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Interview

with Mark Noordhoek Hegt , Managing Director, Vopak

23.07.2012 / Energyboardroom

The development of downstream infrastructure is becoming urgent in Indonesia to meet rapidly increasing energy needs. The 2001 oil & gas law led to increasing liberalization of this sector – what impact is this liberalization having on Indonesia‘s ability to meet its energy needs?

As the worldwide market leader in tank storage, Vopak aims to enter high-potential countries like Indonesia before developments take off in full earnest to establish a footprint that corresponds with our global position.In Indonesia we noticed market changes in the right direction from the introduction of the new oil & gas law in 2001. The opening up of the market for foreign players led international oil companies to seriously look at setting up retail networks in the Indonesian market and the first companies started to set up retail stations in Indonesia in 2005. Around that time Vopak started to look into Indonesia to establish a position. Our interest led to a joint venture agreement with AKR in 2007 and we commenced with the construction of a terminal in Tanjung Priok, a facility of over 250,000 m3 for the import and distribution of fuel products. By 2008 the commercial fuels market had completely opened up with free competition reigning. A handful of international oil companies moved into the arena. For Vopak these new entrants were a good sign that the market was continuing to open up. The next step is now the opening up of the retail network.

How has your customer base developed as a result over the past couple of years?

When entering a market it is crucial for Vopak to understand who will be the players of the future. In Indonesia both international oil companies and national oil companies showed interest, which automatically sparks our interest in setting up infrastructure. It is our goal to have worldwide partnerships with both groups of companies and to grow with them.

As Vopak relies on long-term contracts, it particularly focuses on strategic partnerships. What do you look for in a strategic partner in Indonesia?

Allow me to correct the misconception here: As much as Vopak focuses on long term partnerships, we understand that customers in Indonesia take a shorter term view and we are flexible enough to cater to such needs. The market is still in the process of opening up, not an environment in which companies look for long term arrangements. At Vopak, we have concluded both short term and long term projects.

When we met Mr. Hoekstra in Singapore, he told us that Singapore has been attractive for Vopak to invest in because it has a very transparent oil market and a high grade of liquidity. How challenging is it to work in Indonesia in this regard?

Indonesia is a different market compared to Singapore.. Singapore is a strong market but room for future growth is limited as land is scarce. That is one of the reasons why Vopak is building a terminal in Pengerang, Malaysia, which has similar regional setting as Singapore.That same regional role can be played in Indonesia in locations such as Batam and Sambu Island, from where our Singaporean facilities on Sebarok are practically visible.

Still competition is stiff in this regard. What do you believe are the biggest challenges that Indonesia needs to overcome in order to establish itself as a regional hub?

Indonesia has come a long way and the industry has improved over the last few years. That being said, Indonesia is home to 240 million people divided over 17,500 islands and these are the kind of challenges that make Vopak enthusiastic as it signifies huge needs for shipping and tank storage. The opportunities are great, but of course the transition from a closed market to a completely open market comes with a set of unique challenges.

Indeed the competitive landscape has changed drastically – could you outline how you position Vopak in this competitive landscape?

We recognize the state National Oil Company Pertamina as the main force in the years to come, and it is our wish to build close relationships with Pertamina. We see substantial and mutually beneficial opportunities to assist and advise them on logistics and terminal positioning and on making the whole import and distribution of fuels more efficient. Furthermore it is our wish to extend Vopak’s worldwide relationships with international oil companies into Indonesia.

Why should Pertamina at this stage choose Vopak over other competitors present in the market?

With close to 400 years of experience, Vopak has built up the capability to profoundly understand new markets. Indonesia is in the early phases of opening up to the international oil market and is bringing more fuel into the country. We have an understanding of how to do that in the best and most efficient way. We expect that there is ample room to improve the supply chain and logistics of the import and distribution flows in Indonesia. The logistic infrastructure has to become more efficient to service the downstream fuel market. Vopak feels it is well positioned to support Indonesia and Pertamina in this process. Location is critical and crucial. The Vopak terminal is extremely well positioned for import and distribution in Jakarta and the greater Jakarta region. The growing retail networks currently under construction are all in the vicinity of Jakarta.

Our positioning is also strategic in relation to Pertamina; their jetties of the Jakarta Plumpang depot are right in front of our terminal in Tanjung Priok. This is a major advantage to Pertamina where we can link-up with their storage and refinery. We assist companies in running a more efficient tank storage operation. Vopak has developed and implemented advanced scheduling and stock management systemsStock management is not just about systems but also about culture and people, and we have a lot of experience in that. We take custody of the quality and quantity of our customer’s product. We are positive that our competitive strengths will lead to business opportunities in Jakarta or other parts of Indonesia.

Indonesia has historically a strong track record in LNG but developments have been lagging behind and the country lost its top export position to Qatar & Malaysia. In January this year however Pertamina approved investments of $1.95bn from 2012-14 on floating LNG (FLNG) terminals and associated gas pipelines. What opportunities do you see for LNG in Indonesia today?

The challenge that Indonesia faces is to bring LNG to all the different consumption areas. There are a few major consumption areas, first and foremost in Jakarta. PGN and Pertamina announced cooperation with a major international shipping company to set up a floating terminal in front of the coast of Tanjung Priok with a 20 kilometer pipeline. This model works up to two or maximally three million tons; beyond that a land-based solution is needed, which is where we come in. Vopak has built significant experience over the past eight years in the Netherlands with the newly build GATE terminal and with the acquisition of an LNG terminal in Altamira, Mexico. We believe that we can bring added value in Indonesia based on these experiences.

Promotion of downstream investment is a necessity given the growing demand in the country, and of course Indonesia with its massive growth in energy demand is an interesting market. Where do you see the most interesting growth & investment opportunities for Vopak in the coming years?

Firstly we like to build further on our existing footprint of our fuel terminal in Tanjung Priok, Jakarta and our chemical terminal in Merak. We are keen to explore LPG projects particularly A lot of money can be saved in the supply chain by bringing LPG on land and distribute it further. East and West Java are the main markets, and Vopak is very interested to contribute there.

On the back of the successful track record of Vopak’s operations in Indonesia over the past decade, what are your growth expectations for Vopak in Indonesia in the coming three years?

A lot depends on the pace at which the government decides to change the subsidy structure. At Vopak, we plan to continue exploring new opportunities in LPG, as well as expansion opportunities at our current terminals and beyond.

How do you see the role of Vopak’s operations in Indonesia develop within the group’s global storage terminal network in the coming three to five years?

Within our Asia operations we have determined growth countries: Singapore, Malaysia, Vietnam, India, and Indonesia. Indonesia plays a very dominant part, because of the size of the country, the growth of the economy, and the growing import projections for fuel.We are working hard to establish ourselves as the market leader in tank storage and as part of this it is our ardent wish to establish a strong partnership with Pertamina. We will continue to contribute to a more transparent market that efficiently handles its import flows for fuel. We also have a chemical terminal in Merak, a market that has already been opened up for years and many international players are there. Merak represents 75 percent of the chemical activity in Indonesia and is very strategic area for us and an operation that we are looking to grow further. The chemical market in Indonesia still has a lot of growth potential.

What is your final message about the Indonesian market and the role of Vopak on this market?

Indonesia has a lot to offer to a company like Vopak. Asia is the continent where growth is coming from today, and Indonesia is one of the stars of this continent at this moment. The country has immense potential. The market is waiting to see how the government will deal with the critical challenges at hand. Vopak is here to service the country, and the current and prospective oil players in helping them to distribute their products in the most efficient way. That is what we have been doing for 400 years, and that is what we will be doing in Indonesia today and in the future.

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