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Interview

with YB Haryono, President Director, ENCONA INTI INDUSTRI, PT Indonesia

13.04.2012 / Energyboardroom

Encona Inti Industri has been diversifying its operations since 1985 with an increasing focus on the oil and gas industry. Would you begin by outlining the significance of oil and gas within your portfolio?

When in 1981 Encona Inti Industry (EII) was established as a project and construction management division of PT Encona Engineering, later becoming a fully legal entity in 1985, it did not have a specific competency in oil and gas projects. However, Encona Engineering and EII were both pioneers of a multi-disciplinary approach in the Indonesian engineering industry. EII had experience in planning, civil , structure, architecture, mechanical & electrical engineering, organizing and managing general and specialized projects including petrochemical plants, power plants, heavy industrial facilities and infrastructure projects. These were all good foundations for eventually working in the oil and gas engineering sector.

In the last quarter of the 20th century the government came to recognize that most major oil and gas projects were performed by foreign companies, because local companies did not have a sufficient base in technology or experience. Therefore the government introduced a scheme to partner foreign companies with Indonesian ones in joint-ventures designed to elicit the transfer of technology and experience. Foreign companies such as Bechtel, JGC, Chiyoda, which all had expertise in the oil and gas sector were chosen to partner with indigenous companies to allow these to play a greater role in the oil and gas industry which was extremely important for Indonesia at that time. Encona was one of 9 local companies nominated to enter these joint ventures.

EII therefore joined JGC, Pertamina and 4 other local companies, however, it turned out that after 10 years of operations that the transfer of technology from this type of joint venture was not as successful as the government anticipated. In 1984 EII possessed a 32% share and became the only local partner in the joint venture. It was hoped that through this more streamlined joint venture EII could acquire technology faster, where it’s representative was nominated as the president director of this joint venture.

The joint venture lasted until 2004, when EII pulled away again because the company was seeking a faster acquisition of experience and technology. JGC acquired the remaining assets and became a fully foreign-owned company. However, EII had been able to bring across some oil and gas knowledge and in almost all JGC’s subsequent jobs EII was chosen as their subcontractor which is when EII began to see the real transfer of technology.

Currently EII is building its capabilities gradually on the back of it’s experience and is increasingly focusing on the energy sector. Oil and gas is a high-tech sector where project management and control are at a more advanced stage.

What work is EII performing in the oil and gas sector today and how is your approach different from other Indonesian engineering companies?

In the early seventies, Encona took a quite unique approach for that time to projects. It is not common for Indonesian engineering companies at that time to have multi-disciplinary competencies. State-owned companies were mostly contractors rather than strictly in engineering. EII’s multi-disciplinary approach allows us to exploit “common denominators” shared between fields, casting a wider net in the search for new technologies. This means that we can bring innovative solutions to new oil and gas projects.

Thanks to our previous work for JGC on projects such as the Balongan Refinery for Pertamina and the Tangguh LNG plant, EII now has a stronger track record. Therefore, when EII separated from JGC in 2007, our experience allowed the company to work directly with clients including Chevron and Medco. In fact, EII is not only performing engineering but is also providing petroleum services including on Medco’s Block A in Aceh.

EII has established a long-standing partnership with Chevron on the Duri field in flood control services, where we have participated in everything from survey to detailed design. The Duri field is located in swamp area and during the rainy season flooding inhibits production. Chevron therefore asked EII to make a drainage system designed to eliminate flooding. EII in fact created a unique method for draining because we are ecologically minded and we wished to protect the peat land from drying out too much through drainage. Chevron greatly appreciated our work and has since offered EII many similar projects in this area. EII has now been in partnership with Chevron since 1995 and they are extending our contracts even today.

EII has also recently become involved in the RFCC project in Cilacap. The main contractors for this project, Adhi Karya together with a Korean contractor, received the $860 million contract from Pertamina and EII is acting as a subcontractor for Adhi Karya in EPC soil improvement works. This project began two weeks ago.

Given your previous work, what is the project that you really want to carry out in the future?

In most infrastructure projects so far EII was engineering infrastructure and offsite facilities where we have a strong track record. The current direction is to gradually move towards onsite production facilities. In addition the company is also moving into manufacturing, having just acquired a workshop in Cilacap and we are preparing to manufacture tanks along with other pieces of equipment.

EII sees itself within an increasingly competent indigenous engineering industry. National empowerment programs and the minimum local content clauses have protected Indonesian engineering companies. Our aim is to be in the position whereby all project elements designated to a local company are done efficiently and well. This will mean that government and private actors will no longer provide work to local companies as a matter of politics but because of a genuine trust in our capabilities. Indeed, these capabilities have been demonstrated over a number of years already. Companies should be assured that Indonesian companies are capable and reliable.

In 2015 the government will start to open up the market in engineering and all companies operating in Indonesia have to prepare for this. We therefore have a deadline to push our operations forward and seek the exchange of knowledge and technology. This will not just be the case for engineers but for constructors, manufacturers and equipment providers. The whole local industry is undergoing a push to revamp its potential.

Our readers have probably heard of Singaporean engineering capabilities and even those of Malaysia. What would you say about Indonesia’s capabilities?

At the moment there are so many projects in Indonesia compared to what can be found in Malaysia or in many other parts of Southeast Asia. Given these opportunities, Indonesian companies are gaining experience fast. It used to be the case that Indonesian engineers were used as a source of cheap labor, but this is no longer the case. International clients can no longer expect Indonesian engineers to sell their man hours for $ 14 as in the past because our capabilities have moved on.

The large expansion in infrastructure projects in Indonesia will create more work for all contractors. There is a general shift from onshore to offshore projects but this is only for the large-scale projects. There are still hundreds of smaller projects which were not economically viable in the past because of the oil price but have since been given a new lease of life at the current oil price. EII would like to focus initially on these projects, train ourselves and eventually use this experience to move into some of the large projects of which there are only a handful per year.
EII is also moving downstream now because Indonesia’s profile has changed from an export to an import driven energy matrix and we see a need to help build the infrastructure for domestic consumption. Whereas downstream infrastructure projects such as power plants were left to foreign companies in the past, now Indonesian companies are fully capable of executing them. EII has even been able to take its capabilities abroad to work independently on a project in Bosnia. This represents a milestone in our development and is something of which we can be proud. As opposed to using a European contractor the client has gained considerably in terms of price. EII will no doubt continue international expansion in the same way, not establishing a permanent presence overseas but rather allowing foreign companies to come and offer international work to EII.

What would be your final message in relation to Indonesia’s engineering industry?

Indonesian engineers are now breaking the paradigm whereby foreign clients would always feel it necessary to partner with foreign engineering companies. In this system, regulations and national empowerment were necessary to force these foreign companies to work with local companies even though they were reluctant to do so. International clients are now starting to see the value of working with local companies not only for political motivations but because it makes financial sense.

It is often the case that international engineering companies are performing the FEED and leave the detailed design to local companies. However, the Indonesian industry is now looking at the chance to move into these higher value elements of engineering and we are seeking opportunities not only in engineering but in procurement. As for EII, in a few years time I expect this to be a strong engineering company with a broad portfolio of completed international projects.

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