Dialogue Series III on Energy Services: "How the Ripple of Low Energy Prices can Enhance Efficiency of Mining, Oil, and Gas Services in Supporting Energy Sector in Indonesia?"

Jakarta, 7 May 2015

Dialogue Series III on Energy Services:

Graha Mitra Building, Head Office PT. Indika Energy Tbk., Jakarta, May 7th 2015

“I think it is now very clear, right across the APEC region that no sector and no economy will be competitive, regionally or internationally, without strong and efficient services. Today, services are an integral part of mining, energy, manufacturing and agriculture. Even our new infrastructure program cannot give us the results we need without efficient services,” noted Wishnu Wardhana, Board of Founder Indonesia Services Dialogue & President Director PT. Indika Energy Tbk., while opening the Dialogue Series III on Energy Services.

Since Indonesia expects around 14% of total state’s income to derive from energy sectors in 2015, there is no other way to consolidate, but maximizing efficiency in each activity in both upstream and downstream would be significant.

“The service content for mining industries in Indonesia reaches up to 40%,” explained Sondang Anggraini, Advisor to Minister for Trade Diplomacy, Ministry of Trade RI, in her presentation.

Hence, the private sectors may aim to minimize its cost by optimizing efficiency of these service content. However, fall of of oil and coal price brings higher challenges.

“Most of commodity prices in mining sector fell down 48.2% from the peak price in 2011, mining companies have been less profitable. On the other hand, Indonesian Government plans to increase royalty for low, medium, and high-calory coal, which will undermine the private sector,” said Bambang Setiawan, Chairman of Advisory Board, Indonesian Mining Services Association—ASPINDO.

While energy-related companies are struggling from the prices that plummeted in the past 48 months, services provider also faces the consequences, because their main business derives from those companies. Therefore, mutual understanding between services providers and services users in energy sector should not be taken for granted.

“Solid cooperation with suppliers is very important to sustain activity and volume of business. The way to obtain greater efficiency is to renegotiate several terms regarding minimum wage and international energy price. But, after all, we need to do all business strategies under the supervision of the Authority, which is SKK Migas,” recited Abdul Hamid Batubara, President Commissioner PT. Chevron Pacific Indonesia, while giving his presentation about Cost Management Initiative.

If mutual understanding between services provider and services user has been reached, the efficient and cost-effective manner of both provider and user should be visible. It aims to reduce problem from internal aspect. On another hand, external aspect also imposes some unsolved situations. For example, when services provider ready to serve its customer, sometimes they experience lack of infrastructure, so this situation may prolong the process of goods delivery that is translated into cost.

“The challenge in national energy services is not only availability of spare-parts for mining-related machines, but also reliability of shipping infrastructure,” said Antonius Roni Setyawan, Chief Supply Chain Officer PT. Trakindo Utama.

Besides scarce availability of machines and infrastructure, human capital is also a challenge. Joseph Pangalila, President Director PT. Tripatra Engineering & Chairman Board of GAPENRI shares, “Indonesia is experiencing the shortage of engineers. Only 40-45% of engineering graduates actually work in engineering-related industry as engineers. The ratio of engineers vs total population is very low, even lower than Vietnam.”

From the investment point of view, the time required for a company to obtain an exploration permit is so long that at the end deter new investments. Abadi Poernomo, a member of National Energy Council (DEN), explained, “The National Energy Policy was launched on October 17 2014. It requires one year to formulate General Grand Design of Energy in national level (Rencana Umum Energi Nasional) that will be followed by another one in regional or local context. Of course the Government will need to ensure effective execution of this plan into reality.”

President Jokowi-VP Kalla take concrete action to simplify exploration permit. Through Indonesia Investment Coordinating Board (BKPM), the Government creates better and more condusive climate for investment.

“Before the launching of One Stop Service (Pelayanan Terpadu Satu Pintu—PTSP), we needed four years to build a power plant. Now, we have simplified the process into around 200 days. This effort also helped Indonesia to set a new historical record for the first quarter of 2015, wherein more than IDR100 trillion of foreign investment was made,” explained Farah R. Indriani, Deputy Chairman of Investment Climate and Development BKPM.

Meanwhile, the PTSP that BKPM initiated shall not be a “next big thing” without cohesive environment among ministries. Even though every ministry has Key Performance Indicator (KPI) from the Central Government to reach some goals, they have to see a bigger picture on how to make Indonesia more interesting and promising for investment.

“Each Ministry should put away sectoral ego to build national energy security. Ministry of Energy and Mineral Resources is responsible for providing energy and acting as an engine of growth. We have handed over some permits to BKPM to make investment in energy sector easier,” closed Widhyawan Prawiraatmadja, Head of Performance Control Unit, Ministry of Energy and Mineral Resources RI.