that imports of petrochemical products is still high. Likewise, raw materials, especially naphtha and condensate, are still imported, while the national oil & gas industry exported naphtha and condensate. In addition, between the oil & gas and upstream chemical industry, intermediate chemical industry and downstream chemical industry have not been integrated, and mastery of research and development of polymer industry technology (product technology and production processes) are still limited.

Fiscal policy is also unfavorable, so that tax relief and tax exemption (tax holiday) for new investment or capacity addition and interest subsidies for revitalization of production machinery have not been effective.

Therefore, the policy set by government is development the petrochemical industry by cluster approach with the existence of a company that becomes champion in each cluster, which is expected to be a catalyst for petrochemical industry downstreamization value by utilizing multiple feedstock/horizontal differentiation where condensate production is 36 million barrels/year; natural gas reserves 574 TSCF; and coal reserves 21 billion tons.

The government will also seek to control the export of raw materials through Domestic Market Obligation for international commodities (such as naphtha, condensate, LPG, coal, and CPO); and promote a condusive investment and business climates, through Tax allowance (Government Regulation No. 52/2011) as well as tax holiday for certain industries, i.e. basic metal industry, oil refining industry, petrochemical upstream industry, machinery industry, renewable resources, and telecommunications equipment industry (Regulation of Minister of Finance No. 130/2011).

Chairman of the Indonesian Olefin, Aromatic and Plastic Industry Association (Inaplast), Amir Sambodo, on the occasion, recognized that there has to be an association that monitors the impact of the continued decline in crude oil prices, because some have the opinion that the low price of crude oil will lead to faster growth of petrochemical industry.

However, it has to be examined considering that price of raw materials is only a factor in the development of petrochemical industry. There are other factor that are also very important, i.e. investment climate, which included ease of investing, financial condition, legal certainty, infrastructure, and so on. Indonesia must admit that the capacity of the petrochemical industry development plan currently is far behind from neighboring countries in the ASEAN region. (E)

Business News - March 11, 2015

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