Ari Slamet Noto Koesoemo – President Director, Arkon Prima, Indonesia
The President Director of PT Arkon Prima explains how diversification into the energy business will provide sustainability in the saturated steel manufacturing segment in Indonesia, and highlights how partnering with Medco helps them in the process to become one of the first independent power providers in Indonesia.
What projects have been keeping you busy of late?
Very recently, we have started to enter into the sustainable energy business putting together small-scale biomass ‘power packs’ that run on timber, palm oil and various forms of agricultural waste or by-products. The first project of this kind that we embarked on is actually a collaboration with Medco and utilizes some 280,000 hectares of jungle that can ultimately support 100MW of power.
This type of mini-power generation project is very appropriate to remote regions such as Papua where mineral resources and fossil fuels are, as yet, underdeveloped and thus hard to come by. Rather than creating a reliance on imported fuel, these projects seek to offer a degree of energy independence to isolated communities by harnessing local assets such as an abundance of forested land and local agricultural industries.
We note that Arkon Prima has recently incorporated IFS application 9 software in order to facilitate your transformation from a leading indigenous steel fabricator into an integrated solution provider for the energy industry. Could you please tell us more about this transformation process?
Arkon has undergone a number of transformations over the course of its 42-year lifespan. The company originally started out in 1972 as a joint venture between a British company, Taylor Woodrow International (TWI), and some local Indonesian partners. Production facilities were subsequently established in Bekasi producing an initial annual capacity of 5,000 metric tons of steel, primarily for the pre-engineered buildings market which was a growth industry at the time.
In 1988, TWI’s shares were taken over by a Hong Kong entity called Lakemba Ltd and, with the strident support of this new financial partner, the company flourished and started to diversify its market offering. By 1990, to cater to the increasing demand for industrial equipment, the company extended its product lines into fabrication of auxiliary equipment specific to mining, oil and gas and power generation clients. During this period, we increased our annual production capacity, ratcheting it up to 15,000 metric tons and also started taking on heavy industrial plants as customers.
We refer to the latest iteration of our business as Arkon 2.0 in the same manner as one might refer to software. This encapsulates the sort of technology savvy ethos that we wish to embrace. These days, we are completely supported by national capital and are a fully Indonesian firm. We had to branch out into renewables as a protection mechanism, because the original steel manufacturing business was facing intense competition.
How do you explain the sudden rise in competition? And how did you resolve upon the manufacture of power packs as the solution for dealing with it?
The steel manufacturing market is intensely competitive primarily as a result of cheaper imports, especially from China. Though the Indonesian government has obligations to protect the upstream part of the energy value chain and give a helping hand to SOEs like Pertamina, there is no precedence for that sort of state aid in the downstream arena. The choice that we were facing was pretty stark: adapt or perish! We started this process of transformation and adaptation by reviewing our internal systems and procedures and integrating software solutions to ensure an efficient decision making architecture and smooth management style.
Secondly, we set about diversifying into new segments of the market that we considered to possess high growth potential. Actually our business today is limited to sub-systems. We never build the entire power plant. To attempt to do so would have been a step too far because we would have faced a great many handicaps such as doing the procurement for building a turbine. What was feasible, however, was to design and manufacture micro-scale power units and this happens to be exactly what the local market requires.
Indonesia consists of more than 3000 islands which practically rules out the use of transmission interconnectors and conventional electricity grids. Given the complexities of distribution and logistics in the world’s largest archipelago, a much preferable solution is to source all materials from the locality. By thinking outside the box we have come up with all sorts of workable solutions such as constructing energy independent rice mills that can power themselves using biomass fuelled power packs. Doing this is the very essence of what a sustainable futures company should be doing: working at the nexus between food, energy, water and climate change. Arkon Prima is proud to say that it now plays a part in the first three of those industries.
How important has the partnership with Medco been?
Medco is a very welcome partner because they have a very similar mindset to us and have been making the leap from an oil and gas company to an integrated energy company that covers different parts of the energy mix including renewables.
Being associated with the Medco brand delivers another much-needed boost. Sometimes it is difficult to convince foreign clients of the ‘made in Indonesia brand’ and potential customers underestimate our capabilities and assume we cannot meet their requirements. However, as soon as they discover that we have designed 4 power packs for Medco then it really opens their eyes. We recently joint ventured with a highly reputed Indian company that is licensed by GE and has sold over 30 turbines to the Indonesian market for similar reasons. By including their products and brand in our designs, that simultaneously guarantees our own quality.
It seems that Arkon has always been very good at judging the mood of the moment and aligning with the priorities of the government in office and the demands of the nation…
The domestic manufacturing industry has always been heavily dependent on the government. We have always made it our business to adapt to the requirements of the time and support the government’s agenda and work plans. Right now we understand that the Widodo presidency is intent on harnessing Indonesia’s energy endowments to feed the national economy and GDP growth. They are also pushing for more equitable growth and the electrification of the remote islands and regions.
As always, we will be doing what we can to contribute to the country’s development. Right now, we are seeking a finance company to lease our power packs because we realize that a lot of the smaller municipalities don’t have the purchasing power to build their own, but would be able to afford acquiring one on lease.
We also identify a trend towards nationalization and local content and hope that the benefits of this will trickle down to our own industry. We could do with some form of domestic protection because I recently visited Vietnam and Cambodia and realized that though they were initially schooled by Indonesia’s own industrial systems, they have now overtaken us and, in some instances, run fully automated facilities.
Do you have any plans to follow suit?
Actually we do. A mere 10km from here, we will build a new factory that will be fully automated. Such a process entails a thoroughly different mindset so my idea is to keep it entirely separate from the human intensive workspace here. The intention is to develop a completely new industry, work style and end product and this fits with our very own internal 2020 vision. I resolved upon this path when I understood that fully automated Vietnamese factories could churn out similar products to us, but in only a fraction of the time. We will simultaneously continue with the existing Bekasi facility because we are aware of the role it plays in job creation.