Steel makers yet to benefit from local content rule

Posted on 27 December 2017

Source: The Jakarta Post

Local steel producers have yet to benefit from the local content policy for power plant projects because of obsolete regulations and a lack of field monitoring.

Most power plant projects with more than a 100 megawatt (MW) capacity are being developed by foreign engineering procurement construction (EPC) contractors, which already have determined specifications that cannot be altered, such as for turbines, boilers and transformers.

The Indonesian Iron and Steel  Association’s (IISIA) certification and standardization chairman Bimakarsa Wijaya said foreign contractors tend to import electrical machinery and only fulfil the local content requirement by hiring local builders, as the Industry Ministry Regulation No. 54/2012 on local content in electricity projects was deemed obsolete.

“The regulation allows contractors to fulfil the local content requirements by just using local builders to construct the power plant’s physical buildings. But the contractors import most of the machinery,” he said recently.

The association suggested a revision is urgently needed to separate local content into physical construction and procuring electrical machinery.

“Local industry is capable of supplying such products. Moreover, now that China has reduced its steel production capacity, steel prices have risen and are more stable. That will eventually reduce steel imports from China, allowing us to compete better here. What we need then is supportive regulations from the government,” said Bimakarsa.

Businesses have also cried foul over the government’s lack of implementation and monitoring of the local content policy, which is alleged to have resulted in low compliance.

The Industry Ministry does not have any updated data for the rate of realized local content in power plant projects with 100 MW to 600 MW capacities because of the lack of funds available for field monitoring.

Data from the Indonesian Steel Community Association (AMBI) revealed that power plant projects with 1,000 MW capacity only comprised 15 percent of local content.

The government requires the local content of power plants with less than 100 MW capacities to be between 44.12 and 70.79 percent, while those with 100 MW to 600 MW capacities at 40 percent and those above 600 MW capacities at 38.21 percent, as stipulated under the 2012 regulation.

AMBI vice chairman Singgih Wasesa said many large projects had been won by foreign contractors, despite Indonesia having its own prominent EPC contractors like state-owned foundry firm PT Barata Indonesia and stateowned EPC and shipyard firm PT PAL Indonesia.

EPC contractors for large projects like the Java I 1,760 (MW)and Java II 2x1,000 MW, for example, are Japan-based Sojitz Corporation and China-based China Shenhua Energy Company Lomited, respectively.

“In many cases, foreign contractors ask local steel firms for specific products, but at very short notice. We can’t manufacture the products at such short notice, so they end up importing from their partners. This is done deliberately,” he said.

The Industry Ministry’s electrical machinery sub-directorate head Maryu Widayati acknowledged the low rate of compliance, especially in projects above 100 MW capacity.

“The local content policy under the 2012 regulations is indeed obsolete because its only regulates projects under 600 MW and projects above 600 MW that use super critical boilers. The problem now is that the large projects already use ultra-super critical boilers so the regulation doesn’t apply anymore;” she said.  

Minsitry officials have repetitively planned to revise the regulation, but to no avail because of limited funds. A sufficient budget is necessary to conduct research and hold meetings with various stakeholders to come up with a revised draft.

“For now, the reason why foreign firms tend to win the tenders is because they have a larger amount of capacity to fund the projects,” Maryu said. 

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