Resources and energy to Indonesia

 

 

Trends and opportunities

The market

Indonesia continues to be an important player in the global mining scene with significant levels of coal, copper, gold, tin and nickel. Global mining companies continue to rank Indonesia highly in terms of coal and mineral prospects, although regulatory challenges remain. The modest uptick in global commodity prices over the last two years has improved the outlook of the sector. Indonesia’s commitment to substantially is increasing its level of infrastructure investment and should also reduce costs over time in getting commodities to market.

Indonesia’s scale and prospectivity has ensured that the resources sector continues to attract significant foreign interest. Australian METS companies and miners enjoy a reputation as industry leaders in quality and innovation – this reputation is a valuable asset for Australian miners. Asian equipment suppliers generally retain the largest market share across the resources sector, while suppliers from Australia are perceived as being of higher quality but also higher cost. Demonstrating your product or service’s productivity or efficiency benefits is key.

Indonesia is one of the world’s major producers and exporters of oil and gas products such as crude oil and LNG. Indonesia is currently focusing on building its energy security, spreading resources income across the regions and improving its taxation and regulatory framework to encourage investment in the sector.

With over 17,000 islands spread across the archipelago, securing resources and energy infrastructure to sustain economic growth is a challenge for the government. Spreading the balance of development outside Java and Sumatera is a priority for the government to reduce regional inequality.

One key budgetary reform was the cut to fuel subsidies implemented early in President Joko Widodo’s term. With this move the government aims to shift its spending budget allocation toward infrastructure including power generation. The ambitious 35,000 GW power generation target is expected to support the Indonesian Government’s economic growth targets. On the other hand, improving the country’s regulatory framework is vital. With the level of ease of doing business improving slowly, Indonesia may move to encourage more investment realisation in the resources and energy sector. With all these factors, Australia’s expertise in resources and energy sector, from both technical and innovation perspective will be a strong proposition to the sector.

Mining Company Profile

Read a mining company profile on PT Vale Indonesia TBK (PDF).

Opportunities

Areas of opportunities include:

Mining, engineering, technology, and services (METS)

Australian METS companies still have significant opportunities to build market share in Indonesia. Opportunities exist for providers of mining technology who can clearly demonstrate productivity gains to Indonesian miners. Demand remains strong for mining (and to a lesser degree exploration) software, specialised and innovative equipment, education and training services and specialised mining consulting. Like Australia, Indonesian miners are grappling with lower prices for commodities, so demand is strong for savings and productivity enhancements. The Indonesian mining industry has also suffered from considerable skills shortages – creating opportunities for training providers. Mine safety – an area of outstanding Australian capability – also looms large as a growth opportunity for Australian service providers.

The Government of Indonesia has announced a series of ambitious targets for the construction of new energy generation capacity. The proposed energy mix sees coal playing a key role. As new generation capacity is rolled out, domestic demand for Indonesian coal is likely to increase, generating more opportunities for METS companies.

Should Indonesia’s partial ban on unprocessed ore exports remain in place the next five years will likely see substantial investment in smelting facilities. The policy has generated considerable challenges for ore miners but will create opportunities for Australian companies throughout the project lifecycle, from feasibility studies through construction and operation of smelters.

Indonesia is a useful springboard for exploring other ASEAN mining markets, with many Jakarta headquartered miners having strong connections in other key regional mining markets.

Power sector capabilities

There are opportunities within the power industry for Australian companies with capability in designing, implementing, EPC and commissioning. Indonesia’s ambition to increase its electrification ratio may increase the scope of opportunities for Australian business.

Exploration for new concessions in renewables, oil and gas

Indonesian energy demand is predicted to grow strongly over the medium term. According to research published by McKinsey and Company, Indonesia’s middle class will expand dramatically over the next decade and a half – by 2030 Indonesia will be the world’s seventh largest economy. This will put extreme pressure on Indonesia’s creaking energy infrastructure and make identifying new energy sources increasingly important for sustaining growth.

In the medium term this is likely to see a greater emphasis on encouraging exploration in oil and gas and unconventional energy. The government has already signalled it wants to see a substantial expansion of renewables, oil and gas exploration in particular. Australian companies providing exploration services should continue to monitor developments in Indonesia.

Links

Industry contacts

Indonesia Investment Coordinating Board (BKPM)
Indonesia Mining Services Association
Indonesian Coal Mining Association (ICMA-APBI)
Indonesian Mining Association
The Indonesian Renewable Energy Society (METI-IRES)

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