Business Opportunities In the Infrastructure and Mining Sector in

Indonesia

Wednesday, 17 April, 2013

Dr.-Ing. Ilham A. Habibie, MBA

Chairman of the Committee of the Indonesian Chamber of Commerce and Industry for

Germany, Austria and Switzerland

Not The Typical

Asian Tiger Economy

Indonesia's economy is not driven by exports Indonesia's exports only generate 35 percent of GDP, and, excluding

commodity exports, only 16 percent.

Domestic Consumption, The Driving Force Domestic consumption is the economy's driving force. at a population

growth rate of 5 to 6 percent a year, an additional 90 million

Indonesians could join the "consuming class" by 2030.

Consumer Base Growth, Largest in the World Indonesia’s growth in consumer base is larger than any other economy

in the world apart from India and China. Large domestic consumption

growth has shielded the economy from the turbulence of the Asian

financial crisis and the recent global recession.

Largest Economy in ASEAN Indonesia has the largest economy in Southeast Asia, is one of the

emerging market economies of the world (17th largest economy in the

world), and also the member of G-20 major economies.

2

Source: McKinsey

Indonesia’s Three Main

Economic Pillars

Indonesia’s main economic pillars at

present are:

1. Domestic Consumptions. A large

domestic market (consumer driven)

2. Natural Resources. Mainly for

export, but also for a growing

domestic consumption

Indonesia’s (future) 3rd economic pillar:

3. Manufacturing Base. Indonesia as

a general manufacturing base, for

export, domestic, regional ASEAN

and international market

3

Steady Growth - Indonesia has been growing steadily at a rate of 4 to 6

percent over the past 10 years.

Falling Debt - Indonesian government debt has fallen by 70% in just a

decade and is now at a level lower than in 85% of developed economies.

Falling Inflation - Inflation, which was over 20 percent 10 years ago, now

stands at 5 percent.

Rising Rank - The World Economic Forum ranked Indonesia 25th out of

139 countries for macroeconomic stability in 2012.

4 Source: McKinsey

MP3IE - 6 Economic Corridors

5

Investment Categories

Below are several promising sectors for

investment:

Consumer Goods/Foods

Renewable Energy

Mining Industry

Infrastructure

Property

Tourism

6

Infrastructure

Deficiency in Infrastructure such as transport, power generation, water supply,

roads, seaport, airports linking cities and towns, has prevented the growth of

alternative tourist destinations in the country, and for that matter too, the

manufacturing industry growth.

2.5% GDP (2011). Average Indonesia spending on Infrastructure at present. For

comparison China spends 9% of GDP on infrastructure, and India at 8% of GDP.

The Asian Financial Crisis of the last decade caused all infrastructure

development to grind to a halt with funding being rapidly withdrawn, particularly

from foreign sources.

7

Bottleneck. Since economic growth returned and sped

up, the bottlenecks caused by the lack of infrastructure

have become increasingly apparent.

Infrastructure Development was a central theme of

the Indonesian government with a pledge of $140 billion

USD to be spent on it over 5 years.

Energy Demand & Strategy

Power Demand. Indonesia may need more

than 1 gigawatt of additional electricity to power

the smelters. The Indonesia Chamber of

Commerce and Industry puts potential demand

at 1.7 gigawatts for at least 30 smelting plants.

Decentralized renewable energy systems

remain the most cost-effective options in many

rural areas and should attract private

investment.

Biomass Potential. Indonesia’s geography

and natural resources provide some of the most

favorable conditions for renewable energy

development in the world.

Large Opportunity. Although Indonesia has

made progress developing some of its

geothermal & hydro resources, other significant

renewable energy opportunity remains.

8

Natural Gas

Untapped Natural Gas - Indonesia benefit from a huge amount of

untapped natural gas reserves 160 TCF . The two largest gas

reserves are located in Arun, North Sumatra, and Badak, East

Kalimantan.

9

Export 54.10%

Fertilizer 6.41%

Refinery 0.51%

Petrochemical 1.91%

Condensate 0.51%

LPG 1.11%

PGN 11.21%

PLN Electricity 5.71%

Other Industries 3.81%

Own Use 10.91%

Gas Flare 3.81%

Natural Gas Utilization in Indonesia Mainly Exported - 54% is

exported in the form of LNG

and LPG.

Production Volume - in 2008

was 8.3 billion cubic feet per

day [or 1.4 MBOEPD].

Lack of Distribution System

Deficiency in gas distribution

system in Indonesia.

Renewable Energy

4% Natural

Gas 19%

Fossil Fuel 43%

Coal 34%

Energy Mix in Indonesia 2009

Geothermal Position in

Indonesia’s Energy Mix

10 Source: Ditjen EBT, 2011

Diesel

Gas

Steam (Coal fired)

Combined Steam & Gas Hydro

Geothermal

Power Installed Capacity 2007 Total 25.2 GW

Renewable Energy

11

2 WKP di Prov. NAD Jaboi Seulawah Agam

4 WKP di Prov. SUMUT Gn. Sibayak – Sinabung Gn. Sibual – Buali Sipaholon Ria-ria Sorik Marapi - Roburan -

Sampuraga

1 WKP di Prov. JAMBI Sungai Penuh

2 WKP di Prov. SUMSEL Lumut Balai Rantau Dedap

1 WKP di Prov. MALUKU Tulehu

2 WKP di Prov. MALUT Jailolo Songa Wayaua

2 WKP di Prov. SULUT Kotamobagu Lahendong-Tompaso

1 WKP di Prov. GORONTALO Suwawa

1 WKP di Prov. SULTENG Marana

45 Geothermal Work Area (WKP)

Remark: Installed

Source: PLN, 2011

Mining Investment

Climate

12 Source: Fraser Institute and Metal Economics Group PwC Asia School of Mines 2012

Mineral Potential Index

Po

licy

Po

ten

tial

Ind

ex

Source: Fraser Institute and Metal Economics Group PwC Asia School of Mines 2012

Location of Mineral

Resources

13

Source: Ministry of ESDM, Directorate Mineral, Coal and Geothermal

Distribution of Mineral Resources

Mining Industry Market Size

Industry Size. Asia Pacific dominates

global mining production (56% by value).

In 2010, the size of Indonesia’s mining

industry was US$ 32 billion.

Industry Size as % of GDP. The mining

industry accounted for 11 percent of

Indonesia’s GDP, with minerals and

related products contributing 20 percent

of the country’s total exports.

Forecast. The growth of the mining

industry is forecasted at an annual rate

of 11 percent over the next five years to

reach an estimated US$123 billion in

2014.

14 Source: Business Monitor International Ltd, ICD Research, Ocean Strategy

New Mining Regulations

Ban on Export of Raw Commodities. Regulation No.7/2012.

Divestment. Regulation No. 24 of 2012 divestment requirement for Foreign

Investment Companies from 20% to 51% starting 6th year to 10th year.

Receipt of Export Proceeds. Export receipt into Indonesian Bank Account.

Adjustment of CoWs & CCoWs to the New Mining Law. Adjustment of

Contract of Work (CoWs) and Coal Contracts of Work (CCoWs) to the New

Mining Law.

Clear & Clean (CnC) Regulation. This regulation is intended to avoid

overlapping IUP, illegal mining, and increase government revenue.

Forest moratorium. to impact on concessions located within production forest

areas.

New Land Acquisition Law. The impact is on building infrastructure, such

as roads, ports, mining camps etc.

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Prioritizing on Processing

Industry

Processing industry in non oil & gas has shown substantial growth in

Indonesia in 2012 by 7.3%

Fertilizer, chemical, rubber industry has grown by 8.91%.

Cement and non mineral mining industries has grown by 8.75%.

Food, beverage, and tobacco industry has grown by 8.22%.

However, the smallest growth is in the textile, leather and footwear

industry, only 3.64%.

16 Source : 1. Ministry of Industry Republic of Indonesia

2. Kompas

Prioritizing on Processing

Industry

FDI. Foreign direct investment on processing industry

totaled 9 billion USD in 2012, a 65.9 % rise from last

year.

Domestic Investment. Domestic investment on

processing industry totaled Rp38.1 trillion in 2012, a

40.19 % rise compared to last year.

17

17,58

10,45

9,42 8,45 7,35

4,19

3,88

25,68

Palm Oil & Coconut

Steel, Machineries & Automotive

Textile

Rubber Processing

Electronics

Pulp and Paper

Copper, Tin Processing

Others

Non oil & Gas Industry Export 2012 (billion USD)

Source : Kompas

Mining Industry:

What Are the Current Issues Infrastructure Deficiencies. Lacking in roads & electricity

Resource Intensive. Smelter construction is time consuming and capital

intensive

Technological innovation. Lack of innovation in processing tech within

the country

Land. Land acquisition and land use restrictions

Coordination. Lack of coordination between central–local government, and

interpretation of regulations.

Conflict. Conflict between mining and forestry, environmental regulation

Changes. Frequent regulation changes

Incentives. Lack of government incentive compared to other prospective

countries

Assurance. Security of assets, licenses, and ownership rights.

Local Communities. Difficult cooperation

Environmental. Electricity, water needs, and NOx, H2S, SO2 emissions.

Many by-products from a smelter may be classified as toxic and hazardous

waste.

18 Source: Fraser Institute and Metal Economics Group PwC Asia School of Mines 2012

Existing Smelter Facilities

With the exception of tin smelters (world’s largest refined tin

exporter), other existing smelter facilities in Indonesia are limited. PT Aneka Tambang (Persero) Tbk. has three ferronickel smelters in Pomalaa,

Southeast Sulawesi (FeNi I, FeNi II and FeNi III), for a total capacity of 26,000

tpy.

PT Indonesia Asahan Aluminum operates the only aluminum smelter in

Indonesia, a 225,000 tpy aluminum smelter in North Sumatra.

PT Smelting. PT Smelting, which is 25% owned by PT Freeport Indonesia,

operates Indonesia’s first and only copper smelter, a 270,000 tpy copper smelter

in East Java.

PT Indoferro. Indonesia's first nickel pig iron smelter has begun initial

production of about 1,000 tones of ingots a day, kicking off a wave of new metal

processing plants planned in the next few years, aims to produce more than

250,000 tons of nickel pig iron (NPI) in 2013.

19 Reuters, Indonesia's first nickel pig iron smelter starts output, Thu Nov 1, 2012

Indonesia & Technology

Indonesia is not considered as world's leading parties in science and

technology developments.

However, throughout its history, there have been notable

achievements and contributions made by Indonesian for science and

technology.

In 2010, the Indonesian government has allocated Rp 1.9 trillion

(approximately US$ 205 million) or significantly less than 1 percent of

the total state expenditure for research and development.

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Environmental Technology

Environmental Technology. Indonesia lacks

environmental technology and Germany leads

the world in environmental technology.

Renewable Energy, Biomass. Indonesia is a

large producer of biomass (in the form of

waste from forestry, plantation agriculture and

also as an organic household waste)

Renewable Energy, Geothermal. Indonesia

has the world’s largest reserve of geothermal,

and presently in dire need of alternative

source of energy.

Renewable Energy, Mini-hydro Power

Plant. Substantial reserve in mini-hydro

power utilizing Run of River concept.

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Thank You