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In Support Of Local Products

Ragil Wibowo

Ragil Wibowo

— 6 min read
In Support Of Local Products
The use of local components for industries in the natural resources sector continues to improve. Local manufacturers must continue to maintain the quality. Competition with imported products is on the rise.   This was the busiest time for the workshop of PT. Refindo Inti Selaras, located in Madiun, East Java, as its employees were seen working on their respective activities. They worked hard to fulfill their customers’ orders.   The employees of the company dealing with mining supporting services were working on rock bolt, ordered by PT. Freeport Indonesia. Rock bolts are used to support the roofing for underground mining activities.   Some other employees were seen finishing the assembly of granby cars for underground mine. The carts were ordered by PT. Aneka Tambang, Tbk., who has long been a customer of Refindo’s products.   Since its establishment in 2008, Refindo has served the needs of underground mining activities here. Beside Antam, other customers are the likes of Cibaliung Sumberdaya, Natarang Mining, Nusa Halmahera Minerals and Lumbung Mineral. Other names are Mitsui Matsushima, who is in cooperation with Gerbang Daya Mandiri to mine underground coal in Tenggarong, East Kalimantan. Only recently, Refindo’s products are also being tested by Freeport.   Slamet Oetoyo, the company’s President Director, informed that the trial for his company’s rock bolts had been done twice by Freeport, namely in August 2015 and March 2016.   Before placing the order, Freeport representatives have paid visit to Refindo’s headquarters and workshop. “Our rock bolt products have been surveyed and audited by independent surveyor. As a result, ours have better quality compared to those produced in Australia and Canada,” said Mr. Oetoyo.   Despite the current gloomy condition of the mining industry, demand for Refindo’s products keeps coming in. To meet the demand and in order to quickly respond to requests, the company has purchased galvanizing equipment, to be used for coating metal and steel to make them rust resistant. Previously, galvanizing process was always done elsewhere. The company could now process it by itself from beginning to end.   ***   The use of local products in mining is in accordance with the government’s regulation on the level of local components for domestic use. Some regulations related to the use of local components have also been introduced. The Ministry of Industry, for instance, has issued a Ministerial Regulation No. 03/2014 on Guidelines for Increased Use of Domestic Products in the Procurement of Goods and Services for the Government not Financed by the State or Local Budgets.   The regulation states that this includes the use of domestic products not financed by the state or local budgets for the procurement of goods and services at state-owned enterprises or local enterprises, non-ministerial government agencies, public service agencies, state universities, PSC of oil and gas, holders of work contratcs and PKP2B, as well as joint cooperations between the government and the private sectors.   The Mining Law No. 4/2009 also mandates holders of IUP and IUPK to give priority to utilization of local labor, goods and services within the country, so long as they meet the required standards and quality, after-sales service, and could guarantee the continuous supply and timeliness of delivery.   Holders of coal contract of work (KK) and coal mining exploitation work agreement (PKP2B), as well as their affiliates and sub-contractors, are also required to give priority to the Indonesian labor, services and raw materials from sources and products of the country. There are however conditions to this: that the services and products are available, and that the prices and quality must compete with imported ones.   According to Director General of Mineral and Coal Bambang Gatot Aryono, the requirement to use domestic products was one of six key points of the provisions in the negotiations for KK and PKP2B, apart from area of ​​work, continuation of mining operation, state revenue, obligatory processing and purification and divestment.   However, increasing the use of local products has not been easy. Local products are often of inferior quality, continuity of supply is not guaranteed, and often the prices are more expensive than the imported ones.   “One of the obstacles is the value-added tax of 10%, therefore prices of domestic products are often more expensive than foreign ones,” said Mr. Aryono.   The Directorate General of Mineral and Coal of the ESDM Ministry, he said, would continue to encourage mining companies, especially holders of KK or PKP2B, to continue increasing the use of domestic products. Mining would still play important role as the driver of the regional economy and the communities at mining areas. “The use of domestic products by IUP, KK, or PKP2B holders would be crucial to develop domestic producers to further increase their production,” added Mr. Aryono.   He also continued to encourage domestic producers to improve quality, secure supply and price, so that they could compete with foreign producers. By maintaining quality, continuous supply and competitive price, the use of domestic products would continue to increase.   “The government also (support it) through the evaluation of the use of capital goods, both through a Budget and Cost Work Plan (RKAB in its Indonesian abbreviation) and quarterly evaluation, so we can continue to control the use of domestic products. The government is also currently drafting a ministerial decree on procurement of goods,” he added.   The government further take records of local producers and domestic suppliers supporting mining activities, and bring them together. “We would keep encouraging companies, KK or PKP2B holders, to modify their purchasing pattern, from imported to domestic (goods and services),” added Mr. Aryono.   To be able to list the domestic products which fulfill the qualification of mining companies, Mr. Aryono stated that his Ministry would continue to work closely with the Ministry of Industry. “The products would be used in the mining sector. However, how they are made, it is the Ministry of Industry’s domain,” he said.   The ESDM Ministry recorded that there are at least 64 domestic mining equipment manufacturers who are able to support mining activities in Indonesia. Some could produce their own products, while others could do as suppliers.   The Minister of Industry’s Regulation No. 106/M-IND/PER/10/2012 on the List of Domestic Production Machines, Goods and Materials for Development or Industrial Growth for Capital Investments, contains a list of products which can already be produced domestically. The list is quite long, including the likes of dump truck, asphalt mixing machine, stone crusher, concrete mixer, or bulldozer with a capacity of 160-250 horsepower.   Some equipment are also proposed to be supplemented with local products rather than imported ones, such as lubricant filter for heavy equipment (UTP), backhoe, tanks, laboratorium spare parts, safety shoes, and tires of sizes R20 and R 24.   Mining companies are also encouraged to use local products in other activities. All construction steel materials, steel plate for the furnace at processing plants, as well as cable slings for towing pumps, should use locally made products.   In the strategic work plan of the ESDM Ministry for 2015 to 2019, the percentage of spending in the mining sector would continue to be increased every year. The average increase per year is planned at around 2%. In 2015, for example, it was set at 60%. While in 2016 it was targeted at 62%.   “Even for those with PKP2B status, the use of domestic components has currently reached 91%,” said Mr. Aryono.   ***   In the oil and gas sector, efforts to promote the use of domestic products continued to be voiced out. Based on data from the Directorate General of Oil and Gas, the percentage of domestic content level (DCL) since 2006 have steadily increased. In fact, the Ministry of Energy has received the President’s award for promoting the use of domestic products three times, namely in 2011, 2012, and 2014.   The ESDM Minister’s Regulation No. 15/2013 on the Use of Domestic Products in the Upstream Oil and Gas Activities was introduced to support the use of local products. It set the DCL targets for short, medium and long terms. To achieve the targets, the Director General of Oil and Gas was tasked to set out the DCL targets in the upstream oil and gas activities.   Director General of Oil and Gas, IGN Wiratmaja Puja assertsed that the use of domestic products was not intended to prevent foreign companies coming in. On the contrary, it was intended to boost foreign investment in the country and provide business certainty.   To raise the DCL, he continued, the government would focus on developing 15 producers of major oil and gas commodities accounting for 80% of the value of procurement. Starting in 2015, the government increased the surveillance of DCL performance, especially in large projects of oil and gas contractors.   In the period between April 2009 to December 2015, the total number of payment transactions in the bank has reached US$ 47.859 billion. Transactions in state-owned banks in 2014 also increased by 34%. In 2015, the transaction was down due to decreasing spending, as a result of the fall of oil price.   The continuous efforts to encourage the use of domestic products would eventually make the domestic products prevail, and become glorious in their own homeland.    

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