TBY talks to Rahmad Pribadi, CEO of PT Semen Baturaja (Persero) Tbk, on environmentalism, cement production, and making history.

Can you give us a short introduction to the background of PT Semen Baturaja (Persero) Tbk?

PT Semen Baturaja (Persero) Tbk was founded in 1974 as a state-owned company, though today it is a publicly listed company with 24% public ownership and the remainder owned by the Indonesian government. The saying that “life begins at 40" is apt for PT Semen Baturaja (Persero) Tbk because it 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 just 26 months. PT Semen Baturaja (Persero) Tbk 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 the production capacity in Sumatra is still lower than the 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 that is region is rich in oil, palm plantations, copper, and coffee. Thus, this region of Indonesia has been enjoying healthy economic growth.

Is PT Semen Baturaja (Persero) Tbk currently producing at full capacity?

We have a new plant that just 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 this looks set increase to around USD2.75 million in 2018. This is firstly because the market is there. 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. In addition, 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 makes PT Semen Baturaja (Persero) Tbk stand out from other competitors?

Being right in the market is extremely important in a number of ways; by being in close proximity to customers' projects, we can ensure 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 coming into a consolidation period, which means the market share of the three largest players will start to decline due to new players coming in. We see this as an opportunity because market growth will exceed the capacity of the three main players. 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 are looking at the various markets in Indonesia at the moment and see some potential. As a smaller player, we cannot compete with a 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.

How do you incorporate environmentally friendly practices into your cement production?

This is the main area we are focusing on currently. We have invited forestry experts from one of Indonesia's leading universities to assist us in improving environment condition. We are proud to be the first company in Indonesia to implement silviculture as our method to preserve and improve quality of surrounding environment. By implementing silviculture, we are converting the land around our quarries to be healthier for plant growth, and hence the quality of environment will improve. In 2017, we did a biodiversity survey and found some endangered species and are now planning a conservation area to help protect those endangered species. We would like to prove that when managed correctly, extractive industries can work alongside and in fact improve the quality of the environment while increasing their capacity. Higher production does not have to come at a cost to the environment. This is one of the key differences in PT Semen Baturaja (Persero) Tbk's strategy and in the future customers will look for companies that look after their environment better than the rest. This is our vision—to be recognized as the most environmentally friendly cement company in Indonesia.

What can the government do to further support the cement industry in Indonesia?

The government can play a role from both the supply and demand side. On the supply side, with Indonesia current excess capacity, putting a moratorium on the installation of new capacity would help the industry. The way to have healthy growth is to ensure that all players are able to be healthy. On the demand side, the government's efforts toward infrastructure are a great thing. It introduces a great deal of economic activity into many places in Indonesia and we would like to see that continue. Deregulation should be a positive thing. In 2015, the government relaxed the mortgage requirements for house purchasers and reduced property sales tax from 5% to 2.5%, for up to a certain property value. Moreover, the government's infrastructure developments have definitely helped improve bulk cement sales for our industry.

Where would you like PT Semen Baturaja (Persero) Tbk to be in a year's time?

In a year's time, PT Semen Baturaja (Persero) Tbk would like to be not only the number-four publicly listed cement company, but also ranked number four in terms of our capacity, revenue, and more. We would like to capture the opportunities that will arise from consolidation over the coming year.