Indonesia EEC
Market Analysis Summary
In Indonesia, there are twelve market sectors of power generation business in which Indonesia EEC will be seeking prospects on a focused and proactive approach.
The Market Analysis table shows the estimated captive power project values in the dollar per year, within the period of 1999-2003, based on the present circumstances. This table is a live and dynamic table. The numbers of dollars each year could increase as the economy corrects itself.
4.1 Market Segmentation
The potential clients/customers during the five-year implementation of this plan for power generation EPC services are composed of twelve groups:
- Captive power developers (this type of client could be any industrial facilities owner who needs power supply for its own facilities or their subsidiaries in the form of IPP developers)
- Pulp and paper producers
- Textile producers
- Cement mills
- Mining industries
- Shrimp farming
- Sugar producers
- Palm oil producers
- Fertilizer manufacturing
- Petrochemicals
- Oil & Gas Exploration & Production Companies
- Oil Refinery Complexes
It seems reasonable, based on strong fundamentals, that the above twelve sectors have strength to be credible buyers in the Indonesian power business, since their business orientation is focused in the export market leads acceptable development risks.
| Market Analysis | |||||||
| 1999 | 2000 | 2001 | 2002 | 2003 | |||
| Potential Customers | Growth | CAGR | |||||
| Captive Plant Developer | 3% | 54,000,000 | 55,620,000 | 57,288,600 | 59,007,258 | 60,777,476 | 3.00% |
| Pulp & Paper Mills | 15% | 272,000,000 | 312,800,000 | 359,720,000 | 413,678,000 | 475,729,700 | 15.00% |
| Textile Manufacturers | 11% | 218,000,000 | 241,980,000 | 268,597,800 | 298,143,558 | 330,939,349 | 11.00% |
| Cement Mills | 5% | 22,000,000 | 23,100,000 | 24,255,000 | 25,467,750 | 26,741,138 | 5.00% |
| Mining | 18% | 41,000,000 | 48,380,000 | 57,088,400 | 67,364,312 | 79,489,888 | 18.00% |
| Shrimp Farms | 20% | 191,000,000 | 229,200,000 | 275,040,000 | 330,048,000 | 396,057,600 | 20.00% |
| Sugar Mills | 4% | 14,000,000 | 14,560,000 | 15,142,400 | 15,748,096 | 16,378,020 | 4.00% |
| Palm Oil Processing | 5% | 16,000,000 | 16,800,000 | 17,640,000 | 18,522,000 | 19,448,100 | 5.00% |
| Fertilizer Manufacturers | 7% | 136,000,000 | 145,520,000 | 155,706,400 | 166,605,848 | 178,268,257 | 7.00% |
| Petrochemical Processing | 5% | 27,000,000 | 28,350,000 | 29,767,500 | 31,255,875 | 32,818,669 | 5.00% |
| Oil & Gas Fields | 5% | 22,000,000 | 23,100,000 | 24,255,000 | 25,467,750 | 26,741,138 | 5.00% |
| Oil Refineries | 5% | 109,000,000 | 114,450,000 | 120,172,500 | 126,181,125 | 132,490,181 | 5.00% |
| Total | 12.16% | 1,122,000,000 | 1,253,860,000 | 1,404,673,600 | 1,577,489,572 | 1,775,879,516 | 12.16% |
4.2 Target Market Segment Strategy
Indonesia EEC will focus on major electricity consumers in Indonesia who are very demanding regarding reliability of their power supply systems.
The current situation in Indonesia can be characterized by commercial paralysis, policy paralysis, and for the moment, a continuing downward economic drift. But it seems reasonable that the previously listed twelve sectors have strength to be credible buyers in the Indonesian power business, since their business orientation is focused in the export market leads acceptable development risks. The uncertainty lies in how long the country’s economic recovery will take and with what twists and turns in the political and economic structure will offer tremendous opportunities for the the company in developing badly needed, inside-the-fence captive power projects to satisfy the demand. This requirement has not diminished because of the crisis. It even increases due to the government owned power utility (PLN) absence to deliver a reliable and cost effective power system.
For the short term, the company needs to be flexible and creative in pricing and financing its services. Indonesian buyers are likely to be more dependent than ever on supplier financing, and looking for bargains; unfortunately, the current economic erosion situation has put them in a compromising position for bargaining. The company needs to be proactive in assisting its customers in finding sources of financing, inventing creative payment terms or offering a more lenient repayment period, if possible, and looking for ways to cut the price of supplies and services. Barter trade has often been a required element of major government projects, but it would be no surprise to see more emphasis on barter trade in the coming period.
4.3 Service Business Analysis
EPC Contractors in power business range from major global Original Equipment Manufacturers (OEM) of the power generation and transmission plants to the local engineering and construction firms.
4.3.1 Major Local Players
Some major domestic players who are estimated as Indonesia EEC’s potential competitors in the power EPC business are listed below. They are politically well-connected at this time and seem to be aggressively pursuing expansion into other infrastructure markets in Indonesia, most notably in power and industrial plants.
- PT. ABB Energy System Indonesia (PT. ABB-ESI), a joint venture of ABB-CE and PT. PAL, a member of BPIS.
- PT. Rekayasa Industry (PT. RI), a government-owned EPC contractor company under the management of the Directorate of Machineries and Base Metals Industries, Ministry of Industry and Trade. PT. RI is well established in the fertilizer processing field.
- PT. Inti Karya Persada Tehnik (PT. IKPT), a local EPC contractor company. PT. IKPT is well established in the petroleum, petrochemical, and geothermal fields.
- Indonesia Power (previously “PT. PLN (Persero) Pembangkitan Tenaga Listrik Jawa Bali-I), a subsidiary operating company of PT. PLN (Persero) for the western part of the Java-Bali power system.
- PT. PLN (Persero) Pembangkitan Tenaga Listrik Jawa Bali-II (PLN PJB-II), a subsidiary operating company of PT. PLN (Persero) for the eastern part of the Java-Bali power system.
- PT. Tripatra.
- PT. Gunanusa.
- PT. Truba Jurong.
- PT. Pertafenikki.
- PT. Aalborg Sunrod Indonesia.
4.3.2 Major Foreign Players
The following companies are major foreign players in Indonesian power business:
- Original Equipment Manufacturers. They are not fully recognized as competitors; however, these companies are seen to be the strongest competitors in Indonesia: ABB, GE, Westinghouse, Siemens, Rolls-Royce, Ansaldo, Mitsubishi, Fuji, Toshiba, Babcock & Wilcox, GEC Alsthom, Foster Wheeler, Austrian Energy, Cockerill Mechanical Industries (CMI), John Brown Ltd., Kvaerner, Lurgi, Ishikawajima Harima (IHI), Wartsila, Caterpillar, Pielstick, MAN, and Niigata.
- Foreign Engineering/EPC companies: Duke Fluor/Daniels, Stone & Webster, Bechtel, Black & Veatch, Sargent & Lundy, Raytheon (EBASCO), Daelim, Hyundai, SsangYong, Balfour Beatty, Jaako Poyry, BE&K Bechtel, Pekka Hemmi, Simons, JGC Corporation, Kajima Corp., SNC Lavallin, and Chiyoda.
- Trading Companies : Sumitomo Corporation, Marubeni, Mitsubishi Heavy Industries, Kanematsu Corporation, and Mitsui.
4.3.3 Competition and Buying Patterns
Recent analysis indicate that total design cost of power plants in Indonesia has decreased by 12%, while total construction cost of power plants in Indonesia has decreased by 23.59% during this economic turmoil, compared to data recorded in 1996. This analysis is based on the assumptions that the local engineers and laborers salary was increased by 25% at the average exchange rate of US$1 = Rp 7,200. By having a local production capability in Indonesia, Indonesia EEC will be able to take advantage of this situation.
When the joint venture company between Indonesia EEC and its local partner has been established, it will be able to reduce costs and increase profits by having a full-service production office in Indonesia.
The critical issue for establishing a local production capability is the ability of Indonesia EEC to hire, train, and retain highly qualified and motivated Indonesian engineers.
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