investment opportunies imdl sector.pptx

Overview of Investment Opportunites In Indonesia’s Iron & Steel Industry

Budi Irmawan

I. Overview of Indonesia’s Iron & Steel Industry

II. Indonesia’s Industrial Policy

III. Investment Opportunities

IV. Summary

Contents

OverviewI

2010GDP ~ US$ 700 BillionIncome per capita US$ 3,000 (2010)World’s 17th biggest economy

2025GDP: 3,8 – 4,5 Trillion US$Income per capita:US$ 13.000 – 16.100World’s 12th biggest economyKEN projection: Income per capita ~US$ 14,900 (high income country)

2045GDP ~US$ 16.6 TrillionIncome per capita predicted to reach~US$ 46,900Predicted to become world’s 7th or 8th biggest economy *)

Notes:*) Calibrated from G-Sachs and

Standard Chartered Bank prediction for Indonesia 2050.

INDONESIA’S VISION: “TO LEVERAGE INDONESIA’S POSITION TO BECOME WORLD’S DEVELOPED COUNTRY AND 10TH WORLD’S BIGGEST ECONOMY BY 2030 AND 6TH WORLD’S BIGGEST ECONOMY BY 2050 THROUGH SUSTAINABLE AND INCLUSIVE HIGH ECONOMIC GROWTH”

Economic Development Goal

Source : Bappenas, Lukita

Overview Indonesia’s Industrial Policy Investment Opportunities

4

5

Various world’s largest natural resources reserves, world-class producers of commodities, huge infrastructure projects are the pull factors for industry to grow and

expand more

Natural Gas Thermal Coal Geothermal Palm Oil Iron Tin Nickel Bauxite Copper

Key Metrics

About 165 TCF of

reserves at production

rate ± 3 TCF pa

About 28 Billion Tonne

of Coal Reserves

Home of 40% of world’s

resources (the largest

in the world)

World’s largest

exporter; >19 mil tons

per year

About 90 million

tonnes of Iron Ore

Reserves

At 65 thou tons/year, world’s 2nd

largest producer

Own ± 12% of world’s

reserves (4th largest)

World’s 7th largest

reserves; world’s 4th

largest production

About 1 Billion

tonnes of Copper Ore Reserves

Source : CMEA, MoI

Human Primary, Secondary, and Tertiary Needs

- Transportation- A communication tool- Entertainment gadgets- Supporting tools

-Clothing- Educational tool- Electrical equipment- Energy equipment- Services RBPI- Packaging

- Agro- Agricultural equipment- Fertilizer & Other support- Food- Medical devices

250 Million Population

Needs for Infrastructure, Roads, and Bridge

- Building materials- Construction equipment- Transport equipment- Steel construction

Vast Size of

Region Archipelago Farming Forestry Mining SeaGeography

-Steel construction- Construction equipment- Services RBPI

- Transportation- Construction equipment- Electrical equipment- Energy equipment- The machines process- Supporting tools

-Telecommunications -Satellite & peripherals- Steel construction

Abundance of Natural resources

Infrastructure needs of process machinery, and other equipment

National Potential

Others

Indonesia’s Potential and Attractive Value


6Metal Industry Contribution to National Economy Growth


7

Source : Bappenas

Scope of Metal industry Sector(Based on Ministry of Industry Classification)

Manufacturing Industry

Metal Based Material Industry

• Iron & Steel Industry• Aluminium Industry• Nickel Industry• Copper Industry • Other Metal industry, e.g Tin,

Rare Earth Metal,


Indonesia’s Industrial PolicyII

9

Law No 3 Of 2014 On Industry

Article 321. In order to increase the added value of the industry for deepening and

strengthening the domestic industry structure, Government may prohibit or restrict the export of natural resources.

2. Further provisions on the prohibition or restriction of natural resources export as referred to clause (1) are stipulated in Government Regulation.

Article 33

3. Both central and local Government guarantee the availability and distribution of natural resources for domestic industry.

4. To ensure the availability and distribution of natural resources for domestic industry as referred to clause (1), Government and Local Governments stipulate the use of natural resources for the interest of the domestic industry.

5. Further provisions on the assurance of availability and distribution of natural resources as referred to clause (1) and utilization of natural resources as referred to clause (2) are stipulated in Government Regulation.

Industrial Development Policy


10

Measures of Incentives (based on Investment Law No 25/2007)

Fiscal IncentivesFiscal Incentives

a

b

c

Income tax reduction for investment in particular sectors and/or particular regions

Tariff redemption in importing machine, raw material for particular industries

Tariff redemption, income tax, luxury goods tax, value added tax for particular industries

Incentives


11

A. Tax Holiday (PMK No. 130 of 2011)

A facility of exemption from income tax that is granted to a company for a specified period. These facilities are usually given to stimulate investment in a particular region or industry sector, for example for companies that initiate pioneer industries or set up factories in regions with inadequate infrastructure.

Criteria:a. is a “pioneer industry” (based on Government Regulation PP 94/2010, Article 29

paragraph 2, a pioneer industry is defined as an industry that has extensive linkages, provides high added value and externalities, introduces new technologies, and has strategic value for the national economy);

b. has planned new investment that has received approval from the competent authority;

c. places funds in banks in Indonesia equal to at least 10% (ten percent) of the total planned investment referred to in point b, which may not be withdrawn before the start of the implementation of the realization of the investment; and

d. existed as an Indonesian legal entity that was confirmed no longer than 12 (twelve) months before this Finance Minister Regulation came into force, or whose confirmation was determined after the enactment of the Finance Minister Regulation.

Incentives


12

B. Tax Allowance (PP 52 of 2011)

ObjectiveTo increase investment activities in order to boost economic growth and for equitable and acceleration of development on the business section and / or a particular area

Provision of Tax Allowance Facility

1. Net income reduction of 30% (thirty percent) from the investment amount charged for 6 (six) years respectively by 5% (five percent) per year;

2. Accelerated depreciation and amortization;

3. Income Tax obligation on dividends paid to foreign tax subject of 10% (ten percent) or a lower accoding to applicable Double Taxation Avoidance Agreement

4. Compensation for loss of 5 (five) years at the minimum but not more than 10 (ten) years.

Incentives


Investment OpportunitiesIII

14Industrial Development Focus

A Strengthening Industrial StructurePromote investment in vacant industries on its industrial tree

Promote Investments of minerals processing industriesHigh value-added products

B

Increase national capacityPromote competitiveness and export-oriented industries

C


15Industrial Development Target

2011 2012 2013 2014 2015 2020 2025 -

10.00

20.00

30.00

40.00

50.00

60.00

70.00 2

8.44

29.

57 3

5.75

38.

65

41.

55

55.

85

70.

00

2.4

0

2.6

5

2.9

2

3.4

2

4.0

2 7.0

2

7.0

2

0.6

0

0.6

4

0.6

8

0.7

3

0.7

8

1.0

8

1.5

0

0.90

1.20

1.50

1.80

2.10 3.

60 5.00

Metal Industry Consumption (Kg/Capita)

Iron & Steel Aluminium Nickel Copper

Kg/C

apita


16A. Strengthening Industrial Structure

Iron & Steel Industry


17

Al Round Bar

Al Square Bar

Al Flat Bar

Al Tube

Al Sheet

Al Rod

Ladders

High Pressure Gas Cylinder

Sporting Goods

Machined Components

Road Barriers & Signs

Furniture

Lithographic Printing Plates

BauxiteBayer

ProcessHall-Heroult

Process Al IngotAlumina

Al Scrap

MiningOre Smelting Forming Application

Available in IndonesiaNot Available in Indonesia

A. Strengthening Industrial Structure (Cont’d)

Aluminium Industry


18

Available in Indonesia

Not Available in Indonesia

Mining & SmeltingOre Forming Application

Nickel Industry



19

Available in IndonesiaNot Available in Indonesia

Mining & SmeltingOre Forming Application

Copper Industry



B. Promote Investments Of Minerals Processing Industries

Iron Ore

1Sponge Iron

8Slab/Billet

12VALUE ADDED CALCULATION

Bauxite

1Alumina

20Aluminium Ingot


Nickel Ore

1Ferronickel

103Stainless Steel


Copper Ore

1Copper

Concentrate

37.5

Copper Cathode



20

1 Ton, 6000 kcal/ kg Coal At US$ 70

Combustion

Coal Gasificationand Liquefaction

Polygeneration

John N. WardJPMorgan Chase & Co.Analyst BriefingNovember 21, 2006Revised by Meirios Moechtar, July 2008

Source: SASOL Synfuels International, 2009, Bapennas

Electricity ProductionProducts Value3 MWh electricity $150Total $150

Fuel and Power ProductionProducts Value0.083 MWh electricity $4.150.28 bbls naphtha $40.322.13 bbls diesel fuel $399.37Total $443.84

Fuel, Power & Fertilizer Prod.Products Value0.31 MWh electricity $15,500.30 bbls naphtha $43.211.58 bbls diesel fuel $296.250.30 ammonium nitrate $195.00Total $549.96

Chemical SynthesisProducts Value0.6 MT DME $410

> 2X

> 6X

~ 6X

> 7X

Coal

B. Promote Investments Of Minerals Processing Industries (Cont’d)


21

22

2007 2008

2.20%

1.50%

2.40%

1.70%

Share of TTP to the World

Share Textile-World Share Clothing-World

2008 2009$8,800$9,000$9,200$9,400$9,600$9,800

$10,000$10,200

$10,144

$9,262

Export Value of TTP to the World

Export Value

Source: WTO, API, MoI

(Kg/Capita)Year

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Growth

10% 4.3

4.73 5.20

5.72

6.30

6.93

7.62

8.38

9.22

10.14

11.15

15% 4.3

4.95 5.69

6.54

7.52

8.65

9.95

11.44

13.15

15.13

17.40

20% 4.3

5.16 6.19

7.43

8.92

10.70

12.84

15.41

18.49

22.19

26.62

Malaysia 2010 Textile Demands (8 Kg/Cap) Singapore 2010 Textile Demands (11 Kg/Cap)

With this growth :• Accumulated Labor forces

will be absorbed : 1.6 – 1.7 Million people

• Exports will increase by : USD 13.3 – 14.2 million

Textile and Textile Products (Example)

C. Increase National Capacity


23

Petrochemical Industry (Example)

C. Increase National Capacity (Cont’d)

Amm

onia

Met

anol

Polip

ropi

lena

Polie

tilen

a

PVC0

200

400

600

800

1000

1200

500

750

1200

995

579

340

500450

778

400

Demand And Supply Of Petrochemical Product (2012)

Tonn

es (‘

000)

Opportunities

1. Demand for petrochemical products is increasing, while supply is relatively constant.

2. Petrochemical products are still shortage, since demands are higher than domestic supplies.

3. Consumption for plastic products around 10 kgs per capita, still low compared to other developed countries (30-50 kgs).

4. It needs large-scale investment: refinery and cracker, upstream and intermediate products.

NO. LOCATION GROUP PRODUCT

1. Cilegon, Banten Olefins Ethylene, Propylene, PP, PE

2. Bontang,East Kalimantan

Methane based Methanol, Ammonia

3. Tuban,East Java

Aromatics Benzene, Toluene, Paraxylene

4. Muara Enim, South Sumatera

Coal-methane based

Methanol, Ammonia

5. Tangguh,West Papua

Methane based Methanol, Ammonia

Centers of Development


24Summary

Indonesia are blessed with a vast region and abundant natural resources which provide many opportunity.

Opportunity for potential partners are tremendous:• In infrastructure, there are opportunities to involves in several projects such

as:a. Road & Toll Roadsb. Bridgesc. Water Supplyd. Electricitye. Portsf. Airports

• Metal Industry Industries :a. Strengthening industrial structure : Steel, Petrochemical, Textile & Textile

Product, etcb. Value-added creation : Aluminium, Steel, Nickel, Copper Industries, etcc. Increasing national capacity : Steel, Petrochemical, Textile & Textile

Product, Fertilizer, etc

investment opportunies imdl sector.pptx

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