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Domestic giants ready to take on the world

Jun 01, 2010
Credit : GMI Post

Indonesia’s resilience to the 2008 global financial crisis was unsurprising. The country did learn its lesson well in the aftermath of the the 1997 Asian currency meltdown.

Over the past two years, Indonesia’s plantation companies grew between five and ten percent, with crude palm oil (CPO), leading the way. The country, in 2009, became the world’s largest producer of CPO, with a total output of 19.4 million tons.

Whether upstream or downstream, Indonesian palm oil companies have made a strong effort to become environmentally certified.

Megasurya Mas, a maker of palm oil-based products, is the world’s first palm oil derivative company to obtain a Roundtable on Sustainable Palm Oil (RSPO) certificate.

“I’ve always believed that this sustainability issue, the RSPO certification, is very important. It is not required by regulation to be RSPO-certified, but in places like Europe, if you are not RSPO-certified, people will not buy from you. Our goal is always to be the industry standard,” said Managing Director Bahari Karim.

And in crisis, lies opportunity. “Our turning point was the Asian currency crisis. A lot of companies in Indonesia folded up but we stuck with it. The change of our business model by producing more value added downstream products helped us survive the crisis,” Bahari said.

The Indonesia banking sector has gone from Asia’s weakest to one of its most robust, with strong balance sheets and a rapidly growing consumer sector with many new borrowers.

Between 30 to 35 percent of the population is in the middle income group and the country’s GDP per capita has neared the $3000 mark associated with rising economies.

According to Eugene Keith Galbraith, president commissioner of PT Bank Central Asia Tbk (BCA), the only locally-controlled of the country’s top private banks,“ The Indonesian economy is largely domestic consumption driven, so our sensitivities to the global problems were somewhat minimized. Indonesia is a country which now has a very substantial self–ascribing middle class. It’s not so much that it’s growing. It’s that it has become aware of itself and demand patterns have been changing.”

BCA is the country’s largest transactional bank, responsible for 30 to 40 percent of all payments in the local banking system.

“The bank was the first to introduce ATMs. We have always been in the forefront of commercial application of technologies. We are the first bank to use PCs and we are the only bank in the world with a satellite-based realtime network which links the whole country,” Galbraith said.

Meanwhile, Indonesia’s property sector has benefited from low interest rates and a more prosperous middle class.

President Director of Lippo Karawaci, Ketut Budi Wijaya, sees great potential in this.

“The middle income group has disposable income in excess of $5000. This is the income group that ranges from $5000 to $15,000 per annum. There are big windows opening to us as a first mover to take advantage of this consumer growth,” says Wijaja.

Lippo Karawaci is one of the country’s largest conglomerates and operates $3 billion in assets. Over the next 5 years, the company hopes to acquire $8 billion in assets.

“We benchmark ourselves in terms of performance, governance and best practices. For example, we are the only property company rated by 3 agencies, which are Moody’s, Standard and Poors, and FitchRatings. S&P announced they were upgrading our rating one notch from ‘B’ to ‘B+.’ This is an appreciation not only of the company but also of Indonesia,” Wijaya said.

“We really want to attract multinationals in order to bring international best practices into the organization,” he added.

Faisal Firdaus - Chief Executive Officer Arutmin

Indonesia becomes world’s second-largest source of coal

By Philippe Le Saux
- Jun 01, 2010
Credit : GMI Post

The last five years have presented unparalleled opportunities for foreign investors looking at Indonesia.

Between 2005 and 2010, the country’s GDP grew at an average of 5.68 percent. The financial sector emerged from the recent global recession relatively unscathed, having learned its lesson from the 1997 Asian currency crisis.

The manufacturing sector and fast– moving consumer goods sector continue to power the economy but natural resources and mining have become Indonesia’s newest major engines of growth. In fact, Indonesia has become the world’s second-largest exporter of coal, with companies such as Kaltim Prima, Adaro, and Arutmin leading the way.

Rapid growth has also brought with it growing pains. Especially in the major cities, Indonesia has not been able to cope with the rapidly growing number of new cars hitting the roads, resulting in day-long rush hour traffic.

Demand for energy is also at an all-time high.

The electrical power requirement of Indonesia is expected to grow by at least 10 percent annually over the next six years. Unless the country upgrades its plants and shifts to lower-cost coal and gas-powered plants, the country will not be able to keep pace with demands. Such shortages have already resulted in frequent rolling blackouts across the country.

So, the government recently implemented the “10,000 Megawatt” program, aimed at raising electricity production by 10,000 megawatts by 2013. This project will require at least 30 million tons of coal per year and the participation of the private sector to increase coal production.

“We will be supplying 50 percent of the coal needed to power these new plants,” said Arutmin Chief Executive Faisal Firdaus.

Established by BHP Mineral Exploration Inc., Arutmin spent the first eight years on exploration.

Growth was slow because the company began its production only in 1989. Then, in 2001, BHP let go of its holdings in Arutmin, which was then bought by Bumi Resources, the country’s largest coal mining company.

“We are well known in terms of name and product. We have very good quality in terms of low-ash and low-sulfur coal, so we have products that create less impact on the environment”

- Faisal Firdaus, CEO Arutmin

The buy-out made Arutmin the third largest coal mining company in the country. It currently operates four mines and one coal terminal, all strategically located along the coast of South Kalimantan, which reduces transport costs and makes the coal more affordable to the end consumer.

Having separated mine sites is advantageous to a company like Arutmin as it looks towards expansion.
“With separated mine sites, we have the flexibility to expand without any disturbance to our neighboring operations. We don’t have to worry about only using one method of transportation, or one way to load the barge. We can grow each site independently from the other,” he said.

Since it produces high-end coal for more advanced markets like Japan and low-end coal for domestic and regional use, Arutmin has built a strong reputation for itself in the international coal market.

In 2010, Arutmin exported about 82 percent of its coal. Traditionally the main export market for the company was Japan, but today China has become its largest export market.

Since the company can produce high-end coal for more advanced markets like Japan, and low-end coal for domestic and regional use, Arutmin has been able to build a strong reputation and name for itself in the international coal market.

“We are well known in terms of name and product. We have very good quality in terms of low-ash and low-sulfur coal, so we have products that create less impact on the environment,” explained Firdaus.

With a strong product line and a dedicated export market, the company is poised for rapid growth. Plans are already in place for the company to increase its output to 35 million tons per year in the next two years. The company will also expand its product line.

“We have begun trial products with our upgraded brown coal (UBC) products in cooperation with Japan’s Kobe Steel Ltd (Kobelco),” said Firdaus.

The UBC Process raises the heat value of brown coal 1.5 times, to the same level as high-rank bituminous coal but has only one-third of the ash. It is also more efficient to store and ship, making upgraded coal a viable alternative to high-rank coal. Firdaus vows to make this product commercially available very soon.
Given the company’s rapid growth and planned expansion, Firdaus stressed the importance of giving back to the local communities surrounding the mines.
Every year, Arutmin executives sit down with government representatives to plan their annual work program, including their contribution to the local societies, whether they be in healthcare, sports, culture or education.

“We start the process through ‘social mapping’ and develop shortterm and longterm plans for our community development program,” Firdaus said.

“We maintain close relations with local leaders and chiefs of villages. We sit down with them, discuss their exact needs, and craft a yearly program for them. We work closely with the government and have received several recognitions regarding our work,” he added.

Every year, the company gets recognized not only for its CSR work but also for its work with the environment.

It has received the Ministry of Environment’s yearly award for Environmental Performance Rating Program (PROPER). And in 2009 and 2010, it received the “Green Award,” which recognizes the company’s commitment to the government’s environmental standards. Of 50 coal mining and natural resource-related companies, only six have received the prestigious award.

Indonesia 2010 was prepared for and originally printed in Foreign Affairs magazine.

PDF of the printed report

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