Outlook from the Indonesia-Australia business week 2 day seminar – November 2015. [Posted 22 Nov 2015, 117 views, 6 likes, 1 comment]

About 50 – 70 delegates attended a 2 day seminar on “Resource and Energy Programme” as part of the Indonesia Australia business week in Jakarta. A number of personal key take-away’s are outlined here that reflects on the Indonesian industry and also on the opportunities for Australian parties.  A set of informal personal notes can be found athttp://ianwollff.com/category/professional-articles/

Mineral & coal exploration no priority.

The Mines Department (ESDM) presented their “Energy Sovereignty Pillars” slide for developing energy and mineral resource sovereignty with 9 strategic programs. This included the processing of minerals, however stimulating mineral and coal exploration through ending the 6 year moratorium on the issuance of new tenements was not included as an ESDM priority.

This is a sad reflection that the revitalized manpower of the ESDM is still in the learning phase. The mineral and coal exploration industry is decimated. It will typically take 3 -15 years from the start of exploration to discovery of new reserves. The implication is that Indonesia’s medium to long term growth opportunities should be discounted.

Indonesia IPP projects are in serious trouble.

The seminar speakers clearly indicated the immense problems in attempting to implement the Governments new 35 GW power plant project (plus outstanding incomplete parts of the previous 10 + 10 GW projects). There are serious issues in sourcing funds, time to install supporting infrastructure (transformers, wires etc), and administration to cope with the proposed rate and immense scale of work.

Aside from these issues raised at the seminar, there was some side discussions on the new OECD limitations to the international finance systems that now exclude coal fired power stations (except ultra super critical), in response to the West’s global environmental concerns (Jakarta Post 19 Nov 2015 – In coal setback, rich nations agree to end export credits) . Thus debt funding may see PLN’s ideal bidding process come down to those who can raise finance, wherein China may be the “last man standing”. This may put greater emphases on equity funding, wherein the bidders may impose a greater say in the nature of the projects. Overall it would seem PLN’s bargaining power on terms and technology may be seriously weakened.

It may be concluded that there is a limited window of opportunity for the current IPP program that is fast closing, and PLN needs to sign up and fully support the various IPP programs soonest. If this cannot be achieved, then perhaps Indonesia may need to go back to the drawing board and consider;

• The rate of new power plants can only replace older worn out power plants, contributing little effective growth, and get ready to deal with the accompanying social issues.
• That Indonesia funds its own power plants through issuing State backed bonds, using National reserves and raising the base price of electricity, and get ready to deal with the social issues of raising electricity prices.
• Open the electricity sector up to a wider participation by private enterprise – like that of Australia, where privatization has lead to “the maximum benefit of the Australian people”, and get ready to deal with the social issues of privatization.

Option for Indonesia to import LNG from Australia.

The seminar noted that Indonesia is the world’s 4th largest exporter of LNG, however the demands for domestic gas consumption is growing, plus the point-to-point distribution system is a limiting factor. Australia will commence exporting immense amounts of LNG in 2018, wherein Indonesia may consider adjusting its energy mix to include importing Australian LNG. The construction of gas power stations can be faster than coal, and are reported to be cleaner on the environment.

Government officers constrained.

Some of the legal sessions reflected that the Government (ESDM) is now more open to discussion with industry. There were two directors from the Mines & Energy Department (ESDM) that added value to the seminar. Typically these presentations and discussion were noticeable limited to the “Government Line” in this very public forum. There seemed to be a lost opportunity for the mining & energy industry to make clear points for these directors to take away from this meeting. Fortunately the directors were very open to invite people to arrange further meetings at their office.

Opportunities for Australian investors

There were a number of established high profile Australian companies sharing their experience. The speakers were positive that there are opportunities for Australian investors or suppliers into the Indonesian energy sector, but the investors/suppliers need to bring value, innovation or lowest price.

Partners.

One preferred way to enter the Indonesian business sector is through a JV or partnership. The considerations of selecting such a partner / JV in the past emphasized an Indonesian party that could provide access to business openings, government permits, and strength to resist aggressive competitors. However this seminar acknowledged that access to government permits often involved practices that are no longer tolerated. Responsible Indonesian business has evolved further along the corporate compliance line. The present criteria for selecting a partner include a much closer scrutiny of corporate compliance, and finding a partner that can grow with the Australian party.

Future of two way trade.

Several long term Australian businesses operating in Indonesia praised their Indonesian staff for safety, working together and technology capabilities etc. There is already some two way trade wherein Indonesian experts are assigned to Australian officers, and this trend is expected to grow. One company prefers to bring young Australian expats into its Indonesian operations to learn about the Indonesian experience. It was pointed out that there are difficulties with the Indonesian Minister of Manpower that restricts this two way flow.

One Australian company pointed out that international oil companies operating in Australia tend to have foreign nationals (Americans, Europeans) heading up their Australian companies. Perhaps the Australians could learn from the Indonesian experience, where foreign companies are successful lead by Indonesian directors.

8 The politics of Indonesian regulations.

The Indonesian regulatory system is too complex and unsettled, but there are signs a revised Mines Department (ESDM) & Foreign Investment (BKPM) may lead the way to a simplified business friendly regulations. But this is overshadowed by the political trend towards Socialism and Nationalism. The legal issues at the Provincial and District levels have yet to be significantly improved.