Budi Irmawan

Overview of Investment Opportunites

In Indonesias Iron & Steel Industry

Contents
I. Overview of Indonesias Iron &
Steel Industry
II. Indonesias Industrial Policy
III.Investment Opportunities
IV.Summary

Overview

Economic Development Goal

INDONESIAS
VISION:
TO LEVERAGE INDONESIAS POSITION
TO BECOME WORLDS DEVELOPED
COUNTRY AND 10TH WORLDS BIGGEST
ECONOMY BY 2030 AND 6TH WORLDS
BIGGEST ECONOMY BY 2050 THROUGH
SUSTAINABLE AND INCLUSIVE HIGH
ECONOMIC GROWTH

2045
GDP ~US$ 16.6 Trillion

2025

Income per capita predicted to

reach~US$ 46,900

GDP: 3,8 4,5 Trillion US$

Predicted to become worlds 7th

or 8th biggest economy *)

Income per capita:

US$ 13.000 16.100

2010

Worlds 12th biggest economy

GDP ~ US$ 700 Billion

Income per capita US$ 3,000 (2010)

KEN projection: Income per capita ~US$

14,900 (high income country)

Notes:
*) Calibrated from G-Sachs and
Standard Chartered Bank
prediction for Indonesia 2050.

Worlds 17th biggest economy

Source : Bappenas,
Lukita

Overview

Indonesias Industrial Policy

Investment Opportunities

Indonesias Potential and Attractive Value

National Potential
Vast Size of
Archipelago

Region

Geography

Needs for Infrastructure,

Roads, and Bridge
- Building materials
- Construction equipment
- Transport equipment
- Steel construction

-Telecommunications
-Satellite & peripherals
- Steel construction

Farming

Key Metrics

About 165
TCF of
reserves at
production
rate 3 TCF
pa

Forestry

Human Primary, Secondary,

and Tertiary Needs
- Agro
-Clothing
- Agricultural equipment - Educational tool
- Fertilizer & Other support- Electrical equipment
- Food
- Energy equipment
- Medical devices

- Services RBPI
- Packaging

Natural Gas

Abundance of Natural resources

250 Million Population

Mining

Sea

Others

Infrastructure needs of process

machinery, and other equipment
-Steel construction
- Construction
equipment
- Services RBPI

- Transportation
- A communication tool
- Entertainment gadgets
- Supporting tools

Thermal Coal

Geothermal

Palm Oil

Iron

Tin

About 28
Billion Tonne
of Coal
Reserves

Home of
40% of
worlds
resources
(the largest
in the world)

Worlds
largest
exporter;
>19 mil tons
per year

About 90
million
tonnes of
Iron Ore
Reserves

At 65 thou
tons/year,
worlds 2nd
largest
producer

- Transportation
- Construction equipment
- Electrical equipment
- Energy equipment
- The machines process
- Supporting tools

Nickel

Bauxite

Copper

Own 12%
of worlds
reserves (4th
largest)

Worlds 7th
largest
reserves;
worlds 4th
largest
production

About 1
Billion
tonnes of
Copper Ore
Reserves

Source : CMEA,
MoI

Various worlds largest natural resources reserves, world-class producers of

commodities, huge infrastructure projects are the pull factors for industry to grow and
expand more
Overview

Indonesias Industrial Policy

Investment Opportunities

Metal Industry Contribution to National Economy

Growth

Overview

Indonesias Industrial Policy

Investment Opportunities

Scope of Metal industry Sector

(Based on Ministry of Industry Classification)

Manufacturing Industry

Metal Based Material Industry

Iron & Steel Industry

Aluminium Industry
Nickel Industry
Copper Industry
Other Metal industry, e.g Tin,
Rare Earth Metal,

Source :
Bappenas

Overview

Indonesias Industrial Policy

Investment Opportunities

II

Indonesias Industrial
Policy

Industrial Development Policy

Law No 3 Of 2014 On Industry

Article 32
1. In order to increase the added value of the industry for deepening and
strengthening the domestic industry structure, Government may prohibit or
restrict the export of natural resources.
2. Further provisions on the prohibition or restriction of natural resources export as
referred to clause (1) are stipulated in Government Regulation.
Article 33
3. Both central and local Government guarantee the availability and distribution of
natural resources for domestic industry.
4. To ensure the availability and distribution of natural resources for domestic
industry as referred to clause (1), Government and Local Governments stipulate
the use of natural resources for the interest of the domestic industry.
5. Further provisions on the assurance of availability and distribution of natural
resources as referred to clause (1) and utilization of natural resources as referred
to clause (2) are stipulated in Government Regulation.
Overview

Indonesias Industrial Policy

Investment Opportunities

Incentives

10

Measures of Incentives

Fiscal
Incentives

Overview

(based on Investment Law No 25/2007)

Income tax reduction for investment in particular

sectors and/or particular regions

Tariff redemption in importing machine, raw material

for particular industries

Tariff redemption, income tax, luxury goods tax, value

added tax for particular industries

Indonesias Industrial Policy

Investment Opportunities

Incentives

11

A. Tax Holiday (PMK No. 130 of 2011)

A facility of exemption from income tax that is granted to a company for a specified
period. These facilities are usually given to stimulate investment in a particular
region or industry sector, for example for companies that initiate pioneer industries
or set up factories in regions with inadequate infrastructure.
Criteria:
a. is a pioneer industry (based on Government Regulation PP 94/2010, Article 29
paragraph 2, a pioneer industry is defined as an industry that has extensive
linkages, provides high added value and externalities, introduces new
technologies, and has strategic value for the national economy);
b. has planned new investment that has received approval from the competent
authority;
c. places funds in banks in Indonesia equal to at least 10% (ten percent) of the
total planned investment referred to in point b, which may not be withdrawn
before the start of the implementation of the realization of the investment; and
d. existed as an Indonesian legal entity that was confirmed no longer than 12
(twelve) months before this Finance Minister Regulation came into force, or
whose confirmation was determined after the enactment of the Finance Minister
Regulation.
Overview

Indonesias Industrial Policy

Investment Opportunities

Incentives

12

B. Tax Allowance (PP 52 of 2011)

Objective
To increase investment activities in order to boost economic growth and for
equitable and acceleration of development on the business section and / or a
particular area
Provision of Tax Allowance Facility
1. Net income reduction of 30% (thirty percent) from the investment amount
charged for 6 (six) years respectively by 5% (five percent) per year;
2. Accelerated depreciation and amortization;
3. Income Tax obligation on dividends paid to foreign tax subject of 10% (ten
percent) or a lower accoding to applicable Double Taxation Avoidance
Agreement
4. Compensation for loss of 5 (five) years at the minimum but not more than 10
(ten) years.

Overview

Indonesias Industrial Policy

Investment Opportunities

III

Investment
Opportunities

Industrial Development Focus

14

Strengthening Industrial Structure

Promote investment in vacant industries on its industrial tree

Promote Investments of minerals processing

industries
High value-added products

Increase national capacity

Promote competitiveness and export-oriented industries

Overview

Indonesias Industrial Policy

Investment Opportunities

Industrial Development Target

15

Metal Industry Consumption (Kg/Capita)

70.00

55.85

41.55

38.65

35.75
29.57

28.44

7.02
2.40

0.600.90

2.65

0.641.20

2.92 1.50
0.68

Iron & Steel

Overview

3.42

0.731.80

Aluminium

4.02

Nickel

2.10
0.78

7.02
3.60
1.08

5.00
1.50

Copper

Indonesias Industrial Policy

Investment Opportunities

A. Strengthening Industrial Structure

16

Iron & Steel Industry

Overview

Indonesias Industrial Policy

Investment Opportunities

A. Strengthening Industrial Structure (Contd)

17

Aluminium Industry
Lithographic
Printing Plates
Al Rod

Ladders
Al Sheet
Al
Scrap

Bauxi
te

Bayer
Proces
s

Alumina

HallHeroult
Process

Al Flat
Bar

Sporting Goods
Al
Ingot

Al Tube
Al Round
Bar

Available in Indonesia
Not Available in Indonesia

High Pressure Gas

Cylinder

Machined
Components
Road Barriers &
Signs

Al Square
Bar

Furniture

Ore

Mining

Overview

Smelting

Forming

Indonesias Industrial Policy

Application

Investment Opportunities

A. Strengthening Industrial Structure (Contd)

18

Nickel Industry

Available in Indonesia
Not Available in Indonesia

Ore

Forming

Mining & Smelting

Overview

Indonesias Industrial Policy

Application

Investment Opportunities

A. Strengthening Industrial Structure (Contd)

19

Copper Industry

Available in Indonesia
Not Available in Indonesia

Ore

Mining & Smelting

Overview

Forming

Indonesias Industrial Policy

Application

Investment Opportunities

B. Promote Investments Of Minerals Processing20Industries

VALUE
ADDED
CALCULATIO
N

VALUE
ADDED
CALCULATIO
N

VALUE
ADDED
CALCULATION

VALUE
ADDED
CALCULATIO
N

Overview

Sponge
Iron

Iron Ore

Bauxite

Alumina

20

Slab/Billet

12
Aluminium
Ingot

147
Stainless
Steel

Nickel Ore

Ferronickel

103

Copper Ore

Copper
Concentrate

Copper
Cathode

37.5

100

Indonesias Industrial Policy

105

Investment Opportunities

21

B. Promote Investments Of Minerals Processing Industries (Contd)

Electricity
Production

Coal
C

b
m
o

Products
Value
3 MWh electricity
$150
>
Total
$150

n
o
i
t
us

1 Ton,
Coal Gasification
6000
Po and Liquefaction
kcal/
ly
kg Coal
ge
ne
At US$
ra
70
tio

Fuel and Power

Production

November 21, 2006

Revised by Meirios Moechtar, July 2008
Source: SASOL Synfuels International, 2009, Bapennas

Indonesias Industrial Policy

6X

Products
Value
0.083 MWh electricity
$4.15
0.28 bbls naphtha
$40.32
~
2.13
bbls
diesel
fuel
Chemical Synthesis6X
$399.37
Products
Value
Total
0.6 MT DME $443.84
$410

Fuel, Power &

Fertilizer Prod.

John N. Ward
JPMorgan Chase & Co.
Analyst Briefing

Overview

>
2X

>
7X

Products
Value
0.31 MWh electricity
$15,50
0.30 bbls naphtha
$43.21
1.58 bbls diesel fuel
$296.25
0.30
ammonium
nitrate
Investment
Opportunities

C. Increase National Capacity

22

Textile and Textile Products (Example)

Share of TTP to the World

Export Value of TTP to the World

Share Textile-World

Share Clothing-World

$10,144
2.20%

2.40%

Export Value

1.50%

1.70%

$9,262

(Kg/Capita)
Year
201 201 201 201 201 201 201 201 201 201 202
0
1
2
3
4
5
6
7
8
9
0
1
0 4.3
10.1 11.1
%
4.73 5.20 5.72 6.30 6.93 7.62 8.38 9.22 4
5
Gr 1
ow 5 4.3
11.4 13.1 15.1 17.4
th %
4.95 5.69 6.54 7.52 8.65 9.95 4
5
3
0
2
0 4.3
10.7 12.8 15.4 18.4 22.1 26.6
Overview
%
5.16 6.19 7.43 8.92 0 Indonesias
4
1 Industrial
9
9Policy
2

With this growth :

Accumulated Labor
forces will be
absorbed : 1.6 1.7
Million people

Exports will increase

by : USD 13.3 14.2
million
Source: WTO, API,
MoI

Investment Opportunities

C. Increase National Capacity (Contd)

23

Petrochemical Industry (Example)

Demand And Supply Of Petrochemical Product (2012)
1200

995

778

750

1. Demand for petrochemical products is increasing, while

supply is relatively constant.
2. Petrochemical products are still shortage, since demands
are higher than domestic supplies.
3. Consumption for plastic products around 10 kgs per capita,
still low compared to other developed countries (30-50 kgs).
4. It needs large-scale investment: refinery and cracker,
upstream and intermediate products.

Centers of Development
NO.

579
500

Opportunities

500

LOCATION

GROUP

1.

Cilegon, Banten

Olefins

Ethylene, Propylene,
PP, PE

2.

Bontang,
East Kalimantan

Methane based

Methanol, Ammonia

3.

Tuban,
East Java

Aromatics

Benzene, Toluene,
Paraxylene

4.

Muara Enim,
South Sumatera

Coal-methane
based

Methanol, Ammonia

5.

Tangguh,
West Papua

Methane based

Methanol, Ammonia

450
400
340

Overview

PRODUCT

Indonesias Industrial Policy

Investment Opportunities

Summary

24

Indonesia are blessed with a vast region and abundant natural resources which
provide many opportunity.
Opportunity for potential partners are tremendous:
In infrastructure, there are opportunities to involves in several projects such
as:
a. Road & Toll Roads
b. Bridges
c. Water Supply
d. Electricity
e. Ports
f. Airports
Metal Industry Industries :
a. Strengthening industrial structure : Steel, Petrochemical, Textile & Textile
Product, etc
b. Value-added creation : Aluminium, Steel, Nickel, Copper Industries, etc
c. Increasing national capacity : Steel, Petrochemical, Textile & Textile
Product, Fertilizer, etc