Docking Rate May Raise By 15% On High Operating Cost

JAKARTA – Shipyard industry plans to raise docking rate by 15% due to high operating cost following the increase of electricity tariff.

Chairman of the Indonesia Shipbuilding and Offshore Industries Association (Iperindo) Bambang Harjo S. said the amount of docking rate increase and high operating cost is relatively equal around 10%-15%.

“It is the same thing. Electricity increase is a wrong policy,” he said, Sunday (07/06/2014).

He said shipyard industry is having difficulty due to lack of fiscal incentive from the government. Following the increase of electricity tariff, he said, the industry is burdened with additional operating cost of around 10% -15%.

According to him, the use of electricity in shipyard industry is vital and in fairly large quota. Therefore, the amount of electricity tariff will greatly affect operating cost in the process of creating ship or even ship docking.

“Procurement of ship components in the country and employee’s salary increase has made the operating cost rose by 10%-15%.”

The government and House of Representatives have agreed to increase electricity tariff for industry under class 13 (listed company in the stock exchange) and class 14 (large industry) gradually every 2 months starting from May to December 2014 around 39% and 64.7% each.

The electricity increase is also applied for a large group of household (R3), medium-sized business (B2), large business (B3) and government offices (P1). The increase in electricity tariff is a consequence for the revocation of subsidy on the six classes of consumer to conserve electricity subsidy from IDR18.43 trillion to IDR71.37 trillion in 2014.

According to Bambang, the increase of electricity tariff will provide a multiplier effect on national logistics cost, which is still around 24.6% of GDP. In the end, he added, people will buy goods at a higher price and may potentially widen the difference between the prices of goods from one region to the other.

He said the government should begin to build and develop a number of national electricity potency such as river power plant technology that has been implemented by Laos, Vietnam and Malaysia. Moreover, development of biofuel from palm oil or geothermal development as alternative s in the use of electricity are also necessary.

“We hope the government provides incentive or special treatment such as exemption from electricity hike,” he said.

Vice Chairman of Iperindo Yance Gunawan said the operating cost in shipyard industry is already expensive given that generator as electric drive in the shipyard is high cost due to the rising price of diesel fuel.

Moreover, the company also cannot increase the price of ship since the workmanship is in accordance with the initial price of the contract. “Docking will certainly rise. New shipbuilding cannot be done since there is a contract.”

According to him, profit margin for shipyard companies is also very small. On average, he added, they only obtain profit of around 5% for construction of each vessel. However, some companies are participating in tender and build ship to minimize financial loss that appears if they do not conduct production at all.

“Participate in tender rather than do nothing and suffer a very large loss. It is probably conducted to have a job,” he said.

In order to cover the loss from ship construction, companies are using cross-subsidy for each of their project. Thus, they can continue to run their production.

Chairman of Indonesia National Shipowners Association (INSA) Carmelita Hartoto said the electricity tariff increase creates dilemma for shipping industry given that the amount of the increase will greatly affect the cost of ship docking.

“We do not know the percentage of the impact of electricity tariff increase toward docking cost, but it always affects the increase in cost,” he said.

Docking, he added, is a provision for every vessel to conduct check in accordance with government regulation. Therefore, INSA expects the government to provide fiscal incentive for the shipyard industry to encourage competitiveness in docking activity such as zero percent of import duty as a compensation for the increase in electricity tariff.

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