with Albert Steven Budisusetija, President Director, Tripatra Engineering Indonesia
The Banyu Urip project lies at the core of Indonesia’s strategy to revive short-term oil production. Would you outline your perspective on this project and Tripatra’s contribution to it?
The Banyu Urip project is in a way an example of Indonesia’s entire development story. Of course, the negative aspect of this particular story revolves around the delays towards the site work start date experienced on the project. We appreciate the local population and government defending their interests to develop and ensure good interaction between ExxonMobil and its contractor with the local community and my assessment of the matter is that this project could have been managed slightly better with these interests foreseen and dealt with during the planning stage of the project. However, this is now in the past; ExxonMobil and the local government have agreed to terms that both find acceptable and permits have been granted to begin construction. I see a strong willingness from the local government to cooperate despite the fact that problems have accumulated over almost a decade since this project was first envisaged.
The positive side of the story is that the project demonstrates the capabilities of Indonesia’s indigenous engineering industry to take on the type of project which carries a worldwide significance. In the 1980s when large international companies began entering Indonesia, national companies such as Tripatra were still in the process of development. The debate within the Indonesian government at the time was how to increase local content in engineering and construction projects to encourage the local industry. This policy of national empowerment has continued over the last 20-30 years up to the point where Tripatra, as one of Indonesia’s leading EPC contractors, was invited to participate on this large-scale project. This contract constituted a major milestone in the development of Tripatra.
Today national empowerment has moved up a notch towards utilizing “local local” content i.e. an Indonesian contractor moving independently to a project and utilizing local sub-contractors. Tripatra has a long history of working with local government and importantly with local sub-contractors. We see the value of working with local companies as self evident as it is not just low cost, but it helps to build our social presence in the region. An example is when Tripatra first went to Aceh in 1993 Tripatra worked with local companies in order to obtain a supply of labor. Tripatra had to plan the work for these companies and buy all the necessary materials. However, these companies through the experience developed themselves and suddenly a few years later they started appearing as our sub-contractors in our other projects.
When working with local companies how do you maintain standards and make projects run smoothly?
It is a case of understanding what local companies know and what they do not know. Tripatra should not expect these companies to have competencies in project planning and control; instead Tripatra needs to supervise and control the work carried out. It is a matter of delivering a project in close collaboration with these contractors, rather than letting them carry out work on behalf of Tripatra. Of course this requires more on-site supervision. If we are working with a more experienced contractor it may just require minimum supervision but for projects involving inexperienced companies, we have to increase our presence on a project several-fold. This has to be taken into account when bidding for projects. Planning is not something culturally embedded in our society so we have to use our experience on projects to guide companies with which we work.
Safety is another big concern and it is not an easy job to maintain a safety record like ours. I would not suggest that Tripatra has never had accidents, but the last fatality was in 1998. Following this incident, we performed a safety evaluation and one of the findings of this evaluation was that some safety measures we were imposing had the opposite effect to their original intention. For example you might think that you are protecting a worker by providing them with new safety shoes. You then instruct that worker to undertake some dirty site work, but the problem is that in some cases these are the first new shoes that the worker has ever received. Often they do not want to get them dirty and choose not to wear their new shoes. As a consequence, they will use old equipment. At that particular period, these were the types of challenges that we faced. Today other challenges are faced.
Following the accident in 1998, we made it a policy to install an Integrated Safety Organization on every project site. This is run by Tripatra and the project owner and the safety committee composed of the directors and CEOs of the sub-contractors. This committee meets once a month with the idea of ensuring their cooperation with our safety standards. This has been a successful scheme and has given Tripatra a strong safety record.
Tripatra is very knowledgeable in Indonesia and has a lot of experience in conducting projects involving many stakeholders, using a large number of workers and across the different geographies of Indonesia. However, what we see today is a lot of change meaning that past experience is not always relevant. What we can observe today is different to what took place in the past.
Evita Legowo outlined three paradigm shifts in Indonesia’s energy industry: onshore to offshore, oil to gas, West to East. What is your perspective on these developments and what it means for construction?
There is in fact a 4th transition impacting on Indonesia which is the rapidly changing international environment for Indonesia. For the first time we are seeing America looking to supply gas to Southeast Asian markets, Japan is discussing developing CBM on its own territory, Poland is also working on shale gas although Europe is a little behind because of the extent of regulation. A few years ago America was building import terminals and now these are being converted into export terminals. This fundamentally changes Indonesia’s position as a gas exporter and adds to this transition towards looking at the domestic market.
Indonesia is converting its infrastructure now to supply the domestic value chain. Indonesia is building FSRUs and regasification terminals as one cannot pipe gas from Tangguh in Papua for instance; it has to be shipped which creates demand for regasification terminals.
As for Tripatra, the company gained its initial experience in the offshore industry when Java Sea oil and gas reserves were being developed. Tripatra is still involved in offshore engineering but we are not yet involved in offshore EPC contracts, which the company only performs onshore. However, as regards the shift towards deeper waters, floating systems such as FPSOs etc. are to develop and are less risky than the conventional offshore installation. Today Tripatra is forming joint ventures and partnerships to expand its capabilities in these new deep-water areas.
The key to EPC is always engineering. Our modus operandum has always had the partners takes lead for the basic design, and then Tripatra takes lead for the detailed enginerings. The higher value chain of engineering involves project definition, concept design, feasibility studies etc. and these constitute the difficult part of engineering and Tripatra has to improve its higher elements of the value chain.
Accomplishing this organically would take too much time to accomplish. In the past Tripatra only wanted to be involved in consortia, but now the company is moving into joint ventures which allows the company to learn and share experiences faster. I do not believe that technology and knowhow are simply given, rather we have to be proactive in learning from our partners. Through this joint venture mode of operation, Tripatra can build longer-term partnerships lasting over several projects, granting us the opportunities to acquire new competencies.
The other reason for this strategy is that projects are increasing in scale and risk sharing therefore becomes a necessity. Projects are now of a sufficient size that 2-3 partners can collaborate and collectively reduce their risk exposure. Finding the right mixture of partners and clients is a necessity in this new operational environment.
Fortunately Tripatra’s has benefited a great deal from having reliable clients such as Chevron and ExxonMobil. When Tripatra has undertaken projects for this client, no matter how large the project we never considered it to be a large risk. However, a simple project with an unreliable client can easily become a high-risk project and demands that we balance these risks through partnerships.
Tripatra must move to the next level of projects which means that we have to manage our strategy in relation to our competition and ensure that the given project is sufficiently complex that Tripatra has few or no competitors.
What are your ambitions for Tripatra in the coming years?
Tripatra is moving into deep-water offshore projects. Cepu which was a $750 million project, brought Tripatra to its next level of development. Now it is time to move to another level with a full portfolio of offshore project and Tripatra has formed the right joint ventures to achieve this.
Comparing Tripatra 2002-2006 and then from 2007 to 2011 we saw a doubling in revenues and contract value. If we just compare Tripatra 2011 to 2010 the backlog has almost tripled. The company is therefore in good shape to expand further.
The key story behind this ability to expand the scale and difficulty of the projects we undertake is the advancement of our organizational structure. In 2007, when Pak Pandri was the CEO and I was his COO, we started restructuring Tripatra because it was a fairly conservative organization. As a rule, conservative organizations breed conservative people and when Tripatra wants to move up a gear there needs to be a change in the organizational structure and personnel. Tripatra holds its seniors in extremely high regard. However there is a generation which may not be able to contribute in the same way that it used to and time should be allocated to bring fresh faces into the organization. Naturally this is a sensitive process which must be handled wisely. The shareholders have been very understanding so far in this transition and in 2011 there was a large shake up in the organization with a lot of new blood introduced.
On the 1st January we decided to split the organization in two creating two companies: Tripatra engineering and Tripatra engineers and constructors. The former consists of consultants the latter consists in EPC contractors. We had observed that our engineering capabilities had not developed strongly because we were too focused on EPC contracts. This restructuring is designed to revamp our engineering capabilities and we put in place a new leader for the engineering group to take a fresh look at the organization.
With this new structure, how do you view overseas expansion?
Tripatra has already looked into projects in India, Pakistan and Bangladesh. The Middle East offers big contracts worth billions of dollars, but Tripatra is not yet at the level where it can compete in this market due to the risk associated with these projects. International expansion will therefore focus on Southeast Asian markets which are manageable for Tripatra. Most likely these will be EPCM arrangements rather than EPC because they are lower risk. There are no turn-key lump sum problems in EPCM and there are better margins coming from a smaller top line. This direction will help us to balance the risk.
Tripatra also has the intention of developing an overseas engineering center. India produces 800,000 engineers each year, China annually produces 2 million engineering graduates. Indonesia cannot compete in producing anywhere near these numbers of engineers. It is one of the things that Indonesia somehow has not put in its focus i.e enough attention on higher education for engineers. This shortage should have been addressed 5-6 years ago because the projects are occurring now.
Indonesia currently faces shortages in its engineering talent. Not all our graduates actually end up in the engineering industry. Often they end up in trading, banking and the financial sector. Those engineers who gain experience in the engineering sector are in hot demand, their fee goes up. Indonesian engineering talent is consequently not cheap compared to other engineers from the region. Moreover, in the last 4 years, the international market has started to recognize Indonesian engineers. These engineers are therefore moving abroad. This is especially true for those who received their higher education in engineering abroad.
The government needs to look at this issue very carefully. Whilst Indonesia clearly has great need for new infrastructure projects and engineering expertise, engineers themselves have their own careers to consider and need to be incentivized to take part. One of the biggest factors in this is the work environment. Indonesian engineers want to be able to work in a transparent work environment and more could be done in this direction.
Interestingly the moment we start to divert our attention overseas, the Indonesian market starts to boom. There are simply so many projects in Indonesia and we have to be careful about balancing our capabilities.
Since 1983 your have been working for Tripatra and have been its CEO for the last two years. What would you say was one moment that has defined the last two years for you?
The key event for me was when the restructuring of the organization started to take place. In my view, this is what will allow Tripatra to become something much greater and I ultimately need to balanceinterest in new projects and in finding ways to develop Tripatra’s capacities. For Tripatra to make the best of the new opportunities presented by the market, we need to build this capacity. If you are unable to achieve this you will just be limited to what you can do today.
What would be your final message on Indonesia’s engineering industry?
The opportunities in the market are clear, especially in infrastructure. Infrastructure will become a space of increasing collaboration and will need the support of the international players involved in public private partnerships. In this picture, Indonesian companies will collaborate with the Indonesian government and international players. This is what Indonesia needs and international investors need a place to invest. I believe Asia is the bright spot for investment in the world today.