with Andrew White, Managing Director, AmCham Indonesia
Indonesia’s investment rating has been upgraded by Fitch and Moody and government projections are for 6.5% growth in 2012. What are your perspectives on Indonesia’s regional and international position for attracting American investments?
Clearly Indonesia has been in growth mode for the past several years and that growth is projected to continue. With abundant natural resources, a population of 240 million people, a large and growing middle class, and demographics that skew to a younger, productive workforce, Indonesia has all of the attributes that investors are looking for.
The Indonesian government has put together its Master plan to expand and accelerate growth and has set an ambitious goal to become an advanced & self-reliant nation by 2025.
But if Indonesia is to achieve its ambitious goal to rise to the level of advanced economies, its GDP will have to grow at a much higher rate than 6%.
To achieve its goals, Indonesia will need to invest at a faster rate to develop its infrastructure—roads, ports, electricity generation and airports. Indonesia will also stand to benefit by reducing the current barriers to investment, specifically within the framework of the metrics contained within the World Bank’s Ease of Doing Business Global Report.
James Castle, former Amcham chairman, explained to us that despite huge opportunity, Indonesia was a source of immense frustration for international companies given that business was not growing as fast as it should. Why do you think Indonesia is not meeting its potential?
We should take into account where Indonesia has come from since 1998. The crises left the economy in ruins and at that time the future existence of Indonesia as one country was itself an open question. To embrace a fully democratic and capitalist system is challenging, and now that the country is a G20 member and agencies such as FITCH have upgraded its debt ratings, a revolution of expectations has started. Investors who are looking at Indonesia for the first time compare it with other countries, have higher expectations and so do investors who have been here for decades who expect Indonesia to be further along.
Many foreign companies are doing very well in Indonesia but see the potential to do much more. Indonesia is ranked 129th in the World Bank’s Ease of Doing Business ratings. Starting up a new business is particularly complicated.
Current regulations make it difficult to start up a new enterprise to the detriment of local firms and investors. The Indonesian government is taking steps to address these issues and we encourage them to continue to remove the barriers to start-ups.
Infrastructure is another issue closely connected to investment. For instance, it is estimated that for every one percent of GDP growth, electricity generation needs to increase by 2.5 percent.
Decentralization of power has fundamentally altered the operational environment presenting challenges such as the permit issue for ExxonMobil’s Banyu Urip field, as well as opportunities with new players involved. How do American companies adapt to this changing political environment?
Indonesia today is part of the global economy. Typically when a corporation maps out a country’s resource potential, it looks firstly at how easy it is to extract those resources. Once that is clear, the regulatory environment—and specifically how stable and predictable regulations are– is factored into the equation. Indonesia ranks near the top of the list when it comes to resource potential, but much lower down on the list when it comes to actual investment. The reason for that is investors are concerned that future regulations may change to the detriment of their business interests and contrary to what was agreed when the investment was made. Investments in oil and gas do not begin paying back until a decade or two after the investment is made. As projects in these sectors require billions of dollars of financing, companies need to be certain that rules and contracts will not change after they have been established and agreed to.
We see the opportunity for increasing American involvement in key transitions in the oil and gas industry towards deepwater projects, enhanced oil recovery and unconventional resources. Where do you see the specific areas where American companies can add the most value in the Indonesian energy and oil & gas industry?
Clean energy is one area where there is tremendous opportunity: Indonesia has the need and American companies have the know-how. Many of the technologies that American companies have developed are critical game changers. These technologies will bring down the cost of energy production and do so in a way that is the most environmentally friendly.
We see the impact of these technologies in deepwater exploration and unlocking tight oil and shale oil in the U.S. and other countries. An added benefit is that these new technologies offer great potential for smaller Indonesian players to learn through technology transfer. But bringing new technologies on stream to their full potential requires significant investment over a long-term time horizon and a clearer, more predictable legal and regulatory environment .
Uncertainty over contract renegotiation for expiring PSCs at the end of the decade, the PTK007 guidelines pertaining to local procurement of equipment and services both point to Indonesia’s strategy of promoting national control over production. How are American businesses adapting to remain a long-term partner of Indonesia and its oil and gas companies?
American companies have been investing in Indonesia for decades and have played a crucial role in developing the oil and gas industry here. And so they have that long-term perspective and are able to adapt to the changing political and regulatory roadmap. American companies have the best technology and processes, and most importantly they do what they say and stand by their commitments. That, in my opinion is the best adaptive strategy.
How do you see AmCham’s role in addressing these issues?
It begins with first understanding what the issues are from our members’ perspective and then looking for opportunities where we can add value. I spend most of my day outside our office, meeting with member companies, officials, and opinion leaders to better understand the issues from all perspectives.
AmCham’s committees are our nerve center. These committees cut across sectors and issues and allow member companies to meet to discuss relevant issues and agree how best to use the collective resources of AmCham to solve these issues.
Our goal to make sure that the sum of our efforts is greater than the individual efforts of the businesses we represent.
How does energy fit within the work of AmCham in Indonesia?
We have an Oil & Gas Committee and a Power Committee. These Committees are active in monitoring issues and engaging in meetings with the government and engaging in forums to help construct the energy roadmap here. We realize that just complaining about problems is not productive. Our role is to be an honest broker between the private and public sector and to help carve out opportunities for constructive dialogue. One such initiative AmCham Indonesia is involved with is the U.S.-Indonesia Commercial Dialogue. The Commercial Dialogue is a platform now being developed to bring both the U.S. and Indonesian governments together with the private sector to remove barriers to mutual trade and investment in critical sectors, including for instance clean energy.
What is your three to five year vision for AmCham?