FILLING THE NICHE

Indonesia 2018 | CONSTRUCTION & REAL ESTATE | INTERVIEW

TBY talks to Rahmad Pribadi, CEO of PT Semen Baturaja, on insatiable demand in South Sumatra, the perks of being a niche player, and remaining an environmentally friendly cement producer.

Rahmad Pribadi
BIOGRAPHY
Born in Yogyakarta, Rahmad Pribadi started his career at PT Caltex Pacific Indonesia and continued in various national and multinational companies. Prior to his appointment as Managing Director of the company, he was the Human Resources and General Director of PT Petrokimia Gresik. He received his BBA from the University of Texas at Austin and his MPA from Harvard.

Can you give us a short introduction to the background of PT Semen Baturaja?

PT Semen Baturaja was founded in 1974 as a state-owned company, though today it is a publicly listed company with 24% private ownership and the remainder owned by the Indonesian government. The saying that “life begins at 40" is apt for us because we decided to list on the stock exchange when the company was 39 years old. That same year, the company decided to add additional production capacity, and today we have a total capacity of 3.85 million tons of cement per year. The construction of our second cement plant was the fastest in Indonesian history, taking merely 26 months. PT Semen Baturaja is a niche player compared to others in the cement industry here. We have a production base in the center of South Sumatra province, and our sales cover four provinces of Sumatra: South Sumatra, Lampung, Jambi, and Bengkulu. What makes this market interesting is that production capacity in Sumatra is still lower than demand. To be more specific, total demand in southern Sumatra is 6.5 million tons of cement per year, while our capacity, as the only producer in the region, is only 3.85 million tons per year. This means this particular market is capable of growing, unlike in other parts of the country. In South Sumatra, the growth in demand for cement is steadily increasing, most likely as a result of the government's policy to have a more decentralized fiscal regime and because it is a region rich in oil, palm plantations, copper, and coffee. Thus, this region of Indonesia has been enjoying healthy economic growth.

Is PT Semen Baturaja currently producing at full capacity?

We have a new plant that came online in September 2017, and are thus ramping up our production. We expect a significant increase in our sales volume in 2018. In 2017, our sales should reach close to USD1.9 million and is set to increase to around USD2.75 million in 2018. This is firstly because of the market's potential. Secondly, one of the largest projects of the government's connectivity infrastructure plan is constructing a trans-Sumatra toll road from the southern to the northern tip, which will require a great deal of cement. Once that toll road is up and running, the economy will start growing along that route. When the economy prospers, basic industries such as cement will also experience a growth in demand. Thus, while there is an excess cement capacity of 40% in Indonesia in 2017, we see potential for healthy growth in our market and are extremely optimistic for 2018.

In addition to your strategic location, what differentiates you from competitors?

Being at the center of the market is extremely important in a number of ways; close proximity to customers' projects ensures the availability of the product and quicker delivery. Proximity also means it costs our customers less to get their cement delivered. Our setup makes us stand out and gives us great advantage over our competitors. In terms of the industrial cycle, we are entering a consolidation period, which means the market share of the three-largest players will start to decline due to new players coming in. For a player like us, we see an opportunity to enter a market that has been underserved and we will expand and perhaps go beyond South Sumatra. We can see some potential while looking at the current situation of various markets in Indonesia. As a smaller player, we cannot compete with larger regional and international players. However, there are places that larger companies have left open, and those are the places we will concentrate on. We are a niche player in South Sumatra and can play the same game in different areas. We also want to differentiate ourselves from other players by being an environmentally friendly cement producer.