Apindo warns of massive layoffs due to rising cost

The Indonesian Employers Association (Apkindo) warned Friday of business closures and massive layoffs following the 55 percent increase in gas prices imposed last month by state gas distributor PT Gas Negara (PGN).

Calling on the government to moderate the increase, Apkindo chairman Sofjan Wanandi told a press conference: “Hundreds of thousands of people stand to lose their jobs,” Apindo and 30 other industry associations have written to President Susilo Bambang Yudhoyono demanding that the increase in prices be phased in, starting with 15 percent in July and by 11 percent thereafter every six months to 2014, Sofjan said.

“That way, we can adjust our strategy with a clear and fixed pricing plan,” he said. PGN raised the prices it charges to industrial customers following the increase in gas prices from its contractors, such as ConocoPhillips and Pertamina EP, which operate from South Sumatra. The gas distribution monopoly raised its gas rates for customers in West Java to US$10.20 per million British thermal units (Btu) from $6.80.

Sofjan said the abrupt price increase would result in a 20 to 30 percent increase in production costs for industries that use gas for their energy source. “This ballooning production cost will lower our competitiveness in the international market,” he added.

The jump in gas prices comes on top of the massive increases in production costs faced by employers, including the hikes in minimum wages early this year, which in West Java exceeded 20 percent.

The combination of these increases in costs will further undermine Indonesia’s export growth, which has slowed to 4 percent in the first four months of 2012 from 30 percent during the same period last year. Also in April, Indonesia suffered a trade deficit for the first time since July 2010 to the tune of US$641.1 million.

In their letter to President Yudhoyono, the business associations demanded that PGN meet its contractual obligation in supplying gas.

The Indonesian Food and Beverage Association (Gappmi) secretary-general Franky Sibarani said his members only received 63 percent of the gas needed from PGN this year and that they had to turn to the more expensive state electric utility PLN to make up for the power shortfall.

Sofjan said companies have had to fight over the lack of gas supply from PGN in the past. “Now that [PGN] has raised the gas prices, supply is still lacking,” he added.

In contrast to Apindo’s complaints, PGN investment planning and risk management chief Wahid Sutopo said that the company’s customers generally understood the price increase.

“Even after the adjustment, the unsubsidized gas price is still lower than the subsidized 3 kg LPG’s price,” he told The Jakarta Post.

He also said that PGN has discussed the price adjustment with business associations for quite a long time. (The Jakarta Post)