with Dai Wakabayashi, Regional Representative Business Development Southeast Asia Operation, Chiyoda Indonesia
Having returned to Indonesia, how much has the Indonesian Oil and Gas profile evolved?
Everybody can see that this country has dramatically changed over the past 30 years. Indonesia has moved from exporting to importing natural resources in order to meet the need of its growing domestic demand. Unfortunately, recently there have not been large enough oil and gas field discoveries. Fortunately, the country has much larger gas reserves then those of oil. However, these gas reserves are located in deep-sea, are isolated and are often small. The production cost is consequently high. Moreover, because Indonesia is an archipelago, natural resources have to be transported by ship as is the case with Japan and this drives the cost higher than their transportation by pipelines in a continental country.
Such economic issues have slowed down the development of gas in Indonesia and this is one of the reasons why the country still has a lot of remaining reserves. It is now time to find solutions in order to take advantage of these reserves. The main challenge is to find economical ways of exploiting small reserves, and bringing this gas to the domestic market.
What is the potential that Chiyoda see in developing small fields?
Developing small fields is one of the main targets of the Indonesian government. I believe this is part of Chiyoda’s responsibility to respond to the target set by the government by virtue of its experience. At Chiyoda, we believe that in order to develop small gas fields, one should consider the value chain, from the production site to the consumer. As an engineering company, we can contribute to create such a value chain together with other business entities. Our ambition in Indonesia is to take advantage of our experience in Japan, to partner with local people and combine our knowledge in order to find economical ways of developing these gas fields.
Mr. Prabono highlighted how international companies should form partnerships with local companies. Given that you partnered with companies like IKPT, what is your overall partnership strategy?
In the past, only international companies had the capacity to handle EPC projects.
Over the last 20 years, local companies have accumulated knowledge and experience, and are now capable of handling such projects. Not enough to handle large-scale projects, but they definitely can handle small and medium sized ones. For a foreign contractor like Chiyoda, this evolution has had a great impact on our relationship with local companies – increasing the level of collaboration. In addition, the government is pushing for local content, and this has become an important requirement, more significant than in any other Asian country.
Principally, we need to team up with local people: this is a mandatory requirement in order to conduct projects in Indonesia. Since our projects are controlled by BP MIGAS or Pertamina, the local content is part or our agreement. IKPT for example has been one of our good partners from Bontang train-E project. Also Rekayasa was our good partner for Kaltim-3 fertilizer project. Chiyoda has transferred a lot of knowledge and experience to Indonesian engineers through our collaboration, as we believe people are more important than the companies themselves.
In Indonesia, Chiyoda has therefore served to develop human capital in the industry through our partnerships. Some of our former project employees have moved other contractors as well as creating their own companies, with others still moving to the client side. All those who worked with us now have a special relationship with Chiyoda. Such a relationship is a great asset and whenever I go to a client or a contractor, I can be assured that everybody already knows us. Some of the clients we meet were our former project employees themselves. The essence of our vision strategy in Indonesia is about maximizing the potential of these relationships.
How easy is it to collaborate with Indonesian engineers, if you combine Japanese engineering and Indonesian local engineering talents? Is it a difficult combination?
Personally speaking, I don’t think it is that difficult. From my perspective, in some ways Indonesian and Japanese workers have a similar mind-set. They have a tendency to gather into groups and find common solutions I think Indonesian engineers like to stay in their home country and home town, and I have the feeling that our mentalities are very similar. Relationships are very important in both our cultures and this makes our partnerships easier. This is why our business strategy is based on our networks with Indonesian business.
In terms of gas projects, can you tell us more about the current situation for Chiyoda’s projects?
Gas is one of our most important targets. As clean energy and substitute of nuclear, demand of LNG will continuously be increasing. Chiyoda is currently doing several front end engineering work (FEED) for potential LNG projects in the world.
Chiyoda is already known as large size LNG plant builder but we also have engineering capability for small sized LNG plant.
Further, Chiyoda owns variety of gas chemical technologies and we can contribute to potential gas value chain in the country by applying them.
As mentioned, the country has much larger amount of gas reserves, however, these gas reserves are located in deep-sea, are isolated and are often small. In order to promote development of these uneconomical gas fields, incentives should therefore be given by the government to achieve that goal. These are the factors that therefore determine the economic feasibility of a project.
First, Indonesia’s population contains over 230 million people who place a huge energy demand on the state. Secondly, the diversity of its resources allows for various kinds of business, form natural resources to gas, oil, and mining. As such, Indonesia has a great importance for Chiyoda in the region.
Thailand used to be the preferred country in the region for overseas investment from Japanese companies, but now everybody is looking at Indonesia. One of the main reasons was the heavy flooding last year that damaged most of the factories in the north of Thailand. Companies therefore had to consider a second base of operations in the region. Indonesia has been chosen for its strong domestic market, which allows a large variety of businesses to develop.
As for Chiyoda, it has a long history in Indonesia. Since we started first EPC project here in 1983, we have successfully completed train 4 and 5 of Arun LNG plants and continuously series of E, F and G LNG trains in Bontang for example. We are now concentrating to expand our business chance not only for hydrocarbon energy projects, but including other non hydrocarbon type projects.
Infrastructure is clearly one of the major issues facing Indonesia. One can easily understand Indonesia’s lack of infrastructure by looking at Jakarta’s traffic and how crowded the buses are. In the energy sector this is most evident in the downstream supply of petrochemicals, where facilities are rather isolated from consumers, in contrast to countries like Singapore or Thailand where they are better connected. The lack of infrastructure is critical, especially in Jakarta area, and it represents a huge potential market for construction companies.
Chiyoda is a member of the Metropolitan Priority Areas project, which is a program assisted by Japanese government. Together with other Japanese companies, we are carrying out some studies on how to redevelop Jakarta area by 2020. This is a feasibility and conceptual study which has unearthed a lot of potential for new airports, new traffic system, new port facilities and industrial areas, etc.
Chiyoda is therefore a construction and engineering company in the energy business as well as helping to design Indonesia’s related infrastructure. One of our key contributions to Indonesia as a country will be to establish the best way of utilizing the country’s great gas reserve potential, by developing infrastructure thanks to our engineering and construction knowhow.
Indonesian-Japanese gas relations are extremely important, at the same time, Indonesia is now focusing more on energy for the domestic value chain. How do you see the future of Japanese EPCs working in Indonesia?
Foreign Engineering companies such as Chiyoda have been present in Indonesia for several decades. As mentioned before, one of the major trends of the last few years has been the growth of local content. Foreign companies do not only share the Indonesian market with local companies, but we all have to collaborate together. Chiyoda brings to this picture better knowledge, experience, and the technology that Indonesian companies do not have. Through our collaboration, we seek to grow together with Indonesian companies. After a few years, some of our knowledge is of course transferred to Indonesian companies. Thus, we have to develop more and to innovate in order to maintain the relationship. This is a business objective and, as I see it, the role of Chiyoda in Indonesia.
If we were to come back in 5 year’s time, how would Chiyoda be present in this country?
Chiyoda’s last EPC project in Indonesia was completed in 2005. However, after this Chiyoda concentrated much more on the Middle East. Indeed, we had the chance to implement a huge project in Qatar with our resources being allocated to this project which demanded our full concentration. This aside, Chiyoda has maintained its relationship with local Indonesian people. Since Mr. Kubota became president, it has been decided to reinforce our presence here. Indeed, he has earnest feeling to Indonesia – and lived and worked here for 8 years. He wants to redevelop our presence in the country using our existing partnerships and relationships. I was assigned two years ago with this specific mission in mind.
This year and the next, Chiyoda will be consolidating its presence in the country. Our goal is to establish our expertise in Indonesia, so that it is strong enough to handle the scale of future projects, together with local EPC contractors. The first step that we have to achieve within one year is to build a strong engineering base. By then developing various kinds of field, we should in 5 years time have established a strong presence in Indonesia as an engineering company, together with local partners.
Using Indonesian resources, in 5 years time, we should have the capability to go outside into other Asian region. That is our vision for the next 5 years.
What would be your final message to the readers of Oil and Gas Financial Journal on Chiyoda’s commitment to Indonesia?
Chiyoda’s target in Indonesia is to bring its experience and expertise in order to grow together with the Indonesian people.