Indonesia EEC

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Construction Engineering Business Plan

Strategy and Implementation Summary

One of the reasons why captive power has become the most important sector in the Indonesian power market is that the customers need the most reliable and efficient power system to reduce the costs. The PLN subsidized electricity tariff is approximately 40% more expensive, and its disturbance rate is high and getting worse.

Furthermore, PLN's inability to pay power and natural gas at the prevailing exchange rate has put both PLN and independent power producer (IPP) developers into a very difficult position to move forward with their project implementation between 1999 and 2003. Meanwhile, in line with the government's export increasing program to strengthen the national reserve funds, many big electricity consumers will face their fast growing demand. This situation will compel many electricity consumers (especially large industrial facilities) to set up their own captive power plants.

As a result of this need, Indonesia EEC will focus its marketing directive on those large, export-oriented, industrial companies.

5.1 Competitive Edge

Indonesia EEC's overall competitive edge in Indonesia is that it brings its parent company's name recognition as a "one-stop" services provider encompassing engineering, procurement, construction, and trade financing services. The parent company is seen as having more than one hundred years' experience in the global industry.

One of the most important key factors in Indonesia EEC's competitive edge is its expertise in providing access to the trade financing, as follows:

  1. Obtaining low-cost financing specific to the buyer's country.
  2. Obtaining commercial and political risk insurance for non-guaranteed loans.
  3. Furnishing and processing loan documentation for export credit agencies.
  4. Preparing grant proposals and feasibility studies required by the funding institution when a company moves into new markets.
  5. Conducting studies to establish project feasibility.
  6. Applying for and obtaining final commitment of funds based on feasibility studies.
  7. Arranging for the best available financing through private national and international banking institutions.

The establishment of a joint venture company between Indonesia EEC and a strong, experienced local engineering and construction company is the most strategic step to overcome the competition by reduced production costs as well as to improve flexibility in penetrating the markets in developing countries, especially the Asia Region.

5.2 Sales Strategy

The captive power market in Indonesia will be focused and integrated with the private customers outside the multilateral/bilateral aid programs. To sell to this type of market, Indonesia EEC needs to have these seven important propositions:

  1. Proven expertise in project financing arrangements, especially under the barter trade arrangements.
  2. Direct negotiation approaches with the clients.
  3. Strategic alliances with a reputable local company who has experience as either an EPC company or developer in Indonesian power sector, capability, and the in-house facilities to perform the detailed engineering, procurement, and construction of power projects.
  4. Competitiveness in pricing.
  5. Creative payment terms.
  6. Contributions in enhancing the local manufacturing sector by making it more efficient and competitive.
  7. Proven expertise in the EPC of reliable and efficient power system.

5.2.1 Sales Forecast

We are planning to increase sales substantially in 2001. This is considered reasonable due to the opportunities available in the industry.

January through March 2001 will offer the highest sales, as many clients will begin the implementation of their projects.

Sales Forecast
1999 2000 2001 2002 2003
Engineering & Architect (E&A) $25,000,000 $26,250,000 $29,000,000 $31,250,000 $33,750,000
Engineering & Procurement $40,000,000 $42,000,000 $46,400,000 $50,000,000 $54,000,000
Engineering & Construction $15,000,000 $15,750,000 $17,400,000 $18,750,000 $20,250,000
Project management (PM) $20,000,000 $21,000,000 $23,200,000 $25,000,000 $27,000,000
Total Sales $100,000,000 $105,000,000 $116,000,000 $125,000,000 $135,000,000
Direct Cost of Sales 1999 2000 2001 2002 2003
Engineering & Architect (E&A) $13,500,000 $14,175,000 $15,660,000 $16,875,000 $18,225,000
Engineering & Procurement $21,600,000 $22,680,000 $25,056,000 $27,000,000 $29,160,000
Engineering & Construction $8,100,000 $8,505,000 $9,396,000 $10,125,000 $10,935,000
Project management (PM) $10,800,000 $11,340,000 $12,528,000 $13,500,000 $14,580,000
Subtotal Direct Cost of Sales $54,000,000 $56,700,000 $62,640,000 $67,500,000 $72,900,000