Continuous and cautious adjustmentOctober 13, 2020
Dhira Nandana, president-director and CEO of Tripatra Engineers and Constructors, talks to The Energy Year about the post-Covid outlook for EPC in the Indonesian market and how the company has managed to continue its activities. Tripatra is an integrated Indonesian energy services company providing project management, engineering, procurement and construction.
We’re faced with a dual shock: Covid-19 and its interruption of business activities around the world, as well as the oil price shock. How has this dual shock affected your activities and your day-to-day business?
We are a company that is basically a contractor working on the project development of oil and gas facilities. For the existing projects, the immediate impact of course is due to Covid. Immediately, higher safety measures were implemented such as the reduction of worker density and the increase of health monitoring. Consequently, lower productivity is seen.
As for new project developments, we have observed that the oil prices and Covid create a challenge for plans going forward. The immediate question is whether some oil companies that have started on the development of new facilities will continue to invest in those projects. I think that based on the current situation, they may postpone.
One of the largest gas projects, and one that has been the main priority of the current government, is Masela LNG. The government still believes that the project needs to continue, but we also heard rumours that one of the project shareholders will probably reconsider continuing with the investment. Basically, we are now waiting for the prequalification announcement. However, how far this tender will go is still in question.
Other than that, we have seen that there are not many new investments on the horizon. While waiting for the EPC project development, we are now trying to focus more on engineering studies, which we believe have more chances to continue. We expect that even though there will be no major investments, they will still proceed with the design studies. Such services can be done from home. Besides that, I don’t think there will be many new activities in our industry.
Have you taken specific steps to reflect that reality of a possible slowdown in EPC work coming up and a level of uncertainty?
We are continuously and cautiously adjusting ourselves in this unprecedented situation. We have been lucky to have [been contracted for] a few engineering studies services. But beside those, our existing EPC projects are continuing – of course, with some adjustment in the executions. In one of our large EPC projects, which we executed together with our partners, we lowered the workforce to 50% of the pre-Covid number. The client also supported our adjusted project execution due to Covid.
One of the measures we undertook when the outbreak increased in Indonesia was to isolate the job site, with no more personnel rotation until our new screening process was in place. At present, these processes are in place, so the rotation can proceed. We are not trying to reach 13,000 people [at the Tangguh site] though – I think the limit is 7,000-8,000. This will definitely impact the project.
Have you been satisfied with the response of the public authorities in reaching out to businesses like yours and helping to provide some guidance and assistance in these difficult times?
As far as overall responses to the pandemic situation go, the government responded well. It is understandable that the government focused more on the wellbeing of the people as their priority. The government has also provided some incentives for business overall, such as tax incentives.
However, for our industry specifically I understand the dilemma. Indonesia requires the infrastructure to boost the economy. The public works sector has declared that projects need to continue. Similarly, SKK Migas has indicated the same. So on the one hand, there were strong requests for people to stay at home, but on the other hand there are projects that need to maintain their course.
For us, the situation became more complex when travel restrictions were imposed by each of the regions within Indonesia. Travelling between cities became challenging. Even though the statement from the government says that the project needs to continue, it’s not easy for us. We incur additional costs because of this situation. Our work association has made an appeal for tax exemptions.
What’s the dominant feeling in the industry when you talk to your partners, colleagues or competitors?
I think fear is always the dominant feeling. There is fear of something happening, especially in regards to business. People can see that most construction companies will have to declare a loss in their books this year; that’s the outlook.
The other aspect is that we haven’t seen any proof that this situation can be used to declare force majeure. I know that the force majeure is less preferable for both sides because when it is declared, except for time, we cannot claim anything in specific, additional costs. This is a very delicate situation. Nothing is certain. When things are uncertain, people become more nervous. That’s the general situation here.
The biggest question among us is what the outlook is for construction work post-Covid. That is also still unknown.
Could one of the benefits of the crisis be the fast-tracking of gas development projects after the outcry against fossil fuel air pollution which became more visible in its absence during the pandemic?
I had a discussion with a consultant who shared that not only are oil prices low, the gas prices now are also low due to less demand. However this consultant’s outlook indicated gas would still be an important commodity in the future. So gas project developments will probably benefit from continued execution. By the time Masela is complete, it will more or less be the time that gas prices improve.
Gas projects are always a big investment. I don’t think that after Masela there will be a new gas plant of that size here in Indonesia. So I don’t think it is reasonable to expect a fast-tracked development for a project the size of Masela.
From your perspective, as one of the largest local EPC players competing with some of the largest global players, what is your biggest short-term challenge?
Of course the biggest challenge now is cash preservation. In this situation, it will be tough not to incur additional costs. On the one hand, we still have our obligation to complete the existing projects. So maintaining a positive cashflow is important. Furthermore, we are not sure when new projects will appear on the horizon. That’s why we have to manage our cash wisely. On the existing projects, where possible, we use our credit lines.
Moving people is another story. The situation in Indonesia is not uniform: Some of the regions imposed more stringent measures so coming in or going out from such places requires extra effort.
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