The year of 1998 was the time of the Indonesian government opened the retail industry to foreign investors. It was following the letter of intent, which the Indonesian government signed with the International Monetary Fund (IMF) to revive the ailing economy due to financial crisis. The letter of intent stated that the Indonesian government should revoke the ban on foreign investors to enter the wholesale and retail businesses. The decision to open the Indonesian retail industry to foreign investors was later legalized by a Presidential Decision No.99/1998 and a Decision Letter of the State Minister of Investment (Head of Capital Investment Coordinating Board) No.29/SK/1998. The regulations stipulated that licensing procedures and all other requisitions that a foreign retailer has to fulfill are the same with those applicable to local large-scale retailers.
Before the first foreign retailers entered the Indonesian market, local retailers were already actively developing modern retail formats. Since 1970s, Indonesian retailers have established a network of supermarkets all over the Indonesian archipelago and currently most Indonesian towns and cities have at least one supermarket with a sales surface between 1,000 and 4,000 m². In 2007, leading local retailers were Matahari, Alfa Retailindo, Ramayana, Indomarco and Hero. After the liberalization of the retail industry, foreign retailers began to invest in Indonesia. While some foreign retailers invest in the supermarket and minimarket sectors, most foreign capitals have been investing in the hypermarket sector. Large-scale modern retailing really took off at the end of the 1990s, when foreign investment in the country was being liberalized.
Ramayana operates department stores and supermarkets, commonly on the ground floor or basement of its department stores. According to Retail Asian, Ramayana in second place with Rp. 4.8 billion with wider sales area, 456.900 sqm. Ramayana also lead in term of outlet number than Carrefour. They have 89 outlets than 24 in Carrefour. It means Carrefour succeed in sales per sqm, Rp. 43 million/year more bigger than Ramayana which reach only Rp. 10,6 Million/year.
Superindo: PT Lion Super Indo operates some 50 supermarkets under the Super Indo banner in urban areas throughout Indonesia, one of the world's most populated nations. The Indonesian grocery chain has been working to modernize its store layout and focused on offering more fresh products. Belgium-based global grocery retailer Delhaize Group bought a 51% stake in Super Indo in 1997, which operated about a dozen stores at the time. Delimmo, the investment arm of Belgian retailer Delhaize, converted a convertible bond into a 51 per cent stake in the local retailer Superindo in December 1998. The grocery chain has grown substantially since then adding many new stores, a distribution center in Jakarta, and product lines, including organic and ethnic items. The chain's Super Indo 365 line of private-label products, launched in 2006, has grown to more than 140 items.
PT. Carrefour Indonesia (Carrefour): Since its establishment in 1998, Carrefour of France has been expanding its business rapidly in Greater Jakarta and other big cities. When French retailer Carrefour entered the Indonesian market – also in 1998 – its aim was to organically increase a network of hypermarkets in collaboration with its joint venture partner Tigaraksa. Carrefour, as a major player in the hypermarket sector, currently operates 29 outlets throughout the country. The company markets more than 50,000 product items and employs more than 10,000 employees. In 2006, Carrefour recorded sales of $656 million. In 2008, the company booked €893 million in total sales. This represented a 17 percent increase from the year before, but this also reflected the contribution to sales of PT Alfa Retailindo (Alfa) - the supermarket operator Carrefour acquired in January, 2008. Alfa's contribution to Carrefour was close to IDR3 trillion or almost €200 million. In 2008, Carrefour’s operations in Indonesia consisted of 37 hypermarkets (vs. 29 hypermarkets in 2006). The company recorded €627m sales in 2006, and sales were up 14.4% over the first nine months of 2007.
PT. Makro Indonesia (Makro): PT. Makro Indonesia, a subsidiary of the Netherlands-based retail chain operator SHV Holdings, started its operation in 1992 with the establishment of its first outlet in east Jakarta. In 2007, Makro operated 19 outlets in 13 cities including Jakarta, Bandung, Semarang, Medan and Bali. The company’s sales in 2006 were $467 million. It was owned by Dutch wholesaler SHV Holdings. SHV in July 2008 said that it would sell its stake in PT Makro Indonesia to expand their business in Thailand and hired HSBC Holdings to find a buyer for the discount chain. First mover was the Dutch company SHV that entered Indonesia via its subsidiary Makro Asia, opening its first Makro Cash & Carry store in 1992. Catering to small entrepreneurs, the cash & carry format suits an emerging market well. Foreign retailers, however, really started to affect developments in Indonesia after the government began facilitating foreign investment in 1998. On October 08, 2008 Lotte bought a 75 percent stake in discount store chain PT Makro Indonesia for 294 billion won ($223 million). All stores will be renamed Lotte Mart. With this purchase, Lotte Mart now has 27 branches overseas, including eight in China bought last December from Makro China, as well as 58 branches in Korea. The company also plans to open a Lotte Mart store in Vietnam later in the year. Shinsegae-owned discounter E-Mart is neck-and-neck with Lotte with 16 branches in China and 117 branches in Korea.
PT. Indomarco Prismatama (Indomaret): Indomaret was mini-market-chain business owned by PT. Indomarco Prismatama. Indomarco focused on its Indomaret convenience stores and had leading position in this sector. Since its establishment in 1988, the company had been expanding rapidly. In 2007, Indomaret had franchised about 1,800 outlets throughout the country. Indomaret displayed more than 3,500 food and non-food items in all its outlets. In 2006, the company’s sales reached $356 million. Quite a contrast with Hero, the company was under control of its main foreign shareholder Dairy Farm.
PT. Hero Supermarket Tbk. (Hero): Hero began to operate its first outlet in 1970s and experienced a significant setback when 16 of its outlets were looted and burned down during the May 1998 riot. However, the company’s financial performance had improved along with better economic and social conditions since 1999. PT. Hero Supermarket operated more than 90 outlets in Indonesia and recorded $322 million worth of sales in 2006. In addition to the supermarket business, the company also operated “Giant” hypermarket. In February 1998, Hong Kong-based retailer Dairy Farm acquired a 32 per cent stake in local retailer PT Hero. In 2008, 44.55 percent of stakes belonged to Dairy Farm which had a right to increase this to a 69.1 percent majority share at will.
Alfa Retailindo, a listed company on the Jakarta Stock Exchange, was a major operator in Indonesia convenience store, operating 29 stores across the country (with sales area comprised between 1000m² and 4000m²), of which 13 are located in Jakarta. In 2004, Alfa Retailindo gained net profits plummet by 71 per cent to US$11,731. In August 2005, the companies expanded to Makassar and Bekasi with investment was just about US$4.1 million in order to open two new stores. Alfa Retailindo reported net sales in 2006 of IDR 3624bn (€265m). Before 2007, the majority shareholder was local company Sigmantara Alfindo, subsidiary of HM Sampoerna, which owned 56.6 per cent of the shares. In 2007, the US Company Altria became the retailer’s second largest shareholder after its subsidiary Philip Morris acquired the Indonesian cigarette manufacturer Sampoerna which holds 23.4 per cent of the shares.
PT. Matahari Putra Prima Tbk. (Matahari): Matahari operated department stores, supermarkets, hypermarkets, discount stores and drugstores stores. The holding company of the Matahari Group was in 1958. Since its establishment, the company had been evolving from a small store that sold children’s clothing in Pasar Baru, Jakarta to be a national retail giant with 83 department stores, 10 children specialty stores, 27 “Hypermart” hypermarkets, 38 supermarkets, 36 health & beauty centers and more than 110 family entertainment centers. While hypermarkets were almost unknown phenomenon in 1995, Matahari had already started with its Mega M hypermarket format –local retailer – acquisition of an existing network was no option. PT Matahari Putra Prima Tbk reported earnings results for the year 2008. For the year, the company posted a 22.6% increase in sales to IDR 12 trillion ($1.09 billion) from IDR 9.8 trillion in the previous year. Matahari Department Store (MDS) and Matahari Food Business (MFB) were respectively accounting for IDR 5.9 trillion and IDR 5.7 trillion of the total sales. Each outlet of the two business units recorded an increase of 10.8% in sales. Despite the strong growth in sales the company suffered a decline in net profit to IDR 10 billion on foreign exchange loss in 2008. Matahari Department Store provides sales outlook for the first quarter and full year of 2009.
Senin, 22 Juni 2009
Rabu, 20 Mei 2009
Indonesia Sharia Banking Industry
The development of the sharia banking in Indonesia has started well before a formal legal base for sharia banking operation came into force. Before 1992, even though, there were several non-bank financial institutions that applied share base contract founded. For instance, Timberg (2004) expected that there were 1,500 kopontrens, which is cooperative for Islamic school (pesantren). It was registered by the Ministry of Cooperatives frequently connected with agriculture.[1] Through the enactment of the Banking Act No. 7/1992, Islamic banking in Indonesia started to operate from 1992.
The initiative to engage Islamic financial business, however, raised uncertainty upon which forum was competent to settle Islamic banking disputes whether civil court or religious court. Both regarded themselves to be competent to settle such disputes.[2] An initiative to take charge of the settlement of Islamic banking disputes was also taken by the Indonesia Council of Religious Scholars through setting up BAMUI (Indonesian Muamalat Arbitration Body) in 1993. However, due to very poor knowledge of the Islamic law of arbitration possessed by the banks and their banking costumer complainants, the National Shari’ah Arbitration Body could not function effectively.[3] Due to the regulatory hurdles, this industry was experiencing a mini-boom and the BMI was the only one Islamic banking in Indonesia, which is BMI.
During the economic crisis in 1998, sharia banking was still performing much better than the conventional banking as indicated by a relatively low level of non-performing loans and the absence of negative spread in the operational activities. It because the rates of returns paid to the depositors were not determined by market interest rates. The evident shows that sharia banks were relatively more able to conduct lending as indicated by a relatively high LDR ratio, between 113 and 117 percent.[4] This experience has brought a hope to the public for the presence of sharia banking as an alternative banking system that was expected to be able to delivery economic benefits and ensure compliance with sharia principles. It triggered the amendment by Act No. 10/1998, to provide an opportunity to conventional banks to open an Islamic window.
Between 1998 and 2001, sharia banking system was growing 74 percent annually (in terms of asset size) from Rp. 479 billion in 1998 to Rp. 2.718 billion in 2001. The third party managed funds has also increased from Rp. 392 billion to Rp. 1.806 billion. The sharia banking system has also developed institutionally. There has been another commercial bank converting its operations into sharia commercial bank, besides there have also been 3 sharia unit banks and 3 sharia rural bank came into operations by the end of 2001. The number of sharia branch offices and sharia unit banks has also increased from 26 to 51 branches.
In 2001, there were several banks converted to Islamic banking under the care of the central bank (Bank Indonesia) and the Indonesian Restructuring Bank Agency, including Bank Tugu and Bank Bukopin. A revival of religious sentiment may be the reason for the popularity of Shariah banks. A central bank survey of 4,800 people in Java showed that almost all of them believed that Islam forbade the practice of usury.[5]
In the first quarter of 2002, the Indonesian Central Bank reported the assets of Islamic banks increased to Rp3.45 trillion (US$1.5 billion) from Rp2.72 trillion a year before. It extended loans under Koranic law, recorded a 35 percent increase in financing to Rp2.35 trillion in the same period August 2002. By July 2002, Islamic banks had a financing to deposit ratio (FDR) of 121 percent, up from 116.5 percent in the first quarter of this year although "ideally FDR is around 100 percent".[6]
To respond some Islamic banking disputes, the government enacted Law No. 3 of 2006. The regulation amended Law No. 7 of 1989 and expanded the jurisdiction of the Religious courts to cover adjudication of disputes belonging to Islamic economic matters, including Islamic banking.
In 2005, the assets was growing from Rp20 trillion to Rp50 trillion (around US$48 billion) in 2008 or around 34% annually growth (see table 1). It expected to $10 billion by 2010 which counted 5% of the world Islamic financial industry. US-based international credit-rating agency Standard & Poor's estimates that the global potential for Islamic financial services was $1 trillion in 2008 and could be closer to $4 trillion in 2010. Worldwide, Islamic finance currently represents less than 10% of the total global Muslim market of 1.5 billion people.
In 2006, Islamic banks reported a 79% year-on-year increase in business volume, to Rp8.76 trillion ($1.36 billion). The amount of leasing business, known as ijarah, grew by a whopping 164.7%, and sharia mutual funds grew in asset value by 17.6% last year, with a total net asset value of about Rp663.7 million. In 2007, there were three sharia bank in Indonesia, namely Bank Muamalat Indonesia, Bank Syariah Mandiri (the largest by asset), Syariah Mega Indonesia.
In 2008, there were several new Islamic branches of regular commercial banks, 80 Bank Perkreditan Rakyat Shariah (micro finance), and 2,470 cooperatives.[7] President Susilo Bambang Yudhoyono said at the completed World Islamic Economic Conference 2008 in Kuala Lumpur that his government intends to push through the regulatory change necessary to support the industry's development, which still only accounts for about 2% of total Indonesian banking activity.[8]
Indonesia Central Bank categorized seven shariah financing products, namely Mudharaba, Musharaka, Murabaha, Salam, Istishna, Ijara, and Qardh (for more detail, see appendix). The most favorite product was so-called murabaha-based finance which is concerned with lending for consumer goods such as motor vehicles and housing. Between 2005 and 2008, it was rocketing from 119 thousand units into 498 thousand units, or jumped more than 300% (see table 2). Sharia banks finance the purchases on behalf of a customer for an agreed fee, but these transactions incur a 10% value-added tax (VAT) because under current taxation laws such a fee is not categorized as interest, which would exempt it from VAT payments.
However, the competitiveness was fostering every shariah bank came up with various niche products. At least, there were nine products of shariah deposits in 2008. For instance, Bank Muamalat was offering two shariah deposits. The shariah saving accounts were more competitive. Bank Mandiri came up with five products of shariah saving account schemes, while Permata Bank was offering six ones. The central bank expects the number of Islamic banks to rise to 15 by 2015 from three currently, as demand for financial products compatible with the tenets of religious law, or Shariah, increases. In 2008, murabaha was noted as the most favorite sharia financial products which counted almost 500 thousand unit or around 83 percent of total of sharia financing units.
In Southeast Asia, Indonesia still trails its smaller regional neighbor Malaysia, where the regulatory environment has already been modified to attract foreign Islamic investments. But financial analysts say there is huge potential in Indonesia to attract not only local money but also petrodollars and sharia-compliant funds from the Middle East, as has happened with Malaysia.
Considering that 87% of the country's 240 million people follow Islam, Indonesia has been taking steps to rise up Islamic banking sector. The industry has grown rapidly in last decade, as banks tap deeper into one of the world's largest Muslim markets. Central to Islamic finance, the sharia banks offer products and services akin to conventional financial products, which have potential of creating the largest sharia finance area in the world.
[1] Thomas A. Timberg, Risk Management: Islamic Financial Policies Islamic Banking and Its Potential Impact, USAID
[2] The problem of financial dispute was that the jurisdiction of the civil courts did not extend to Shari’ah matters, within which Islamic banking disputes apparently came. On the other hand, the jurisdiction of the religious courts was limited to Personal law matters which did not cover banking disputes, and was confined to a) marriage, b) inheritance, testamentary succession, hiba and waqf.
[3] Abdul Rasyid, 2008, Settlement of Islamic Banking Disputes in Indonesia: Opportunities and Challenges International Conference on Mediation in the Asia Pacific: Constraints and Challenges, Kuala Lumpur, 16-18 June, 2008
[4] Bank Indonesia, 2002, The Blueprint of Islamic Banking Development in Indonesia
[5] Strait Times, Feb 19, 2002
[6] Islamic banks flourishing in Indonesia, Asia Times Sep 26, 2002
[7] Microfinance is registered by Bank Indonesia (Central Bank of Indonesia) while cooperative are registered to the Ministry of Cooperatives and Small Business.
[8] Bill Guerin, Tapping Indonesia's Islamic potential, Asia Times Online, June 26, 2007,
The initiative to engage Islamic financial business, however, raised uncertainty upon which forum was competent to settle Islamic banking disputes whether civil court or religious court. Both regarded themselves to be competent to settle such disputes.[2] An initiative to take charge of the settlement of Islamic banking disputes was also taken by the Indonesia Council of Religious Scholars through setting up BAMUI (Indonesian Muamalat Arbitration Body) in 1993. However, due to very poor knowledge of the Islamic law of arbitration possessed by the banks and their banking costumer complainants, the National Shari’ah Arbitration Body could not function effectively.[3] Due to the regulatory hurdles, this industry was experiencing a mini-boom and the BMI was the only one Islamic banking in Indonesia, which is BMI.
During the economic crisis in 1998, sharia banking was still performing much better than the conventional banking as indicated by a relatively low level of non-performing loans and the absence of negative spread in the operational activities. It because the rates of returns paid to the depositors were not determined by market interest rates. The evident shows that sharia banks were relatively more able to conduct lending as indicated by a relatively high LDR ratio, between 113 and 117 percent.[4] This experience has brought a hope to the public for the presence of sharia banking as an alternative banking system that was expected to be able to delivery economic benefits and ensure compliance with sharia principles. It triggered the amendment by Act No. 10/1998, to provide an opportunity to conventional banks to open an Islamic window.
Between 1998 and 2001, sharia banking system was growing 74 percent annually (in terms of asset size) from Rp. 479 billion in 1998 to Rp. 2.718 billion in 2001. The third party managed funds has also increased from Rp. 392 billion to Rp. 1.806 billion. The sharia banking system has also developed institutionally. There has been another commercial bank converting its operations into sharia commercial bank, besides there have also been 3 sharia unit banks and 3 sharia rural bank came into operations by the end of 2001. The number of sharia branch offices and sharia unit banks has also increased from 26 to 51 branches.
In 2001, there were several banks converted to Islamic banking under the care of the central bank (Bank Indonesia) and the Indonesian Restructuring Bank Agency, including Bank Tugu and Bank Bukopin. A revival of religious sentiment may be the reason for the popularity of Shariah banks. A central bank survey of 4,800 people in Java showed that almost all of them believed that Islam forbade the practice of usury.[5]
In the first quarter of 2002, the Indonesian Central Bank reported the assets of Islamic banks increased to Rp3.45 trillion (US$1.5 billion) from Rp2.72 trillion a year before. It extended loans under Koranic law, recorded a 35 percent increase in financing to Rp2.35 trillion in the same period August 2002. By July 2002, Islamic banks had a financing to deposit ratio (FDR) of 121 percent, up from 116.5 percent in the first quarter of this year although "ideally FDR is around 100 percent".[6]
To respond some Islamic banking disputes, the government enacted Law No. 3 of 2006. The regulation amended Law No. 7 of 1989 and expanded the jurisdiction of the Religious courts to cover adjudication of disputes belonging to Islamic economic matters, including Islamic banking.
In 2005, the assets was growing from Rp20 trillion to Rp50 trillion (around US$48 billion) in 2008 or around 34% annually growth (see table 1). It expected to $10 billion by 2010 which counted 5% of the world Islamic financial industry. US-based international credit-rating agency Standard & Poor's estimates that the global potential for Islamic financial services was $1 trillion in 2008 and could be closer to $4 trillion in 2010. Worldwide, Islamic finance currently represents less than 10% of the total global Muslim market of 1.5 billion people.
In 2006, Islamic banks reported a 79% year-on-year increase in business volume, to Rp8.76 trillion ($1.36 billion). The amount of leasing business, known as ijarah, grew by a whopping 164.7%, and sharia mutual funds grew in asset value by 17.6% last year, with a total net asset value of about Rp663.7 million. In 2007, there were three sharia bank in Indonesia, namely Bank Muamalat Indonesia, Bank Syariah Mandiri (the largest by asset), Syariah Mega Indonesia.
In 2008, there were several new Islamic branches of regular commercial banks, 80 Bank Perkreditan Rakyat Shariah (micro finance), and 2,470 cooperatives.[7] President Susilo Bambang Yudhoyono said at the completed World Islamic Economic Conference 2008 in Kuala Lumpur that his government intends to push through the regulatory change necessary to support the industry's development, which still only accounts for about 2% of total Indonesian banking activity.[8]
Indonesia Central Bank categorized seven shariah financing products, namely Mudharaba, Musharaka, Murabaha, Salam, Istishna, Ijara, and Qardh (for more detail, see appendix). The most favorite product was so-called murabaha-based finance which is concerned with lending for consumer goods such as motor vehicles and housing. Between 2005 and 2008, it was rocketing from 119 thousand units into 498 thousand units, or jumped more than 300% (see table 2). Sharia banks finance the purchases on behalf of a customer for an agreed fee, but these transactions incur a 10% value-added tax (VAT) because under current taxation laws such a fee is not categorized as interest, which would exempt it from VAT payments.
However, the competitiveness was fostering every shariah bank came up with various niche products. At least, there were nine products of shariah deposits in 2008. For instance, Bank Muamalat was offering two shariah deposits. The shariah saving accounts were more competitive. Bank Mandiri came up with five products of shariah saving account schemes, while Permata Bank was offering six ones. The central bank expects the number of Islamic banks to rise to 15 by 2015 from three currently, as demand for financial products compatible with the tenets of religious law, or Shariah, increases. In 2008, murabaha was noted as the most favorite sharia financial products which counted almost 500 thousand unit or around 83 percent of total of sharia financing units.
In Southeast Asia, Indonesia still trails its smaller regional neighbor Malaysia, where the regulatory environment has already been modified to attract foreign Islamic investments. But financial analysts say there is huge potential in Indonesia to attract not only local money but also petrodollars and sharia-compliant funds from the Middle East, as has happened with Malaysia.
Considering that 87% of the country's 240 million people follow Islam, Indonesia has been taking steps to rise up Islamic banking sector. The industry has grown rapidly in last decade, as banks tap deeper into one of the world's largest Muslim markets. Central to Islamic finance, the sharia banks offer products and services akin to conventional financial products, which have potential of creating the largest sharia finance area in the world.
[1] Thomas A. Timberg, Risk Management: Islamic Financial Policies Islamic Banking and Its Potential Impact, USAID
[2] The problem of financial dispute was that the jurisdiction of the civil courts did not extend to Shari’ah matters, within which Islamic banking disputes apparently came. On the other hand, the jurisdiction of the religious courts was limited to Personal law matters which did not cover banking disputes, and was confined to a) marriage, b) inheritance, testamentary succession, hiba and waqf.
[3] Abdul Rasyid, 2008, Settlement of Islamic Banking Disputes in Indonesia: Opportunities and Challenges International Conference on Mediation in the Asia Pacific: Constraints and Challenges, Kuala Lumpur, 16-18 June, 2008
[4] Bank Indonesia, 2002, The Blueprint of Islamic Banking Development in Indonesia
[5] Strait Times, Feb 19, 2002
[6] Islamic banks flourishing in Indonesia, Asia Times Sep 26, 2002
[7] Microfinance is registered by Bank Indonesia (Central Bank of Indonesia) while cooperative are registered to the Ministry of Cooperatives and Small Business.
[8] Bill Guerin, Tapping Indonesia's Islamic potential, Asia Times Online, June 26, 2007,
Indonesian Cigarette Industry
Indonesia was noted as the world's fifth-largest tobacco market. In the country with 50% of population living under $2 a day, cigarettes priced at around $1 a pack, the cheapest in the world. More than 6 of 10 male were smokers, and most smoked clove cigarettes, known as kreteks for the crackling sound they make as they burn. The spice, which is native to Indonesia, added to tobacco, imparting a sweet scent and emitting eugenol, a chemical that numbs the throat. The rich aroma of kretek clove cigarettes was one of the most evocative scents of Indonesia. However, kretek deliver double the nicotine and almost triple the tar of conventional cigarettes, according to a 2002 paper in the journal Pharmacology Biochemistry and Behavior.[1]
In 1950s, the industry was under pressure from the machine made white cigarette, though many smokers remained loyal to kretek due to great a price disparity. The United National Statistical Yearbook 1963 noted that Indonesia produced 21,198 million cigarettes in 1960. This included only machine-produced white cigarette. In the same year, 21,356 million kretek cigarettes and about 1,000 million klembak cigarettes were also produced. Called as collective native cigarettes, kretek and klembak cigarette were produced on simple hand-rollers in which the industry employed around 70,000 workers while around 11,000 employees worked for white cigarette industry.[2]
For the Indonesian Government, tobacco was largest source of revenue after oil, gas, and timber. In 1996, it was about 10% of the total tax revenue, recouping around US$4 billion 1996.[3] Tobacco tax was an easy, reliable form of taxation, a steady, internal revenue, unlikely to suffer from any external shocks, and unlikely to create any sudden crisis, in contrast to the instability of oil revenue and other export orientated products which were subject to the fragile of international shock.
Top Indonesian cigarette makers included Gudang Garam (GGRM) and Handaya Mandala Sampoerna (HMSP), which were among the biggest firms in the Indonesian Stock Market (IDX). During the Asian financial crisis of 1997 and 1998, HMSP expanded to be the first Indonesian companies. With $1.6 billion in sales in 2002, Sampoerna was noted as the most popular blue chips on the Jakarta Stock Exchange.[4] In 2004, the white cigarettes declined due to the minimal marketing activities of international players – such as BAT Indonesia Tbk, PT and Philip Morris Indonesia PT. Conversely, the popularity of kreteks continued to prevail.
In 2006, ‘Mild’ kreteks continued to perform robustly, as an increasing number of regular kretek smokers shifted to mild kreteks. Despite the presence of numerous mild kretek brands in Indonesia offered at lower price points, HMSP’s A Mild succeeded to outperform these brands. This was due to its first-comer advantage and effective mass media advertisements. A Mild was particularly popular in urban centers, such as Jakarta and Surabaya, where consumers were less price sensitive and more concerned about brand image and quality.[5]
In 2008, tobacco industry in Indonesia still played an important economic role, with tax on cigarettes accounting for about 10 percent of government income, while the sector provides millions of jobs. Even though, the government imposed an excise rate of about 40 percent from the maximum cigarette excise tax to 57 percent. Under the existing excise scheme, the government adopted a combination of tariffs, linked to factors such as production volume, retail price, cigarette type and the cigarette-making process.
In 2008, overall volume performance of tobacco products in Indonesia showed a growth decline. This was due to inflated daily living costs as a result of the government’s policy to reduce the nation’s fuel subsidies early in 2008. There was slow economy growth as a consequence of various national disasters in the latter half of the review period. Mass Indonesian consumers were, therefore, impelled to be economy with cheaper alternatives and thriftier consumption.
Since 2005, cigarettes became an expensive indulgence for most Indonesian consumers. This was because of consecutive price increases implemented by the manufacturers as a result of the government’s policy to increase the retail price of cigarettes per stick (HJE), and then again in 2006. Manufacturers and retailers made stringent efforts to dampen and lessen the impact of price increases. However, price-sensitive low-income consumers were forced to both cut back on their daily consumption and seek cheaper alternatives.
Indonesia aimed to lower cigarette production growth to 5 percent in 2009 from about 7 percent growth. It expected production to decrease to 240 billion cigarettes in 2009 from an estimated 247 billion cigarettes in 2008. The country was targeting excise tax revenue in 2009 of 48.2 trillion rupiah ($4.42 billion), an increase of 2.7 trillion rupiah compared to the revised 2008 state budget.[7]
Indonesian cigarette firms would have to pay an additional 7 percent excise tax soon, as the governments seek to curb smoking in one of the world's largest tobacco markets. A new ministerial decree, which would come into effect on Feb 1, 2009, adjusted the retail price range for cigarettes and increase tax costs by an average of 7 percent. The policy was a gradual step towards simplifying the excise schemes. The increase would vary, depending on the previous retail sales price.
In 2009, the country was targeting excise tax revenue of 48.2 trillion rupiah ($4.42 billion), an increase of 2.7 trillion rupiah compared to the revised 2008 state budget. Despite its reluctance to sign the Framework Convention on Tobacco Control (FCTC), Indonesia had a road map to support the convention and aims to limit cigarette output to 260 billion cigarettes by 2020 ($1 = 10,900 rupiah).[8]
[1] JZ Su and Leroux, 2005, Cigarette Ignition Propensity Testing, irc.nrc-cnrc.gc.ca/pubs/rr/rr194/rr194.pdf
[2] Anonym, Clove and Kretek, September 1965.
[3] See SEARO Tobacco Control in Indonesia, see also Adioetomo et al, 2005, Cigarette Consumption, Taxation, and Household Income, World Bank Development Network, siteresources.worldbank.org
[4] www2.kompas.com/business/bursa/0203/14/3760.htm
[5] Tobacco Indonesia, ResearchandMarkets, http://www.researchandmarkets.com/reports/300936/
[6] http://www.wartaekonomi.com/indikator.asp?aid=8208&cid=25
[7] Indonesia cigarette firms to pay 7 pct more '09 tax, Reuters, Wed Dec 10, 2008
[8] Reuter, December 10, 2009. http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSJAK40198720081210
In 1950s, the industry was under pressure from the machine made white cigarette, though many smokers remained loyal to kretek due to great a price disparity. The United National Statistical Yearbook 1963 noted that Indonesia produced 21,198 million cigarettes in 1960. This included only machine-produced white cigarette. In the same year, 21,356 million kretek cigarettes and about 1,000 million klembak cigarettes were also produced. Called as collective native cigarettes, kretek and klembak cigarette were produced on simple hand-rollers in which the industry employed around 70,000 workers while around 11,000 employees worked for white cigarette industry.[2]
For the Indonesian Government, tobacco was largest source of revenue after oil, gas, and timber. In 1996, it was about 10% of the total tax revenue, recouping around US$4 billion 1996.[3] Tobacco tax was an easy, reliable form of taxation, a steady, internal revenue, unlikely to suffer from any external shocks, and unlikely to create any sudden crisis, in contrast to the instability of oil revenue and other export orientated products which were subject to the fragile of international shock.
Top Indonesian cigarette makers included Gudang Garam (GGRM) and Handaya Mandala Sampoerna (HMSP), which were among the biggest firms in the Indonesian Stock Market (IDX). During the Asian financial crisis of 1997 and 1998, HMSP expanded to be the first Indonesian companies. With $1.6 billion in sales in 2002, Sampoerna was noted as the most popular blue chips on the Jakarta Stock Exchange.[4] In 2004, the white cigarettes declined due to the minimal marketing activities of international players – such as BAT Indonesia Tbk, PT and Philip Morris Indonesia PT. Conversely, the popularity of kreteks continued to prevail.
In 2006, ‘Mild’ kreteks continued to perform robustly, as an increasing number of regular kretek smokers shifted to mild kreteks. Despite the presence of numerous mild kretek brands in Indonesia offered at lower price points, HMSP’s A Mild succeeded to outperform these brands. This was due to its first-comer advantage and effective mass media advertisements. A Mild was particularly popular in urban centers, such as Jakarta and Surabaya, where consumers were less price sensitive and more concerned about brand image and quality.[5]
In 2008, tobacco industry in Indonesia still played an important economic role, with tax on cigarettes accounting for about 10 percent of government income, while the sector provides millions of jobs. Even though, the government imposed an excise rate of about 40 percent from the maximum cigarette excise tax to 57 percent. Under the existing excise scheme, the government adopted a combination of tariffs, linked to factors such as production volume, retail price, cigarette type and the cigarette-making process.
In 2008, overall volume performance of tobacco products in Indonesia showed a growth decline. This was due to inflated daily living costs as a result of the government’s policy to reduce the nation’s fuel subsidies early in 2008. There was slow economy growth as a consequence of various national disasters in the latter half of the review period. Mass Indonesian consumers were, therefore, impelled to be economy with cheaper alternatives and thriftier consumption.
Since 2005, cigarettes became an expensive indulgence for most Indonesian consumers. This was because of consecutive price increases implemented by the manufacturers as a result of the government’s policy to increase the retail price of cigarettes per stick (HJE), and then again in 2006. Manufacturers and retailers made stringent efforts to dampen and lessen the impact of price increases. However, price-sensitive low-income consumers were forced to both cut back on their daily consumption and seek cheaper alternatives.
Indonesia aimed to lower cigarette production growth to 5 percent in 2009 from about 7 percent growth. It expected production to decrease to 240 billion cigarettes in 2009 from an estimated 247 billion cigarettes in 2008. The country was targeting excise tax revenue in 2009 of 48.2 trillion rupiah ($4.42 billion), an increase of 2.7 trillion rupiah compared to the revised 2008 state budget.[7]
Indonesian cigarette firms would have to pay an additional 7 percent excise tax soon, as the governments seek to curb smoking in one of the world's largest tobacco markets. A new ministerial decree, which would come into effect on Feb 1, 2009, adjusted the retail price range for cigarettes and increase tax costs by an average of 7 percent. The policy was a gradual step towards simplifying the excise schemes. The increase would vary, depending on the previous retail sales price.
In 2009, the country was targeting excise tax revenue of 48.2 trillion rupiah ($4.42 billion), an increase of 2.7 trillion rupiah compared to the revised 2008 state budget. Despite its reluctance to sign the Framework Convention on Tobacco Control (FCTC), Indonesia had a road map to support the convention and aims to limit cigarette output to 260 billion cigarettes by 2020 ($1 = 10,900 rupiah).[8]
[1] JZ Su and Leroux, 2005, Cigarette Ignition Propensity Testing, irc.nrc-cnrc.gc.ca/pubs/rr/rr194/rr194.pdf
[2] Anonym, Clove and Kretek, September 1965.
[3] See SEARO Tobacco Control in Indonesia, see also Adioetomo et al, 2005, Cigarette Consumption, Taxation, and Household Income, World Bank Development Network, siteresources.worldbank.org
[4] www2.kompas.com/business/bursa/0203/14/3760.htm
[5] Tobacco Indonesia, ResearchandMarkets, http://www.researchandmarkets.com/reports/300936/
[6] http://www.wartaekonomi.com/indikator.asp?aid=8208&cid=25
[7] Indonesia cigarette firms to pay 7 pct more '09 tax, Reuters, Wed Dec 10, 2008
[8] Reuter, December 10, 2009. http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSJAK40198720081210
Selasa, 28 April 2009
Indonesia Oil Palm Plantation
Oil palm, with the highest per hectare yield of all edible oils to date, is bound to become the most important vegetable oil in the world. In 2002, approximately 23% of world production and 51% of global edible oil trade was based on palm oil and palm kernel oil. In 2002, Malaysia and Indonesia accounted for 84% of global palm oil production. In 2004, the European Union was noted as the largest importer of palm oil products in the world and the Netherlands was the main importer within the EU. Crude Palm Oil consumpti[1]on grew by 90% from 1.7 million tons (Mt) in 1995 to 3.2 Mt in 2002. With a total import of 2.3 Mt, the Netherlands is the world's largest importer of palm oil products after India (3.5 Mt) and China (2.8 Mt).
Oil palm tree is a tropical plant belonging to the Palmae family. The plant was brought in to the country from West Africa. The first oil plantation was built in North Sumatra in 1911. The first large-scale Indonesian oil palm plantation was set up by Dutch traders in 1911, using the seed of these Deli-palms. Soon afterwards, British traders set up oil palm plantations in Malaysia as well. Until the 1940s palm oil production developed at a moderate pace in both Malaysia and Indonesia, as it was restricted mainly to use as a lubricant. A more rapid phase of expansion began in Malaysia in the 1950s and 1960s, which turned Malaysia into the dominant oil palm producer in the world.
From 1968, President Suharto started to invest again in the Indonesian oil palm sector by making direct investment via state run companies called Perseroan Terbatas Perkebunan (PTPs). During this period, the area planted with oil palm on government estates grew from 65,573 hectares in 1967 to 176,408 hectares in 1979. Most of these plantations were found in Sumatra, primarily North Sumatra.
In 1980s, the Indonesian oil palm plantations expanded rapidly notably smallholder plantations following the launching of the Nucleus Smallholder Estate (PIR) scheme. Under the scheme the nucleus company provided seedlings and prepared land for plasma plantations, and the plasma plantations were to sell their production to the nucleus company with a pre set price. The smallholder plantations expanded faster again with the launching of PIR scheme in the transmigration program in 1986. Private plantation companies have the largest oil palm plantations. In 1990s, many private companies built oil palm plantations with facility from Bank Indonesia (Indonesia Central Bank). State owned plantations under PT Perkebunan Negara (PT PN) were relatively unchanged in size.
In 1996, Indonesian government lifted ban on new foreign investment in the palm oil sector. The new policy attracted investors especially from Malaysia. In 1996, the government allocated 9.13 million hectares of land for oil palm plantation to boost development of the plantations that was expected to relegate Malaysia as the world's largest producer of palm oil. Papua accounted for 5.56 million hectares of the land. Sumatra had limited space for new plantations as it is also crowded with HTI projects and other plantation and farm projects. Investors, however, still preferred Sumatra as it had much better infrastructure compared with Kalimantan and Papua.
In 1997, the Indonesian government also banned new investment in oil palm plantation in Sumatra due to environment degradation. As a result investors built new plantations in West Kalimantan where lands were easily available and the infrastructure was relatively more adequate than in eastern part of the country. West Kalimantan had the third largest oil plantations. The government provided 5.5 million hectares of land for oil plantations all over the country. So far more than 2.1 million hectares of the lands have offered to investors but only half of which have been used. In 1997, National Investment Coordinator Board reported 105 new investment projects in the sector. Implementation of the projects, however, was hampered by the crisis. In 1998, there were only 21 new projects following the financial crisis.
In 1998, the government imposed a 40% export tax on CPO and derivatives resulting in a decline in exports--leading to a decline in production. In 1999 and 2000, production rose after the government cut the export tax to 10%. From June, 1999 to May, 2002, the price of CPO dropped to around US$ 400 per ton before rising to US$ 460 in January, 2003. The production rose from 5-6 tons of fresh fruit bunches per hectares in 1997--up to 10-11 tons of fresh fruit bunches per hectares in 2003.
The Indonesian exports of crude palm oil (CPO) leapfrogged while the export tax was slashed to 3% in Feb. 2001. In 1999, exports totaled only 1.46 million tons. The export volume rose to 5.48 million tons in 2001 and to 7.07 million tons in 2002 and to 8 million tons in 2003. With 411,261 hectares relegating South Sumatra, Jambi and Aceh, the export value of CPO was recorded at US$ 2.35 billion in 2002 up to US$ 3 billion in 2003 placing it among the top export earners outside oil and gas. Non-oil/gas commodities after electronics US$ 9.16 billion and textiles and garments US$ 7.05 billion and timber US$ 3.18 billion in 2003.
For 2010, Indonesia's production of palm oil is expected to overshoot international prediction of 12 million tons as projected by Oil World. On the other hand, Malaysia's CPO production rose from 8,386 tons in 1996 to 13,354 tons in 2003 or 49% of the world's production making that country the world's largest producer. Indonesia came second with production rising from 4.54 million tons in 1996 to 9.75 million tons in 2003. It climbed 25% to 9.16 million tons from 7.4 million tons in the previous year. In 2004, the production was predicted to reach 11.5 million tons. In 2004, it reached an estimated 11.5 million tons. Indonesia, therefore, is expected to relegate Malaysia in a few years to come. [2]
Malaysia, however, has long developed oleo chemical industry and it has become a major supplier of oleo-chemicals to the world market. In Malaysia, the government gives strong support or incentives to boost development of oleo-chemical industry, but in Indonesia there is no such incentive. The government gives the initiative to the palm oil producers or the private sector to develop oleo-chemical industry. They are left alone to face external and internal pressures in the form of demand for better quality, looting in plantations, conflicts with plasma farmers and extortion by hoodlums. Illegal levies and extortion forced CPO producers to seek a short cut to earn money by directly exporting CPO. They do want to take a long way which will mean facing more illegal levies and extortions. CPO exports could also face big hurdles with the government regulation issued by the previous government making it possible for the government to impose export tax of up to 60%.
The government, however, has no fund to build more plantations. It relies on the private sector. Investment in oil palm plantations has good prospects as palm oil is still high in demand in the world market and demand for it has continued to increase. In the period of 2000-2002, productive plantations expanded from 2.45 million hectares to 2.64 million hectares. In the same period new and non productive plantations grew from 1.31 million hectares to 1.47 million hectares. In 2008, oil palm production expanded to 6.9 million hectares in which 39 percent belonged to small farmers, while CPO production reached into 19.2 million ton.
Foreign-exchange earning could still be raised from the palm oil sector if CPO is processed further into derivatives such as oleo-chemicals. Indonesian CPO producers, however, choose to exports CPO rather than processing it before being exported in the form of oleo chemicals with higher value. It is easier to sell CPO, which is still high in demand in the world market.
Despite a volume growth of 60% since 1995, the European Union lost its position as the most important export market for Indonesian palm oil to India. The share of the EU declined from 50% to 23%, while India accounts for 28% of Indonesian palm oil exports in 2004. Some other Asian markets, especially China, Malaysia, Pakistan, Bangladesh and Hong Kong were also quickly expanding their palm oil imports from Indonesia. On a lower level, the same applies to some African countries (Egypt, Tanzania, Nigeria and South Africa) as well as to Jordan and Russia. Between 1998 and 2004, Indonesia diversified its export markets. Indonesian palm oil exported to Malaysia – as the largest palm oil exporter in the world – was worth remarking on. This palm oil was re-exported from Malaysia, but classified as Malaysian palm oil.[3]
The fast expansion of plantations of private companies followed regulation by the government requiring palm oil processing companies to have own oil palm plantation to guarantee supply of feedstock. All cooking oil producers were required at that time to have their own oil palm plantations. In addition, the government offered incentives such as in the form of simpler procedure, land conversion and lower loan interest rate. The facilities had been used by large company groups such as PT Sinar Mas Group, Raja Garuda Mas Group and Salim Group, the plantations of which were later taken over by Malaysia's Guthrie Berhad, through an open tender in 2001. The plantations were bought from the Indonesian Banking Rescue Agency (IBRA), which previously took them over from the Salim Group in compensation for its debt to the government. The Salim group handed over 25 oil palm plantations valued around Rp3.65 trillion to IBRA under four holding companies PT Salim Sawitindo, PT Bhaskara Multipermata, PT Minamas Gemilang and PT Anugerah Source Makmur.
The three palm oil kings, Salim Group, (Guthrie Bhd), Sinar Mas, and Raja Garuda Mas (RGM), dominated palm oil business in the country. Sinar Mas and Salim Groups built cooking oil factories PT Bimoli and PT Sayang Heulang. The two large company groups also cooperated in building oil palm plantations and new cooking oil factories under PT Inti Indosawit Sejati, PT Inti Indosawit Subur and PT Gunung Melayu. RGM has own cooking oil producing subsidiary PT Asianagro Agung Jaya with 300,000 hectares of oil palm plantations in North Sumatra, Jambi, Riau and Central Kalimantan. SMG also had oleochemical plant under Sinar Oleo-Chemical International (SOCI).
Another large company group operating in the palm oil sector was Ciliandra Perkasa Group (CPG), which has 60,992 hectares of oil palm plantations. The Peknabaru-based company also operates in other business areas including animal husbandry, transport and mining sectors. The company has three factories processing palm oil with a total processing capacity of 2110 tons of fresh fruit bunches an hour. The company disposes of most of its production on the domestic market.
[1] The average monthly price of coconut oil (crude) in 2005 fell –14.7% to 32.44 cents per pound, up from the 15-year low of 21.94 cents posted in 2002. The record high of 60.21 cents per pound was posted in 1984. Vegetable oils are much more dominant than animal fats as the feedstock for cooking oil. The world's production of vegetable oils surged from 76.4 million tons in 1976 to 101.4 million tons in 2003, or 81.1% of the world's production of edible oils and fats which totaled 123.9 million tons in 2003. CPO production in 2003 totaled 27.2 million tons or the second only to soybean production of 31.3 million tons.
[2] Goliath, Indonesia to put Malaysia behind in palm oil industry, Indonesian Commercial Newsletter,
[3] Jan Willem van Gelder, 2004, Greasy Palms: European buyers of Indonesian palm oil, Friend of the Earth
Oil palm tree is a tropical plant belonging to the Palmae family. The plant was brought in to the country from West Africa. The first oil plantation was built in North Sumatra in 1911. The first large-scale Indonesian oil palm plantation was set up by Dutch traders in 1911, using the seed of these Deli-palms. Soon afterwards, British traders set up oil palm plantations in Malaysia as well. Until the 1940s palm oil production developed at a moderate pace in both Malaysia and Indonesia, as it was restricted mainly to use as a lubricant. A more rapid phase of expansion began in Malaysia in the 1950s and 1960s, which turned Malaysia into the dominant oil palm producer in the world.
From 1968, President Suharto started to invest again in the Indonesian oil palm sector by making direct investment via state run companies called Perseroan Terbatas Perkebunan (PTPs). During this period, the area planted with oil palm on government estates grew from 65,573 hectares in 1967 to 176,408 hectares in 1979. Most of these plantations were found in Sumatra, primarily North Sumatra.
In 1980s, the Indonesian oil palm plantations expanded rapidly notably smallholder plantations following the launching of the Nucleus Smallholder Estate (PIR) scheme. Under the scheme the nucleus company provided seedlings and prepared land for plasma plantations, and the plasma plantations were to sell their production to the nucleus company with a pre set price. The smallholder plantations expanded faster again with the launching of PIR scheme in the transmigration program in 1986. Private plantation companies have the largest oil palm plantations. In 1990s, many private companies built oil palm plantations with facility from Bank Indonesia (Indonesia Central Bank). State owned plantations under PT Perkebunan Negara (PT PN) were relatively unchanged in size.
In 1996, Indonesian government lifted ban on new foreign investment in the palm oil sector. The new policy attracted investors especially from Malaysia. In 1996, the government allocated 9.13 million hectares of land for oil palm plantation to boost development of the plantations that was expected to relegate Malaysia as the world's largest producer of palm oil. Papua accounted for 5.56 million hectares of the land. Sumatra had limited space for new plantations as it is also crowded with HTI projects and other plantation and farm projects. Investors, however, still preferred Sumatra as it had much better infrastructure compared with Kalimantan and Papua.
In 1997, the Indonesian government also banned new investment in oil palm plantation in Sumatra due to environment degradation. As a result investors built new plantations in West Kalimantan where lands were easily available and the infrastructure was relatively more adequate than in eastern part of the country. West Kalimantan had the third largest oil plantations. The government provided 5.5 million hectares of land for oil plantations all over the country. So far more than 2.1 million hectares of the lands have offered to investors but only half of which have been used. In 1997, National Investment Coordinator Board reported 105 new investment projects in the sector. Implementation of the projects, however, was hampered by the crisis. In 1998, there were only 21 new projects following the financial crisis.
In 1998, the government imposed a 40% export tax on CPO and derivatives resulting in a decline in exports--leading to a decline in production. In 1999 and 2000, production rose after the government cut the export tax to 10%. From June, 1999 to May, 2002, the price of CPO dropped to around US$ 400 per ton before rising to US$ 460 in January, 2003. The production rose from 5-6 tons of fresh fruit bunches per hectares in 1997--up to 10-11 tons of fresh fruit bunches per hectares in 2003.
The Indonesian exports of crude palm oil (CPO) leapfrogged while the export tax was slashed to 3% in Feb. 2001. In 1999, exports totaled only 1.46 million tons. The export volume rose to 5.48 million tons in 2001 and to 7.07 million tons in 2002 and to 8 million tons in 2003. With 411,261 hectares relegating South Sumatra, Jambi and Aceh, the export value of CPO was recorded at US$ 2.35 billion in 2002 up to US$ 3 billion in 2003 placing it among the top export earners outside oil and gas. Non-oil/gas commodities after electronics US$ 9.16 billion and textiles and garments US$ 7.05 billion and timber US$ 3.18 billion in 2003.
For 2010, Indonesia's production of palm oil is expected to overshoot international prediction of 12 million tons as projected by Oil World. On the other hand, Malaysia's CPO production rose from 8,386 tons in 1996 to 13,354 tons in 2003 or 49% of the world's production making that country the world's largest producer. Indonesia came second with production rising from 4.54 million tons in 1996 to 9.75 million tons in 2003. It climbed 25% to 9.16 million tons from 7.4 million tons in the previous year. In 2004, the production was predicted to reach 11.5 million tons. In 2004, it reached an estimated 11.5 million tons. Indonesia, therefore, is expected to relegate Malaysia in a few years to come. [2]
Malaysia, however, has long developed oleo chemical industry and it has become a major supplier of oleo-chemicals to the world market. In Malaysia, the government gives strong support or incentives to boost development of oleo-chemical industry, but in Indonesia there is no such incentive. The government gives the initiative to the palm oil producers or the private sector to develop oleo-chemical industry. They are left alone to face external and internal pressures in the form of demand for better quality, looting in plantations, conflicts with plasma farmers and extortion by hoodlums. Illegal levies and extortion forced CPO producers to seek a short cut to earn money by directly exporting CPO. They do want to take a long way which will mean facing more illegal levies and extortions. CPO exports could also face big hurdles with the government regulation issued by the previous government making it possible for the government to impose export tax of up to 60%.
The government, however, has no fund to build more plantations. It relies on the private sector. Investment in oil palm plantations has good prospects as palm oil is still high in demand in the world market and demand for it has continued to increase. In the period of 2000-2002, productive plantations expanded from 2.45 million hectares to 2.64 million hectares. In the same period new and non productive plantations grew from 1.31 million hectares to 1.47 million hectares. In 2008, oil palm production expanded to 6.9 million hectares in which 39 percent belonged to small farmers, while CPO production reached into 19.2 million ton.
Foreign-exchange earning could still be raised from the palm oil sector if CPO is processed further into derivatives such as oleo-chemicals. Indonesian CPO producers, however, choose to exports CPO rather than processing it before being exported in the form of oleo chemicals with higher value. It is easier to sell CPO, which is still high in demand in the world market.
Despite a volume growth of 60% since 1995, the European Union lost its position as the most important export market for Indonesian palm oil to India. The share of the EU declined from 50% to 23%, while India accounts for 28% of Indonesian palm oil exports in 2004. Some other Asian markets, especially China, Malaysia, Pakistan, Bangladesh and Hong Kong were also quickly expanding their palm oil imports from Indonesia. On a lower level, the same applies to some African countries (Egypt, Tanzania, Nigeria and South Africa) as well as to Jordan and Russia. Between 1998 and 2004, Indonesia diversified its export markets. Indonesian palm oil exported to Malaysia – as the largest palm oil exporter in the world – was worth remarking on. This palm oil was re-exported from Malaysia, but classified as Malaysian palm oil.[3]
The fast expansion of plantations of private companies followed regulation by the government requiring palm oil processing companies to have own oil palm plantation to guarantee supply of feedstock. All cooking oil producers were required at that time to have their own oil palm plantations. In addition, the government offered incentives such as in the form of simpler procedure, land conversion and lower loan interest rate. The facilities had been used by large company groups such as PT Sinar Mas Group, Raja Garuda Mas Group and Salim Group, the plantations of which were later taken over by Malaysia's Guthrie Berhad, through an open tender in 2001. The plantations were bought from the Indonesian Banking Rescue Agency (IBRA), which previously took them over from the Salim Group in compensation for its debt to the government. The Salim group handed over 25 oil palm plantations valued around Rp3.65 trillion to IBRA under four holding companies PT Salim Sawitindo, PT Bhaskara Multipermata, PT Minamas Gemilang and PT Anugerah Source Makmur.
The three palm oil kings, Salim Group, (Guthrie Bhd), Sinar Mas, and Raja Garuda Mas (RGM), dominated palm oil business in the country. Sinar Mas and Salim Groups built cooking oil factories PT Bimoli and PT Sayang Heulang. The two large company groups also cooperated in building oil palm plantations and new cooking oil factories under PT Inti Indosawit Sejati, PT Inti Indosawit Subur and PT Gunung Melayu. RGM has own cooking oil producing subsidiary PT Asianagro Agung Jaya with 300,000 hectares of oil palm plantations in North Sumatra, Jambi, Riau and Central Kalimantan. SMG also had oleochemical plant under Sinar Oleo-Chemical International (SOCI).
Another large company group operating in the palm oil sector was Ciliandra Perkasa Group (CPG), which has 60,992 hectares of oil palm plantations. The Peknabaru-based company also operates in other business areas including animal husbandry, transport and mining sectors. The company has three factories processing palm oil with a total processing capacity of 2110 tons of fresh fruit bunches an hour. The company disposes of most of its production on the domestic market.
[1] The average monthly price of coconut oil (crude) in 2005 fell –14.7% to 32.44 cents per pound, up from the 15-year low of 21.94 cents posted in 2002. The record high of 60.21 cents per pound was posted in 1984. Vegetable oils are much more dominant than animal fats as the feedstock for cooking oil. The world's production of vegetable oils surged from 76.4 million tons in 1976 to 101.4 million tons in 2003, or 81.1% of the world's production of edible oils and fats which totaled 123.9 million tons in 2003. CPO production in 2003 totaled 27.2 million tons or the second only to soybean production of 31.3 million tons.
[2] Goliath, Indonesia to put Malaysia behind in palm oil industry, Indonesian Commercial Newsletter,
[3] Jan Willem van Gelder, 2004, Greasy Palms: European buyers of Indonesian palm oil, Friend of the Earth
Indonesia Telecommunication Industry
As the fourth most populous country in the world with approximately 245 million people, Indonesia would be a great potential market for telecommunication industry. Before 1999, domestic services were monopolized by TELKOM, while INDOSAT control international service. Through Law No 36 1999[1], government abolished the exclusive rights for both operators, and has been trying to promote fair competition. Although operators were granted full service and network provider rights, it seemed to be a priority shift in telecommunication development from fixed to mobile.
During the golden age of economic growth in 1990s, Indonesian telecommunication industry was growing remarkably. Along with monopoly rights, PT Telkom was increasing its revenues due to the high usage growth. In 1995, the monopolist successfully floated 25 percent of its shares on the Jakarta Stock Exchange, where they rapidly became one of the exchange's blue-chip stocks which covered more than 50 percent of stock exchange capitalization. The Indonesian government (GOI) maintained its ownership of the remaining 75 percent of the shares.[2] In order to respond the huge demand, the company needed expand the fixed-line network to recruit foreign technical expertise and capital. The company established the joint operation scheme in 1994. The number of phone users jumped exponentially, a host of domestic companies was established, and dozens of foreign companies entered Indonesia to supply the country with equipment, technology, and services.
In the early of 1990s, the first Indonesian liberalization steps came into a partial privatization of the sector's two main state-owned enterprises (SOEs)—PT Telkom and PT INDOSAT. Between 2001 and 2002, the Government sold additional shares of PT Telkom to private investors, although strong resistance from their employees who request the state ownership at 51.2 percent. Conversely, the government sold a strategic 41.9 percent share of PT INDOSAT to Singapore Technologies Telemedia (STT) through an open competitive process, increasing INDOSAT's private ownership to a majority 76.9 percent share.[3]
The economic crisis 1998 hit the sector hardly, however. Many users found themselves unable to pay their phone bills. The telecommunication expansions in the 1990s were caught with un-hedged dollar-denominated loans that made their revenue streams fell in dollar terms when the Rupiah plummeted. The subscriber base dropped by approximately 15 percent, while uncollectible bills climbed by one-third or more. Since early 1998, most cellular companies had concentrated on maintaining the condition of their networks and trying to clean out and rebuild their customer bases.
Successive Indonesian administrations in 1998 had taken a common view that privatization was necessary, not only as part of revenue-generating efforts to bridge the state budget deficit but also to attract new portfolio investment, along with additional capital investment, management skills and corporate-governance practices to improve the poor performance of state companies. Private investors can turn these assets into profitable enterprises that create more jobs and pay more taxes to the state.
IBRA was set up to manage assets and loans it took over from the collapsed banking system after a $60 billion financial sector bailout following the 1997-1998 Asian financial crises.[4] In 2002, the government sold its majority stakes in two banks and in the international telecommunications company--INDOSAT. The sale of state-owned enterprises and assets aggravated the domestic debt burden. The privatization program targeted of Rp6.5 trillion, collecting Rp7.7 trillion. Conversely, according to INFID (2003), this divestment gained fewer revenues compared to the high costs of servicing the government bonds that had been issued to recapitalize those banks.
Following the privatization policy as generic subscription of IMF[5], government approved for investment proposals reached $14.6 billion in 2003, $9.8 billion in 2002, an adjusted $9 billion in 2001, and $16 billion in 2000. While the traditional large investor, such as Asia, North American and Europe declined, groups of investors from Tanzania and Mauritius was taking advantage of special bilateral tax treaties with Indonesia proposed a third of the $14.6 billion in approved investments purchasing mostly state-owned companies, which was INDOSAT became one of them. In fact, most of this investment was never realized.
In 2006, eight years after the financial crisis, the telecommunication industry was getting revived. Fixed line subscribed was growing to 30%, while mobile subscribed was dramatically increasing to 87.2%. There were new 45 Internet service providers (ISPs) came to Indonesia, which dominated by five providers with 10,000 subscribers of total 200,000 Internet subscribers and 670,000 total users in Indonesia. Approximately 75 percent of the telecommunication users were in Jakarta, 15 percent were in Surabaya, and 5 percent were in other Javanese cities, leaving roughly 5 percent in other provinces. Among the five telecommunication operators, 90% of the markets belonged to the big three, i.e. INDOSAT, Telkomsel, and Excel. Telkomsel admitted having 60 million customers. INDOSAT’s customers were around 24 million, while Excel’s customers were around 12 millions. At fixed line telecommunication, Telkom was the only one operator, with 100 million customers. With an average of only 4,500 dial-up subscribers per service provider, and the need to pay for bandwidth in US dollars while subscribers pay in rupiah, it was difficult for most of these ISPs to make money.[6]
[1] typeapproval.or.id/appforms/Law36.1999 _DGPT_.pdf
[2] en.wikipedia.org/wiki/Telkom_Indonesia see also
Susan Eick, A History of Indonesian Telecommunication Reform 1999-2006, Hawaii International Conference on System Science – 2007, csdl2.computer.org/comp/proceedings/hicss/2007/2755/00/27550067c.pdf
[3] “Telecommunications in Indonesia and Its commitment in WTO, Ministry of Industry and Trade and DG for Telecommunication RI in collaboration with ESCAP/ITU/WTO.
[4] Indonesia Bank Recovery Agency. One of the last remaining tasks for the Indonesian Bank Restructuring Agency (IBRA) before it is wound up at the end of next month is selling Bank Permata, the country's 10th-largest bank. For further discussion on IBRA, see faculty.insead.edu/lasserre/emdc/IBRA.pdf
[5] Trade Policy Review, 7 December 1998, www.wto.org/english/tratop_e/tpr_e/tp96_e.htm
[6] The Indonesian Telecom Industry at a Crossroad, www.usembassyjakarta.org/econ/Indo-Telecom.htm
During the golden age of economic growth in 1990s, Indonesian telecommunication industry was growing remarkably. Along with monopoly rights, PT Telkom was increasing its revenues due to the high usage growth. In 1995, the monopolist successfully floated 25 percent of its shares on the Jakarta Stock Exchange, where they rapidly became one of the exchange's blue-chip stocks which covered more than 50 percent of stock exchange capitalization. The Indonesian government (GOI) maintained its ownership of the remaining 75 percent of the shares.[2] In order to respond the huge demand, the company needed expand the fixed-line network to recruit foreign technical expertise and capital. The company established the joint operation scheme in 1994. The number of phone users jumped exponentially, a host of domestic companies was established, and dozens of foreign companies entered Indonesia to supply the country with equipment, technology, and services.
In the early of 1990s, the first Indonesian liberalization steps came into a partial privatization of the sector's two main state-owned enterprises (SOEs)—PT Telkom and PT INDOSAT. Between 2001 and 2002, the Government sold additional shares of PT Telkom to private investors, although strong resistance from their employees who request the state ownership at 51.2 percent. Conversely, the government sold a strategic 41.9 percent share of PT INDOSAT to Singapore Technologies Telemedia (STT) through an open competitive process, increasing INDOSAT's private ownership to a majority 76.9 percent share.[3]
The economic crisis 1998 hit the sector hardly, however. Many users found themselves unable to pay their phone bills. The telecommunication expansions in the 1990s were caught with un-hedged dollar-denominated loans that made their revenue streams fell in dollar terms when the Rupiah plummeted. The subscriber base dropped by approximately 15 percent, while uncollectible bills climbed by one-third or more. Since early 1998, most cellular companies had concentrated on maintaining the condition of their networks and trying to clean out and rebuild their customer bases.
Successive Indonesian administrations in 1998 had taken a common view that privatization was necessary, not only as part of revenue-generating efforts to bridge the state budget deficit but also to attract new portfolio investment, along with additional capital investment, management skills and corporate-governance practices to improve the poor performance of state companies. Private investors can turn these assets into profitable enterprises that create more jobs and pay more taxes to the state.
IBRA was set up to manage assets and loans it took over from the collapsed banking system after a $60 billion financial sector bailout following the 1997-1998 Asian financial crises.[4] In 2002, the government sold its majority stakes in two banks and in the international telecommunications company--INDOSAT. The sale of state-owned enterprises and assets aggravated the domestic debt burden. The privatization program targeted of Rp6.5 trillion, collecting Rp7.7 trillion. Conversely, according to INFID (2003), this divestment gained fewer revenues compared to the high costs of servicing the government bonds that had been issued to recapitalize those banks.
Following the privatization policy as generic subscription of IMF[5], government approved for investment proposals reached $14.6 billion in 2003, $9.8 billion in 2002, an adjusted $9 billion in 2001, and $16 billion in 2000. While the traditional large investor, such as Asia, North American and Europe declined, groups of investors from Tanzania and Mauritius was taking advantage of special bilateral tax treaties with Indonesia proposed a third of the $14.6 billion in approved investments purchasing mostly state-owned companies, which was INDOSAT became one of them. In fact, most of this investment was never realized.
In 2006, eight years after the financial crisis, the telecommunication industry was getting revived. Fixed line subscribed was growing to 30%, while mobile subscribed was dramatically increasing to 87.2%. There were new 45 Internet service providers (ISPs) came to Indonesia, which dominated by five providers with 10,000 subscribers of total 200,000 Internet subscribers and 670,000 total users in Indonesia. Approximately 75 percent of the telecommunication users were in Jakarta, 15 percent were in Surabaya, and 5 percent were in other Javanese cities, leaving roughly 5 percent in other provinces. Among the five telecommunication operators, 90% of the markets belonged to the big three, i.e. INDOSAT, Telkomsel, and Excel. Telkomsel admitted having 60 million customers. INDOSAT’s customers were around 24 million, while Excel’s customers were around 12 millions. At fixed line telecommunication, Telkom was the only one operator, with 100 million customers. With an average of only 4,500 dial-up subscribers per service provider, and the need to pay for bandwidth in US dollars while subscribers pay in rupiah, it was difficult for most of these ISPs to make money.[6]
[1] typeapproval.or.id/appforms/Law36.1999 _DGPT_.pdf
[2] en.wikipedia.org/wiki/Telkom_Indonesia see also
Susan Eick, A History of Indonesian Telecommunication Reform 1999-2006, Hawaii International Conference on System Science – 2007, csdl2.computer.org/comp/proceedings/hicss/2007/2755/00/27550067c.pdf
[3] “Telecommunications in Indonesia and Its commitment in WTO, Ministry of Industry and Trade and DG for Telecommunication RI in collaboration with ESCAP/ITU/WTO.
[4] Indonesia Bank Recovery Agency. One of the last remaining tasks for the Indonesian Bank Restructuring Agency (IBRA) before it is wound up at the end of next month is selling Bank Permata, the country's 10th-largest bank. For further discussion on IBRA, see faculty.insead.edu/lasserre/emdc/IBRA.pdf
[5] Trade Policy Review, 7 December 1998, www.wto.org/english/tratop_e/tpr_e/tp96_e.htm
[6] The Indonesian Telecom Industry at a Crossroad, www.usembassyjakarta.org/econ/Indo-Telecom.htm
Indonesia Oil Policy
As one of the oldest in the world, Indonesian oil in commercial quantities was discovered in northern Sumatra in 1883, leading to the establishment of the Koninklijke Nederlandsche Maatschappij tot Exploitatie van Petroleum-bronnen in NederlandschIndië (Royal Dutch Company for Exploration of Petroleum sources in the Netherlands Indies) in 1890. It was merged in 1907 with the Shell Transport and Trading Company, a British concern that had been drilling in Kalimantan since 1891, to form Royal Dutch Shell. Royal Dutch Shell dominated colonial oil exploration for more than thirty years. By 1911 Royal Dutch Shell operated concessions in Sumatra, Java, and Borneo (then called Kalimantan), and Indonesian oil which almost reached into 4 percent of total world production.
In 1950s, the post-independence government increased its control over the oil sector through increasing operations of several government-owned oil companies and stiffening the terms of contracts with foreign oil firms. As the most important oil fields in Indonesia, the Duri and Minas fields in the central Sumatran Basin, were discovered just prior to World War II by Caltex, a joint venture between the American companies Chevron and Texaco, although production did not begin until the 1950s. By 1963 the Duri and Minas oil fields, located in Riau Province near the town of Dumai, accounted for 50 percent of oil production.
In 1968 the government companies--Indonesian Oil Mining company (Pertamin), National Oil Mining Company (Permina), and the National Oil and Gas Company (Permigan)--were consolidated into a single operation, the National Oil and Natural Gas Mining Company (Pertamina). It was the time that a new form of contract--the production-sharing contract--was introduced. A production-sharing contract split total oil production between the contractor and the government, represented by Pertamina, and allowed the government to assume ownership of structures and equipment used for exploration and production within Indonesia. Indonesia's contract terms were considered among the toughest in the world in which the government in most cases receiving 85 percent of oil produced once the foreign company recovered costs.
In 1977, annual oil production in Indonesia peaked at over 600 million barrels. The official price of Minas crude was then about US$14 per barrel, a substantial rise from the 1973 price of about US$4 per barrel as a result of OPEC's successful market manipulations. Prices continued to soar in 1981, reaching US$35 per barrel, and oil exports peaked at US$15 billion, or about 70 percent of total export earnings. In 1982, however, production declined, reaching a low of 460 million barrels and the oil market began to weaken that same year, when Indonesia's Minas crude was priced at US$29. The market collapsed in 1986, bringing the Minas price to below US$10 per barrel. Recovery of oil prices began slowly and by 1989 Minas was priced at about US$18 per barrel. Total production in 1989 was almost 500 million barrels, and oil exports were valued at US$6 billion.
Indonesia's oil production was formally governed by a quota allocation from OPEC. For instance, at the March 1991 OPEC ministerial meeting, Indonesia's quota was set at 1.445 million barrels per day, below the estimation of country’s production capacity of 1.7 million barrels per day. Indonesia's quota represented about 6 percent of total OPEC production. About 70 percent of Indonesia's annual oil production was exported on average during the late 1980s, but domestic consumption was increasing steadily and reached half of annual oil production by 1990.
In 1989 and 1990, the government loosened some provisions for new contracts to stimulate exploration, particularly in frontier areas. Improved oil market conditions in the late 1980s also contributed to a surge in production-sharing contracts. Fifty-seven of the 100 contracts active in 1992 were signed from 1987 to 1991. The newer contracts committed US$2.8 billion in exploration during the 1990s. Production from existing oil fields was still dominated by Caltex's operations in Sumatra, which accounted for 47 percent of Indonesian oil production in 1990. Twenty foreign oil companies, primarily United States-based, were active producers in 1990.
In 1990, Indonesia had proven oil reserves equal to 5.14 billion barrels, with probable reserves of an additional 5.79 billion barrels. Throughout the archipelago there were sixty known basins with oil potential; only thirty-six basins had been explored and only fourteen were producing. The majority of unexplored areas were more than 200 meters beneath the surface of the sea. Indonesia's oil reserves were usually found in medium- and small-sized fields, so that continued exploration was vital to maintain production and known reserves.
During the financial crisis in 1998, prices of many commodities spiraled upward, while the government hiked the price of fuel in May 1998, by between 25 and 70 percent, on the recommendation of the IMF. The measure led to massive riots that forced the government to scale back the increases. The damage, however, was done, and the unrest helped force then president Soeharto to resign on May 21.[1] Annual inflation was estimated by the Central Statistical Bureau to be about 80% for 1998. Subsidies were removed on several goods -- most notably rice, oil and fuel. Food prices, especially staples, rose by about 20% more than the general price index, notifying that (net) food consumers were likely to be severely impacted by the crisis whereas food producers had some protection.
For the IMF’s perspective, the biggest concern was the fiscal burden of the subsidy due to oil price fluctuation. In the year 2000 the fuel subsidy amounted to 40.9 trillion rupiah, or almost a third of total central government spending. Following reform package, the government also raised fuel retail prices 126% on 1 October 2005 to reduce subsidy costs, despite public protests. The state subsidized diesel, low-octane gasoline and kerosene for household use, accounting for 80% of total demand. Fuels for industrial use were pegged to international prices. The price rose cut demand in late 2004 and in 2005. But oil demand rose again to 1.2m b/d in 2007. The state had managed to keep oil demand limited to about 1.2m b/d.
While it produces significant amounts of oil, Indonesia became a net importer. State subsidies had kept the price of fuel low—currently petrol is 24 US cents a liter. Cutback in subsidies directly increased the price of transportation and kerosene, which was widely used by the poor for cooking. Over 40 million people in Indonesia lived on less than $US2 a day and over 17 percent of the workforce lack full-time jobs. The rapid increase in global oil prices worsened the government’s financial problems. The cost of state fuel subsidies was expected to rise from $US6.31 billion in 2004 to $US14 billion in 2005, or one third of all government expenditures. As a result, the budget deficit was rising to around $US4.3 billion, double the estimate in mid August. The added cost of buying imported oil had also contributed to the fall of the rupiah as state oil companies, including Pertamina, which had to purchase extra US dollars. Oil imports cost $US1.6 billion in July 2005, up from $US1.1 billion in January 2005.
In September 2008, Indonesia decided to resign from OPEC, because declining production had caused it to become a net importer. The decision was not unexpected, since Indonesia's production - largely concentrated in northern Sumatra - had stagnated and it has precious few sources of proven new reserves. In 2008, Indonesia was producing about 860,000 barrels of oil a day. For the coming years, the government aimed to reduce oil share in the national energy mix from 52% to about 20% in 2025. It needs to increase the percentage of gas, coal, and renewable energy for domestic consumption. The share for gas was projected to reach 30%, coal 33%, and renewable energy 17% by 2025. Bio-fuels will account for 5% of renewable energy share, while geo-thermals will share 5%, liquefied coal 2%, and other renewable energies up to 5%.
On October 5, 2005, widespread but relatively small demonstrations followed the announcement last Friday by the government of Indonesian President Susilo Bambang Yudhoyono of sharp rose in the price of petrol, diesel and kerosene. It was just a year after former general Susilo Bambang Yudhoyono won the Indonesian presidential election, skyrocketing global oil prices are compounding the country’s economic difficulties and placing his administration under serious political strain. The price of petrol rose 87.5 percent to 4,500 rupiah (44 US cents) a liter, diesel fuel 105 percent to 4,300 rupiah and kerosene, on which the poor depend for cooking, a huge 186 percent to 2,000 rupiah.
The price hike flows from the government’s recent decision to cap the country’s oil price subsidy at $US8.68 billion for 2005. A combination of high international oil prices, growing domestic demand, increasing oil imports and declining domestic oil production, due to low levels of investment, threatened to blow the subsidy out to $US14 billion. This would have more than doubled the 2004 figure and swallowed a third of government spending, creating a fiscal crisis.
In mid-2008 a surge in oil prices to records above $145/b forced the government to raise fuel costs to prevent ballooning subsidy bills from blowing up their budgets. That unleashed a wave of protests from Seoul to Jakarta and enflamed opposition parties throughout the region.[2] So when oil markets retreated to a four-year low of the $40s in early of 2009, governments seized the opportunity to pass on the cuts.
[1] Jakarta Post, 12/11/1999.
[2] Elections in Indonesia (as well as in India the year of 2009 and pending leadership change in Malaysia will make Asian leaders reluctant to risk fundamental moves to bring higher efficiency, but could be hard to reverse.
In 1950s, the post-independence government increased its control over the oil sector through increasing operations of several government-owned oil companies and stiffening the terms of contracts with foreign oil firms. As the most important oil fields in Indonesia, the Duri and Minas fields in the central Sumatran Basin, were discovered just prior to World War II by Caltex, a joint venture between the American companies Chevron and Texaco, although production did not begin until the 1950s. By 1963 the Duri and Minas oil fields, located in Riau Province near the town of Dumai, accounted for 50 percent of oil production.
In 1968 the government companies--Indonesian Oil Mining company (Pertamin), National Oil Mining Company (Permina), and the National Oil and Gas Company (Permigan)--were consolidated into a single operation, the National Oil and Natural Gas Mining Company (Pertamina). It was the time that a new form of contract--the production-sharing contract--was introduced. A production-sharing contract split total oil production between the contractor and the government, represented by Pertamina, and allowed the government to assume ownership of structures and equipment used for exploration and production within Indonesia. Indonesia's contract terms were considered among the toughest in the world in which the government in most cases receiving 85 percent of oil produced once the foreign company recovered costs.
In 1977, annual oil production in Indonesia peaked at over 600 million barrels. The official price of Minas crude was then about US$14 per barrel, a substantial rise from the 1973 price of about US$4 per barrel as a result of OPEC's successful market manipulations. Prices continued to soar in 1981, reaching US$35 per barrel, and oil exports peaked at US$15 billion, or about 70 percent of total export earnings. In 1982, however, production declined, reaching a low of 460 million barrels and the oil market began to weaken that same year, when Indonesia's Minas crude was priced at US$29. The market collapsed in 1986, bringing the Minas price to below US$10 per barrel. Recovery of oil prices began slowly and by 1989 Minas was priced at about US$18 per barrel. Total production in 1989 was almost 500 million barrels, and oil exports were valued at US$6 billion.
Indonesia's oil production was formally governed by a quota allocation from OPEC. For instance, at the March 1991 OPEC ministerial meeting, Indonesia's quota was set at 1.445 million barrels per day, below the estimation of country’s production capacity of 1.7 million barrels per day. Indonesia's quota represented about 6 percent of total OPEC production. About 70 percent of Indonesia's annual oil production was exported on average during the late 1980s, but domestic consumption was increasing steadily and reached half of annual oil production by 1990.
In 1989 and 1990, the government loosened some provisions for new contracts to stimulate exploration, particularly in frontier areas. Improved oil market conditions in the late 1980s also contributed to a surge in production-sharing contracts. Fifty-seven of the 100 contracts active in 1992 were signed from 1987 to 1991. The newer contracts committed US$2.8 billion in exploration during the 1990s. Production from existing oil fields was still dominated by Caltex's operations in Sumatra, which accounted for 47 percent of Indonesian oil production in 1990. Twenty foreign oil companies, primarily United States-based, were active producers in 1990.
In 1990, Indonesia had proven oil reserves equal to 5.14 billion barrels, with probable reserves of an additional 5.79 billion barrels. Throughout the archipelago there were sixty known basins with oil potential; only thirty-six basins had been explored and only fourteen were producing. The majority of unexplored areas were more than 200 meters beneath the surface of the sea. Indonesia's oil reserves were usually found in medium- and small-sized fields, so that continued exploration was vital to maintain production and known reserves.
During the financial crisis in 1998, prices of many commodities spiraled upward, while the government hiked the price of fuel in May 1998, by between 25 and 70 percent, on the recommendation of the IMF. The measure led to massive riots that forced the government to scale back the increases. The damage, however, was done, and the unrest helped force then president Soeharto to resign on May 21.[1] Annual inflation was estimated by the Central Statistical Bureau to be about 80% for 1998. Subsidies were removed on several goods -- most notably rice, oil and fuel. Food prices, especially staples, rose by about 20% more than the general price index, notifying that (net) food consumers were likely to be severely impacted by the crisis whereas food producers had some protection.
For the IMF’s perspective, the biggest concern was the fiscal burden of the subsidy due to oil price fluctuation. In the year 2000 the fuel subsidy amounted to 40.9 trillion rupiah, or almost a third of total central government spending. Following reform package, the government also raised fuel retail prices 126% on 1 October 2005 to reduce subsidy costs, despite public protests. The state subsidized diesel, low-octane gasoline and kerosene for household use, accounting for 80% of total demand. Fuels for industrial use were pegged to international prices. The price rose cut demand in late 2004 and in 2005. But oil demand rose again to 1.2m b/d in 2007. The state had managed to keep oil demand limited to about 1.2m b/d.
While it produces significant amounts of oil, Indonesia became a net importer. State subsidies had kept the price of fuel low—currently petrol is 24 US cents a liter. Cutback in subsidies directly increased the price of transportation and kerosene, which was widely used by the poor for cooking. Over 40 million people in Indonesia lived on less than $US2 a day and over 17 percent of the workforce lack full-time jobs. The rapid increase in global oil prices worsened the government’s financial problems. The cost of state fuel subsidies was expected to rise from $US6.31 billion in 2004 to $US14 billion in 2005, or one third of all government expenditures. As a result, the budget deficit was rising to around $US4.3 billion, double the estimate in mid August. The added cost of buying imported oil had also contributed to the fall of the rupiah as state oil companies, including Pertamina, which had to purchase extra US dollars. Oil imports cost $US1.6 billion in July 2005, up from $US1.1 billion in January 2005.
In September 2008, Indonesia decided to resign from OPEC, because declining production had caused it to become a net importer. The decision was not unexpected, since Indonesia's production - largely concentrated in northern Sumatra - had stagnated and it has precious few sources of proven new reserves. In 2008, Indonesia was producing about 860,000 barrels of oil a day. For the coming years, the government aimed to reduce oil share in the national energy mix from 52% to about 20% in 2025. It needs to increase the percentage of gas, coal, and renewable energy for domestic consumption. The share for gas was projected to reach 30%, coal 33%, and renewable energy 17% by 2025. Bio-fuels will account for 5% of renewable energy share, while geo-thermals will share 5%, liquefied coal 2%, and other renewable energies up to 5%.
On October 5, 2005, widespread but relatively small demonstrations followed the announcement last Friday by the government of Indonesian President Susilo Bambang Yudhoyono of sharp rose in the price of petrol, diesel and kerosene. It was just a year after former general Susilo Bambang Yudhoyono won the Indonesian presidential election, skyrocketing global oil prices are compounding the country’s economic difficulties and placing his administration under serious political strain. The price of petrol rose 87.5 percent to 4,500 rupiah (44 US cents) a liter, diesel fuel 105 percent to 4,300 rupiah and kerosene, on which the poor depend for cooking, a huge 186 percent to 2,000 rupiah.
The price hike flows from the government’s recent decision to cap the country’s oil price subsidy at $US8.68 billion for 2005. A combination of high international oil prices, growing domestic demand, increasing oil imports and declining domestic oil production, due to low levels of investment, threatened to blow the subsidy out to $US14 billion. This would have more than doubled the 2004 figure and swallowed a third of government spending, creating a fiscal crisis.
In mid-2008 a surge in oil prices to records above $145/b forced the government to raise fuel costs to prevent ballooning subsidy bills from blowing up their budgets. That unleashed a wave of protests from Seoul to Jakarta and enflamed opposition parties throughout the region.[2] So when oil markets retreated to a four-year low of the $40s in early of 2009, governments seized the opportunity to pass on the cuts.
[1] Jakarta Post, 12/11/1999.
[2] Elections in Indonesia (as well as in India the year of 2009 and pending leadership change in Malaysia will make Asian leaders reluctant to risk fundamental moves to bring higher efficiency, but could be hard to reverse.
Rabu, 18 Maret 2009
Five Indonesians on ‘Forbes’ billionaire list
Everybody is affected by the present global financial crisis. But not Indonesians Michael Hartono and brother R. Budi Hartono, owners of the country’s second-largest cigarette company, who made it into the annual list of billionaires, as published by Forbes magazine.
Though the wealth of the Hartono brothers was trimmed from US$2 billion in 2008 to $1.7 billion in 2009 due to the global financial crisis, they jumped to 430th position on the 2009 Forbes World’s Billionaires list from 605 last year.
Forbes magazine released the names of the world’s 793 richest people on Wednesday, five of whom were Indonesian businessmen. Topping the list was computer czar and Microsoft Corporation founder Bill Gates, followed by property and casualty insurance company Berkshire Hathaway chairman Warren Buffett, both from the United States.
Besides owning clove cigarette company PT Djarum, Michael, 69, and Budi, 68, also own shares in Indonesia’s largest bank — Bank Central Asia (BCA) — and the Grand Indonesia luxury shopping mall, office building and hotel complex.
The brothers have surpassed Singapore-based tycoon Sukanto Tanoto, 59, ranked 450th on the list with $1.6 billion in wealth.
Forbes listed Sukanto, owner of paper, construction and palm oil industries under the Raja Garuda Mas Group, as the richest man in Indonesia in 2008, with $3.8 billion in wealth.
“The cigarette business has shown greater resilience since the 1998 economic crisis, and the trend has continued to date. It can rely much on domestic consumption, at a time when the export-driven sector, such as commodities, has slowed down as global demand shrinks,” said University of Indonesia economist Berly Martawardaya.
Forbes also listed Martua Sitorus, 49, owner of palm oil company Wilmar International Group, in 522nd place with $1.4 billion in wealth. The next Indonesian on the list is the 701st-ranked Peter Sondakh, 57, with $1 billion in interests in the telecommunications, retail and hotel businesses.
“It’s a great thing that we still have Indonesian businessmen in the list, despite the crisis,” said M.S. Hidayat, chairman of the Indonesian Chambers of Commerce and Industry (Kadin).
This year, the world’s billionaires have an average net worth of $3 billion, down 23 percent in 12 months. The world now has 793 billionaires, down from 1,125 a year ago, Forbes reported.
Bill Gates lost $18 billion, but regained his title as the world’s richest man, even as the world’s richest are also a lot poorer, Forbes said.
Forbes world's richestRank
Name Citizenship Net worth ($billion)
1 William Gates III US 40.0
2 Warren Buffett US 37.0
3 Carlos S. Helu Mexico 35.0
4 Lawrence Ellison US 22.5
5 Ingvar Kamprad Sweden 22
...
430 Michael Hartono Indonesia 1.7
430 R. Budi Hartono Indonesia 1.7
450 Sukanto Tanoto Indonesia 1.6
522 Martua Sitorus Indonesia 1.4
701 Peter Sondakh Indonesia 1
Sources: Jakarta Post, Forbes
Though the wealth of the Hartono brothers was trimmed from US$2 billion in 2008 to $1.7 billion in 2009 due to the global financial crisis, they jumped to 430th position on the 2009 Forbes World’s Billionaires list from 605 last year.
Forbes magazine released the names of the world’s 793 richest people on Wednesday, five of whom were Indonesian businessmen. Topping the list was computer czar and Microsoft Corporation founder Bill Gates, followed by property and casualty insurance company Berkshire Hathaway chairman Warren Buffett, both from the United States.
Besides owning clove cigarette company PT Djarum, Michael, 69, and Budi, 68, also own shares in Indonesia’s largest bank — Bank Central Asia (BCA) — and the Grand Indonesia luxury shopping mall, office building and hotel complex.
The brothers have surpassed Singapore-based tycoon Sukanto Tanoto, 59, ranked 450th on the list with $1.6 billion in wealth.
Forbes listed Sukanto, owner of paper, construction and palm oil industries under the Raja Garuda Mas Group, as the richest man in Indonesia in 2008, with $3.8 billion in wealth.
“The cigarette business has shown greater resilience since the 1998 economic crisis, and the trend has continued to date. It can rely much on domestic consumption, at a time when the export-driven sector, such as commodities, has slowed down as global demand shrinks,” said University of Indonesia economist Berly Martawardaya.
Forbes also listed Martua Sitorus, 49, owner of palm oil company Wilmar International Group, in 522nd place with $1.4 billion in wealth. The next Indonesian on the list is the 701st-ranked Peter Sondakh, 57, with $1 billion in interests in the telecommunications, retail and hotel businesses.
“It’s a great thing that we still have Indonesian businessmen in the list, despite the crisis,” said M.S. Hidayat, chairman of the Indonesian Chambers of Commerce and Industry (Kadin).
This year, the world’s billionaires have an average net worth of $3 billion, down 23 percent in 12 months. The world now has 793 billionaires, down from 1,125 a year ago, Forbes reported.
Bill Gates lost $18 billion, but regained his title as the world’s richest man, even as the world’s richest are also a lot poorer, Forbes said.
Forbes world's richestRank
Name Citizenship Net worth ($billion)
1 William Gates III US 40.0
2 Warren Buffett US 37.0
3 Carlos S. Helu Mexico 35.0
4 Lawrence Ellison US 22.5
5 Ingvar Kamprad Sweden 22
...
430 Michael Hartono Indonesia 1.7
430 R. Budi Hartono Indonesia 1.7
450 Sukanto Tanoto Indonesia 1.6
522 Martua Sitorus Indonesia 1.4
701 Peter Sondakh Indonesia 1
Sources: Jakarta Post, Forbes
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