Will open 337 new outlets with BP

How will AKR’s business change with your newly secured tender to import fuel for the coming five years?

AKR’s business in petroleum today is primarily selling high-speed diesel, which is used in industrial applications. Growth has been great in that segment over the last decade. We now see great potential growth areas, with coal prices increasing as well as the metal industry picking up. There is also the bigger part of petroleum downstream, more specifically retail, where there is now an opportunity to grow. Our government contract is mostly for diesel, with a small part comprising gasoline. In 2010, BPH Migas, the downstream regulator, wanted to bring in other parties to support the distribution of subsidized fuel across the country and opened tenders. Since 2010, AKR has been the only private company receiving the allocation of subsidized fuel, along with Pertamina. In 2018, Energy and Mineral Resources Minister Ignasius Jonan also made the move to provide a longer-term contract for the next five years. AKR was selected, along with Pertamina, to develop this business. The extension of subsidized fuel contracts to five years is a welcomed move. Now, AKR can grow its current figure of 135 petrol stations. Going forward, with the JV with BP, we will move on to non-subsidized gasoline. Over the next 10 years, we want to open 337 outlets under the BP brand. That will also bring in the superior quality fuels, lubricants, and retail stores. This is a 50.1% AKR — 49.9% BP Global, whereby AKR will support the joint venture in terms of equity and logistics. We will also jointly develop the outlets, taking care of land and construction. The concept of petrol stations in Indonesia is now moving toward those seen in developed markets. The most important infrastructure we need is storage tanks at the terminals. In the last 10 years, AKR has grown its storage tank volumes from 150,000cbm to nearly 666,000cbm. There are plans to grow this by another 30% over the next few years. Initially, the petrol stations will be owned and operated by the company. In three to five years, we will progress to the dealer-owned and operated model or the franchising model.

Can you elaborate on the Java Integrated Industrial and Port Estate (JIIPE) project, which has unique treatment from the government?

JIIPE is a large industrial estate with an attached seaport that seeks to attract industrial clients. We are developing 3,000ha of land in total, of which 400ha will be the seaport, 1,760ha will be the industrial estate, and 800ha will be residential. The problem in Indonesia is its high logistics costs, which are one the highest in the region and the world because of inefficiencies in terms of transporting goods in and out of the country. The port facilities and road infrastructure need to be addressed. We have been developing JIIPE since 2012, and it will have port access, toll roads, and railway access, which will improve the ease of bringing in goods as well as exporting. We are currently developing Phase I of the project, for which we have acquired more than 1,000ha of land. Here, the emphasis is on developing utilities, such as power plants, wastewater management, logistics, office utilities, railway depots, and so on. All these add value to the clients, which are primarily heavy or medium industry. The development is massive, and we have divided it into three phases. The first will be from 2014 to 2019 and will encompass 800ha of industrial land and road access from highways to our location, as well as interior roads. We are developing three power plants to service customers. The first will be a 23MW multi-fueled plant, which was commissioned in 2017. The second is a 500MW gas-fired plant, while the third will be a 660MW coal-fired plant. Heavy industry requires a huge amount of power. We will develop power here to supply directly to the fertilizers, the smelters, and other heavy industry clients. We currently have more than seven clients, including Swiss Clariant, a specialty chemical manufacturer, Unichem, and Hextar from Malaysia. We also have Djarum Group, which will develop a castor oil refinery. This becomes an efficient proposition if companies seek to import and export, as well as distribute inland. The government supports this project because our partner is state-owned enterprise Pelindo III, which owns 40% of the industrial estate and 60% of the port. Pelindo III will dredge the channel so the port can accommodate Post-Panamax vessels up to 150,000 tons, making the port one of the largest and deepest in the country. The government and others are extremely supportive because they see the need for such an industrial estate to bring foreign and domestic investors and improve efficiencies.

What motivated the decision to divest your business in China?

AKR has been in China since the 1990s. The first plant was developed in 1994, when we were mostly a chemical producer. It was a sorbitol and sweetener plant in Liuzhou, Guangxi province. As we have significantly grown in Indonesia, it is time for us to close down the China operation. The Chinese government wants to redevelop that area and we signed an agreement to hand over the land. We had also invested in a port project in Guigang, Guangxi. We had a great offer from a Chinese state-owned enterprise that is also a port operator. Both transactions will net us at least USD250 million to bring back to Indonesia. Now that we have initiatives in retail and the industrial estate, we can deploy the funds more effectively.

What are your immediate plans and ambitions?

We expect to grow in the double digits in 2018 in terms of profit. There is new growth in retail, aviation, and utilities that will see the company growing much bigger and more balanced over the next few years.