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Indonesia's Construction Sector Opportunity for Korean Construction Industry

Hari G SoepartoIAMPI

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KOREA

Map of Indonesia

Indonesia fact and figure

• Area: 1.591.893, 27 sqkm• Population :242 Million• GDP (PPP): $1.121 trillion (2011 est.)

country comparison to the world: 16 • GDP (Current exchange rate):$834.3 billion (2011 est.)

country comparison to the world: 18• GDP - real growth rate: 6.4% (2011 est.)

country comparison to the world: 38 – at present may be number 2

• GDP - per capita: $4,700 (2011 est.) country comparison to the world: 151

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GDP & GDP/Capita

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Gross Domestic Saving

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50,000,000,000.00

100,000,000,000.00

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200,000,000,000.00

250,000,000,000.00

300,000,000,000.00

350,000,000,000.00

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Gross domestic savings (current US$)

Gross domesticsavings (currentUS$)

(5.00)

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5.00

10.00

15.00

20.00

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35.00

40.00

45.00

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1993

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2001

2005

2009

Gross domestic savings (% of GDP)

Gross domesticsavings (% ofGDP)

GROSS NATIONAL INCOME

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-

100,000,000,000.00

200,000,000,000.00

300,000,000,000.00

400,000,000,000.00

500,000,000,000.00

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2011

GNI, Atlas method (current US$)

GNI, Atlas method (current US$)

GFCF

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100,000,000,000.00

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200,000,000,000.00

250,000,000,000.00

300,000,000,000.00

1979

1985

1991

1997

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2009

Gross fixed capital formation (current US$)

Gross fixedcapitalformation(current US$)

(40.00)

(30.00)

(20.00)

(10.00)

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10.00

20.00

30.00

1979

1982

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Gross fixed capital formation (annual % growth)

Gross fixed capitalformation (annual% growth)

Current Economic overview

• Despite Global Economic Downturn, Indonesia enjoy continous Growth of 6.5%.

• Strong sector for investment is transport, storage communication followed by mining and other infrastructure

• Construction real growth by 7% despite the growth in nominal value was 32% showing inflation in construction sector of 25%.

• Cement Price is fourth highest of 11 country studied in the region

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Construction Sector

• Professional Service & Consultants• Number of National Contractors around 130.000

(90% smalll, 9%Medium, 1% big)• Foreign contractors around 127 firms and 91

consulting company• Building Material: due to high demand, inflation is

high in construction material• Permanent Construction worker 560.000 personnel

total construction workforce 4.5 million people• Construction Equipment, industry is not develop

despite high demand

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Heavy Equipment in Indonesia

• After years of being in the doldrums in the wake of the 1997/1998 monetary crisis, Indonesia’s heavy equipment industry began to revive in 2003. In 2004, sales were triggered mainly by the mining industry boom. The strong revival of heavy equipment business is also attributed to expanding agribusiness and forestry sectors. Furthermore, the construction industry began to grow in 2004. Meanwhile, the government has pursued infrastructure projects which required large numbers of heavy equipment. In the past eight years, sales of heavy equipment reached the highest level in 2007 with total sales of 7,506 units. The positive economic outlook for Indonesia in 2008 has created a mood of optimism among suppliers of heavy equipment. Agriculture, forestry, construction and mining sectors are expected to remain attractive markets for heavy equipment, driven by the expansion of forestry and agricultural plantations. (export.gov)

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Project Sponsor/ Initiator

• Government• Government Influenced• Government Participation: PPP• Private

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NATIONAL ECONOMIC DEVELOPMENT PROGRAM

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6 Economy Corridors

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Strengthening the National infrastructure for connectivity

• Creating an integrated system of national logistics, national transportation system, regional development,and communication and information systems;

• Identify the transportation hubs and distribution centers to facilitate the logistical needs for primary andsupporting commodities;

• Strengthening connectivity of intra and inter-corridors as well as global connectivity;

• Improve information and communication technology (ICT) networks to facilitate all economic activities,government activities, and national education sector activities

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PROJECT WILL INCLUDE

Project will Include

• Infrastucture– Highway– Harbour– Airport– Waste Treatment– Irrigation– Water Treatment– Power

• Distribution• Generation

• Mining• Oil and Gas• Industrial Plant

– Petrochemical– Chemical– Mineral Processing– Oil refinery

• Buildings

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Major Project In Indonesia Plan for 2011-2014

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Roads & Bridges 59,921.6 Rail 65,832.7 Ports 12,662.8 Airports 8,085.6 Healthcare 95.0 Water 1,941.6 Power Plants & transmission grids 63,668.0 

Oil & Gas Pipelines 1,608.6 Residential Construction 1,837.0 Industrial Construction 72,542.0 Commercial Construction 1,719.5 Million USD 289,914.4 

Method of Project Delivery

• Traditional– Mostly used at goverment project, but trend is moving

toward more integrated approach• EPC

– Mostly use in industrial project and PPP projects• Design/Build

– Mostly used in building project by developer a• CM/EPCM

– Start to be used by certain industrial plant (EPCM) and building (CM) as well sponsor

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Indonesia Construction Laws

• Law No. 18/1999: Government Regulation no 28/2000, no 04/2010, no 92/2011

• Indonesian Institute to Develop Indonesia Construction Activities: CSDB (National Construction Service Development Board)-LPJKN

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Foreign Contractors Involvement

• Permen no 5/2011 PU• Permen 27/2008 ESDM• PTK 007/TKDN• Pertnership Requirement

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Flow of New Permit for foreign Contractor Processing

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Document reqired according to Article 6.1

Submission Piece 5th Prove of Payment

Foreign business Entities pay to the bank

Certificate Collected

Instruction Letter to pay

Complete?

Flow of Permit Extension for foreign Contractor Processing

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Document reqired according to Article 6.2

Submission Piece 5th Prove of Payment

Foreign business Entities pay to the bank

Certificate Collected

Instruction Letter to pay

Complete?

Recommendation from supervising

team

Fulfilled

Fulfiling obliigation as required

Flow for data change

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Document reqired for: 1. Change address Article 6.32. Change the head of repersentative

Art 6.43. Change compny name 6.5

Pick up the sertificate

Complete?

Flow of Permit Closing

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Document reqired as required in art 6.6

Pick up the certificate of closing of representative office

Complete?

For Oil and Gas

• According to Minister Regulation no 27/2008 Contractor should have Letter of Registration from Ministry of Energy and Mineral Resources Republic of Indonesia

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Obligation to absorb Local Content

• In Oil and Gas Project Controlled by former BPMIGAS formerly directly under the President of the Republic of Indonesia now under Minister of Energy and Natural Resources, there regulations that contractors should use material and service from national source at least 40% (Total Domestic Content-TKDN), and will give a price preference depend on percentage of Total Domestic Content

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REVIEW AND ANALYSIS

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Basis of Analysis

• Factor Condition– Regulation– Natural Resources– Labour Skill and Skill– Professionals

• Supporting Industry• Demand Condition• Structure and Competition

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Factor Condition

• Regulation : Is a highly regulated industry

• Resources Potencial is high• Labour: many unskilled limited

skill labour• Professionals workers: limited

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Supporting Industry

• Construction Equipment, is not sufficient as well as its operator

• Cement, is sufficient supply• Steel Product, is sufficient, • Fabrication and Manufacturer of Industrial Plant

Equipment is available but limited capacity and capability, especially in engineered product

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Demand

• Is quite high and still increasing• No 2 Construction Market in the world

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Structure and Competition• A lot of small company but very view specialty

contractors• Tough competition• Regulated by many bodies such as Construction

Services Development Board (LPJKN), Ministry of Public works, Ministry of Energy and Natural Resources, Ministry of Labour

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Conclusion

• Market is considerably high• Market somehow is regulated for time being• Competion is tough• Better to package it with FDI

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Q&A

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