Global Business Guide Indonesia

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Pupuk Sriwidjaja (PUSRI) | Mr Ir. Musthofa
Mr Ir. Musthofa

Many fertilizer plants are outdated and require revitalisation; this creates opportunities for investment and cooperation

Mr Ir. Musthofa, President Director

Established over fifty years ago, Pupuk Sriwidjaja (PUSRI) is a pioneer in urea fertilizer production in Indonesia. What can you tell us about your company’s background and its strategies going forward?

The company was established in 1959 beginning with a small plant of only 100,000 T capacity called Pusri I in Palembang. Pusri 2 was then constructed with a 1,100 T per day capacity for urea and this was followed by Pusri 3 and Pusri 4, both with a capacity of 1,725 T per day. We did not expand further until 1991 with the construction of Pusri 1P for ammonia and urea production. This replaced Pusri I as this particular facility was using outdated technology.

Between 1991 and 1994, our company was in a phase of ensuring stability as opposed to pursuing growth, as our energy consumption rose due to the use of older technology. The price of gas increased from $1 USD to $5.5 USD per unit so as per government policy we had to revitalise old fertilizer plants. In line with the initiative to become more efficient, our future development plan focused on the restructuring of the company to become part of the Pupuk Persero Holding Company. We thus spun off Pusri Palembang as a subsidiary company at the end of 2010 and in January 2011 we officially began production.

As a subsidiary we focus on Palembang only and concentrate on revitalisation. Pusri 2B is currently under construction to replace Pusri 2 and this is due to be in operation in October 2015. To anticipate the rise in natural gas prices and the shortfall in supply from our existing suppliers, we have constructed our own steam generator using coal. All of our utilities for electrical power using natural gas will now be converted to use coal.

What is your outlook for the fertilizer industry in Indonesia?

For urea, Indonesia’s current capacity is 7 million tonnes with domestic consumption for subsidised fertilizer at 4.1 million tonnes and non-subsidised at 1.5 million tonnes. The remainder is exported abroad. The Indonesian government is promoting an increase in the amount of land used for plantations for palm oil, rubber and foodstuffs such as corn. Increased consumption particularly in urea can still be fulfilled by the existing production capacity; however raw materials such as potash and phosphate are all imported as Indonesia cannot produce these items with around 1.5-1.8 million tonnes of potash imported every year.

Increasing the land under cultivation is challenging but intensification of the use of fertilizer should rise by providing better education to farmers and this can improve productivity. The use of NPK yielded a 30% growth in productivity of paddies. Now we have to consider how to maintain the fertility of the soil by using organic fertilizer and the government is currently providing subsidies for not only urea but also organic fertilizers and other types such as NPK. This means that urea consumption is actually declining for use as a subsidised fertilizer.

What are the main challenges faced by Pusri in Indonesia’s fertilizer production industry?

As a state owned company we must fulfil the government’s needs and plans for subsidised fertilizer as part of their program. In terms of the business side, we have only a 10% margin for subsidised fertilizer but this is not the case for non-subsidised fertilizer. This limitation on our margin makes it difficult to generate profits when compared to a private company, and this poses a challenge when trying to yield funds for investment and capital expenditure.

Our production facilities are also old so we must plan to build new plants or to replace the technology in order to compete effectively in the non-subsidised fertilizer market - making our operations more efficient is therefore crucial to our future success. Being located in Palembang also has its share of difficulties, as large scale ships with a cargo capacity of 1,000 tonnes cannot access Palembang due to its lack of suitable infrastructure.

How is your company positioned towards cooperation with international partners?

We are open to cooperation with international investors and partners; however the subsidised fertilizer obligation can be off-putting to investors due to the limitations on profitability. Removal of the subsidies has been under discussion for some time so there is no definitive timeline for the ending of the subsidies. Within non subsidised fertilizer, there are areas of potential for introducing new products and producing fertilizer in private manufacturing facilities. As part of our business development plan, we are moving into coal gasification with Bukit Asam and are conducting a feasibility study for a gasification plant to produce chemicals such as methanol. Many investors have approached us to be involved in this project. Outside of the subsidised field in the market driven area, there are a lot of opportunities to work with partners to utilise the latest technology.

In Aceh we will construct a phosphoric acid plant and an NPK plant with the Jordan Phosphate Mining Company whereby they will support us in providing the raw materials. We have the market here in Indonesia and we have the technology but we are interested in working with partners for special commodities where we do not yet have the technology and require capital to develop the project.

In which areas does Pusri plan to pursue further diversification in the future?

In addition to opening an NPK plant and moving towards coal gasification, we plan to spin off our shipping activities as a subsidiary to serve the holding as a whole; this company will be 50% owned by Pusri and 50% by Pupuk (Persero). We hope that this new company will have no limitations on its operating permit as currently it is limited to a special license to Pusri Palembang and can therefore not deliver commodities from outside parties even though we have idle vessels. This new company can distribute commodities throughout Indonesia.

What would you like our readers to remember about Indonesia as a final message?

Indonesia is still developing the means for food security and self-sufficiency in foodstuffs such as rice, corn and soya beans. The country requires good seeds, good fertilizer and technology to achieve independence. To do this we need cooperation with foreign partners and investors. Within the plantation sector, palm oil production and other commodities require premium quality fertilizer to grow and develop; this presents opportunities to work together. Furthermore, many fertilizer plants are outdated and require revitalisation; this brings about opportunities for investment and cooperation in addition to our plans to diversify into other chemical products.

Global Business Guide Indonesia - 2014

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