Energy Security Challenges In Indonesia

KEMENTERIAN

BADAN USAHA MILIK NEGARA

Kementrian BUMN

1

Maritime Connectivity

Improve Electrification

Mass Rapid Transport (MRT)

Irrigation Improvement

Develop 24 new seaports and and

sea-toll to improve connectivity with

projected capex of USD 5- 6 billion

Increase electricity supply by

35.000MW

Build and expand 5.500 km railroad in

Sumatra, Kalimantan, Sulawesi, and Papua

Develop MRT in 6 big cities in Indonesia:

Jakarta, Medan, Makassar, Semarang,

Bandung, and Surabaya

Build 25 dams across Indonesia to

increase food production

Railroad Expansion

1 2 3 4 5 6

Strengthen Tourism

Attract 24 million foreign tourists in

2019

6 Focus Areas to achieve Indonesia’s growth trajectories The realization of 6 Focus Areas needs Massive Financial Supports

Achieve average GDP growth of 7%/year; Increase annual investment to IDR 7.091 tn in 2019 from around IDR 3.248 tn; Increase income per capita to USD 6.201 from currently USD 3.652

Government Budget – Rebalancing Expenditure

SOE’s Contribution – Business Optimization

2

Increasing SOE’s performance, a key factor to support economic trajectories SOEs will need to build itself towards performance oriented organizations

Increase competitiveness

Strive to become the top players in each of its industry segment

Build strong synergies between SOEs to optimize potential

Efficient operations and use of capital

Always looking to benchmark other industry players

Better capital expenditure management to maximize shareholders value

Improve professionalism

Becoming the employer of choice to attract top talent in the market with high integrity

Embed performance and accountability culture in each SOE

1. Stronger capital structure

2. Build national footprint and presence

3. Rightsizing and restructuring

Achieving World Class SOEs that Becomes the Nation’s Pride and International Benchmarks

3

4 Focus SOEs sectors to achieve Indonesia’s growth trajectories Currently Infrastructure, Financial Services, Natural Resources and Energy-Electricity represents 56% of SOEs

Infrastructure (26 SOEs) • Total Asset : Rp 205.7T • Total Equity : Rp 86,1T • Leverage : 1.39x

Natural Resources (31 SOEs) • Total Asset : Rp 781.3T • Total Equity : Rp 305.1T • Leverage : 1.56x

Others (63 SOEs) • Total Asset : Rp 342.8T • Total Equity : Rp 160.2T • Leverage : 1.14x

Electricity (1 SOE) • Total Asset : Rp 587.3T • Total Equity : Rp 124.7T • Leverage : 3.71x

Financial Services (21 SOEs) • Total Asset : Rp 2,298.4T • Total Equity : Rp 287.7T • Leverage : 6.99x

SOEs (140 SOEs) • Total Asset : Rp 4,215.6T • Total Equity : Rp 964.0T • Leverage : 3.37x

Why Energy Security is Importance?

4

The need of energy continue to increase along with the economic development in Indonesia

5

Sumber: BPPT Indonesia Energy Outlook, 2013

However, production continue to decline while consumption keep rising

6

Sumber: Kementerian ESDM, SKK Migas

Therefore, it creates external imbalances

56

Deficit in Oil and Gas Trade Balance since 2012

Source: Bank Indonesia

..which trigger a structural Current Account Deficit

8

…and increase the Government’s budget burden

Goverment Subsidy by Type of Usage (IDR Triliun)

Sumber: Kementerian Keuangan

Indonesia needs to develop oil refinery by giving more incentives to investors

• Government already invite investors to develop oil refinery in Indonesia. Few Investors interested are Kuwait Petroleum Company and Saudi Aramco Asia Limited.

• But, both of investors asking high fiscal incentives like tax holiday for 30-years and exception for import tax. While tax holiday in Indonesia ussually is given just in 10-years.

• Now governement of Indonesia is reviewing development of oil refinery by using government funds with cost reaching IDR 90 Trillion.

9

Sumber: Buletin Internal Pertamina

Challenges in developing biodiesel in Indonesia

• Readiness of the infrastructure in terms of distribution and blending of biodiesel

• Domestic biodiesel pricing is not interesting for producers. State own Oil Company requests the biodiesel industries to supply biodiesel using different price (must be less than diesel fuels Singapore price for 2 years) than the Government regulated biofuels index.

• Government ‘s consistency to implement the regulations.

• Intensified countering the ”anti palm oil campaign”.

• Handling and straighten the Environment, Social & Heath Issues

Efforts must be done to support Indonesian energy security

11

• Petroleum energy needs will still be increased so that the number of upstream oil and gas production and processing should be increased

• Therefore, intensification of exploration activities to find new reserves should be increased and also increasing the investment to increase oil production at this time.

• Refineries capacity also have to be improved to reduce imports of petroleum products

Increase Oil and Gas Production and Accelerating Oil

Refinery Construction

• Increasing an incentives for coal and new and renewable energy powerplant

• Improving infrastructure for energy such as gas pipelines and electricity networks that create a source of energy option for industry and electricity sector

Accelerating Indonesia Energy Mix

Transition from Oil Energy for Industry

and Electricity Sectors

• Reduce or Diminish an incentives for oil fuel usage especially oil fuel subsidy

• Mass transportation planning to reduce the use of private vehicles in all major cities

• Creating gas infrastructure for motor vehicles in order to make a option of energy for vehicles

• Increasing a biofuel role as a primary fuelfor vehicle

Lessening oil fuel consumption on

transportation sector

12

The Role of Financial Sector to Support Energy Sector

13

Banking Sector showing a solid performance in recent years...

3.3%

2.2% 1.9% 1.8%

2.6%3.2%

2008 2009 2010 2011 2012 Dec-13

1,973

2,7853,225 3,664

2,339

1,753

2008 2009 2010 2011 2012 Dec-13

2,201

1,3081,766

3,2932,708

1,438

2008 2009 2010 2011 2012 Dec-13

2,3113,009

4,9554,263

2,534

3,653

2008 2009 2010 2011 2012 Dec-13

21.6%22.8% 23.1%10.0%

24.6%30.5%

…likewise banking sector third party fund…

Growth (YoY)

Banking sector asset grows more than 16% With credit growth slightly decrease

Growth (YoY)

Growth (YoY)

IDR Miliar / %

16.3%10.1%

21.4%16.2%18.7% 16.7%

19.1%12.5%

16.0% 15.8%18.5%13.6%

…but with NPL ratio keep low...

Sumber: BI, Statistik Perbankan Indonesia, Desember 2013

14

Banks still dominate the source of financing with an additional banks’ credit per year accounted for 86% of total additional financing

High dependency on banking system, around 62% of financing is from banks

Banks assets is much bigger than other financial institutions...

… in the midst of limited access on the capital market

Total Emiten Desember 2013

215

488

Bonds

Equity

Total Posisi Desember 2013 (Rp Trilliun)

642.5

1,062.7

385.3Outstanding

Corp Bond

Outstanding

Stock

Outstanding

Govt Bond

Banks

Credit

400.4

199.9Mutual

Funds

Multi

finance

Banks 4,954.4

3,292.8

As of 24 Jan 2014

18 Mar 2014

Asset Institusi Keuangan Desember 2013 (Rp Trilliun)

Source: Bank Indonesia & OJK

Namun Perbankan nasional terkendala dengan terbatasnya likuiditas yang ditandai oleh tingginya loan to deposit ratio (LDR) yang sudah menembus 90%

LDR Perbankan Nasional (%) 2001 – 2014

Sumber: CEIC, data diolah

16

33.0

38.2

43.5

50.0

59.7 61.6

66.3

74.6 72.9

75.2 78.8

83.6

89.7 90.25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jun-14

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mar

-05

Jul-

05

No

v-0

5

Mar

-06

Jul-

06

No

v-0

6

Mar

-07

Jul-

07

No

v-0

7

Mar

-08

Jul-

08

No

v-0

8

Mar

-09

Jul-

09

No

v-0

9

Mar

-10

Jul-

10

No

v-1

0

Mar

-11

Jul-

11

No

v-1

1

Mar

-12

Jul-

12

No

v-1

2

Mar

-13

Jul-

13

No

v-1

3

Mar

-14

Tho

usa

nd

s

Domestic banks Overseas banks Other domestic customers

Non-resident customers Foreign customers Export (RHS)

Import (RHS)

Forex transaction in domestic market relatively unchanged despite a significant increase in trade value

17

Sumber : CEIC Per tanggal 17 Maret 2014

Daily average 2005 to Mar 2014 : US$1.97 bn

Daily Average Trading in : 2005 : US$1.2 bn 2006 : US$2 bn 2007 : US$2.5 bn 2008 : US$2.1 bn 2009 : US$1.6 bn 2010 : US$2.1 bn 2011 : US$2.5 bn 2012 : US$1.9 bn 2013 : US$2 bn 2014 : US$2 bn

USD bn USD bn