Global Business Guide Indonesia

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Semen Baturaja (Persero) | Mr Pamudji Rahardjo
Mr Pamudji Rahardjo

The growth in demand for cement in Sumatra is outpacing that of the rest of the country, and we must be prepared to meet this opportunity

Mr Pamudji Rahardjo, President Director

Established over forty years ago, PT Semen Baturaja (Persero) recently conducted a public listing on the IDX and as a key player in a high growth sector achieved a 50% increase in profits for the first quarter of 2014. What can you tell us about your company’s background and its main strategies going forward?

Semen Baturaja is a relatively small company compared to our competitors; we operate primarily in the South Sumatra and Lampung provinces. We also serve clients based in Bengkulu and Jambi. Sumatra is currently in the midst of a period of strong growth, in part due to strategies laid out in the government’s Economic Masterplan (MP3EI). To achieve continued development, the Indonesian government plans to build a bridge between Java and the southern tip of Sumatra as well as a toll road that spans the length of this island from Lampung to Aceh. This bodes well for the cement industry based in this particular area of the archipelago.

Our company will expand our production capacity in conjunction with this increased construction activity in and around our current markets. To achieve this goal, it was important that we acquired mining land to obtain raw materials. There are three locations in Sumatra from which it is possible to source materials needed to manufacture cement, and we were granted concessions in these mining deposits from the government to facilitate our long term expansion. With a more steady supply of raw materials, we conducted an IPO in 2012 as a means of raising the capital needed to build new cement manufacturing facilities. Today, we are ready to simultaneously build two new plants and last year already increased our production capacity substantially. At present, we also have an ongoing project to develop a complete cement plant with the capacity to produce 1.5 million tonnes of clinker and 1.85 million tonnes of cement per year, scheduled for completion by the end of 2016. Through this type of initiative we are targeting an increase of our market share in the four aforementioned provinces from 30% to 50%. The growth in demand for cement in Sumatra is outpacing that of the rest of the country, and we must be prepared to meet this opportunity.

How does PT Semen Baturaja differentiate itself from its competitors in the cement manufacturing industry in Indonesia?

In today’s industry, most cement producers manufacture composite cements made with a lower clink factor. Though we offer also offer composite cements, the government requires that all large infrastructure projects use OPC (Ordinary Portland Cement) and manufacturing this particular variety of cement is our strength. Competitors in our primary markets are typically only able to produce composite cements and this gives us an advantage when looking to supply landmark construction projects undertaken by the government.

Do you intend to distribute your products in other parts of Indonesia?

Up until 2017, it is our plan to consolidate upon and further our position in existing markets but by 2025 we hope to expand into new areas including other parts of Indonesia. The opportunities available to us locally are considerable; cement consumption in this country is still only 225 kg per capita which is the lowest among our neighbours in South East Asia. It is thus no surprise that we have seen an influx of foreign companies such as Siam Cement from Thailand into the market.

For the time being, we remain focused on Lampung, South Sumatra, Jambi and Bengkulu. The logistics involved in the cement manufacturing industry in terms of delivering to customers and procuring raw materials necessitate the establishment of plants in relatively close proximity to target markets and mining deposits. Moreover, it is important that any location we set up operations in has a readily available supply of energy, as is the case with our current facilities. To expand beyond Sumatra, we would first need to ensure that we could fulfill these criteria and Java still falls short in this regard. With that said, we do see potential in expanding into Kalimantan.

How is your company positioned towards cooperation with foreign companies and international investors looking for a local partner in the cement industry?

The majority stakeholder of our company is the government and as such much depends upon their openness towards this type of collaboration. We are, however, very much interested in working with companies that can make available new technology and we have already collaborated with suppliers from Europe to obtain machinery for our latest cement plant. It remains a challenge to obtain top quality cement manufacturing machinery locally or from other Asian markets. Moreover, to ensure that we are active in better understanding and applying the latest production processes our company invites experts from abroad. For example, we recently hosted experts from Germany to overhaul and complete maintenance checks in our plants.  

Joint ventures in downstream industries are another area where we see potential for cooperation with foreign companies. Pre-cast concrete products are increasingly popular here in constructing roads and high rise buildings, and our company welcomes partnerships with companies that have expertise and know-how in this area. We have the cement ready to supply this kind of joint venture.

What do you think are the main obstacles faced by companies in Indonesia’s cement manufacturing industry?

Infrastructure continues to be an issue in Indonesia, particularly in regards to an inadequate road network, underdeveloped seaports and a lack of consistent power. These problems have influenced investors to set up operations in Java rather than Sumatra, as it is perceived that the former has progressed further in its development of better infrastructure. As a cement manufacturer based in Sumatra, it would be to our benefit for more companies to view this island as a potential base to build factories and/or headquarters. The government’s commitment to addressing this lack of infrastructure here should begin to address the issue and also gives us the opportunity to supply cement to large-scale infrastructure projects.

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

PT Semen Baturaja is now a publically listed company, and we invite investors to invest in Indonesian companies in cement manufacturing to support the continued growth of this industry.

Global Business Guide Indonesia - 2014

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