Abstract

As prerequisites to justify the construction of a petrochemical plant, then to sustain its existence and later to promote its growth, one can identify two factors. First, the presence of an existing and potential domestic market. Second, the availability of resources in the form of feed-stock and energy supply as "being in place" in Indonesia.

Other factors that may discourage and can obstruct the development of the petrochemical industry in Indonesia are also present, and one can consider the issue of feed-stock/energy pricing for the industry and the challenge of cheap imports as significant and serious examples.

Regarding these problems a proposed compromise approach is reviewed. It is based on the observation that there are two sets of conflicting objectives on the part of the Government. The first is the target to realise maximum revenue from the sale of commodities versus the need to provide incentives in the industrial sector in the form of lower feestock/energy price. The second being the necessity to protect the local industry from cheap imports and/or dumping as compared to safeguarding the interest of consumers at large in obtaining commodities at a fair price. To solve the first dilemma, a feedstock pricing level must be formulated at which a reasonable return can be anticipated while maintaining an attractive price.

For the solution to the second problem, a concept of floor and ceiling price of the product derived from the feed-stock is proposed.

These two limits of price levels are designed to balance both the beneficial and adverse effects resulting from an import control measure.