Risk and reward, plans and payoffNovember 3, 2017
Eddy Kurniawan, president-director of Logindo Samudramakmur, talks to TOGY about the business climate in Indonesia’s maritime sector and activity at the Mahakam block. Logindo is an Indonesian marine services provider that began operating in 1995. In 2011, the company established a strategic partnership with Singapore-listed offshore vessel supplier Pacific Radiance, and in 2013, Logindo was listed on the Indonesian capital market after an IPO. While the company has suffered financial losses as a result of a tumultuous economic environment, operators in Indonesia are hopeful that the advent of LNG will be beneficial to business in the region.
• ON RISK AND REWARD: “The current condition in terms of the offshore support vessels market is very sad. Competition is very unhealthy, the charter rate is heavily discounted and operational safety is compromised. To make the situation even worse, regulatory bodies, like SKK Migas, are encouraging the oil majors to ask for greater reductions on charter rates. As owners are forced to operate their fleets at lower rates, safety and maintenance issues are likely to spring up. The regulatory bodies have to calculate the risks involved in these actions and compare that to the savings they are trying to achieve.”
• ON MAHAKAM: “We have seen a sharp drop in investment over the Mahakam block in the last two years, which will affect the production output of this asset in the next few years. During the last two years of uncertainty, we have seen many jobs lost and we have seen the economy decline in the city of Balikpapan.”
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What is the current condition of Indonesia’s maritime market?
The current maritime industry is not doing well. The Indonesian government needs to continue playing a major role, as they have done in the past. In 2006, Indonesia enacted the cabotage principle, which encouraged maritime operators to take a leap of faith and make huge investments in acquiring high-tier vessels. This allowed Indonesia to have enough locally flagged offshore support vessels and prevented the charter rate from evaporating somewhere else. The government needs to value companies like Logindo that employ 100% local sailors and our contribution to the local economy.
However, the current condition of the offshore support vessels market is very sad. Competition is very unhealthy. The charter rate is heavily discounted and operational safety has been compromised. To make the situation even worse, regulatory bodies, like SKK Migas, are encouraging oil majors to ask for greater reductions on charter rates. As owners are forced to operate their fleets at lower rates, safety and maintenance issues are likely to spring up. The regulatory bodies have to calculate the risks involved in these actions and compare that to the savings they are trying to achieve.
What could the government do to lend greater support to the maritime industry?
The government must not allow supporting companies to perish. Most of Indonesia’s oil and gas reserves are in the ocean; when hydrocarbons activities pick back up, the country will need numerous offshore support vessels. If our ships are no longer in the business, then the same thing will happen as before cabotage was implemented; payments related to vessel hires will go to some other country.
Can you discuss Pertamina’s takeover of the Mahakam block from Total?
I think it is good, but I wish it could have been done more smoothly and faster. We have seen a sharp drop in investment at the Mahakam block over the past two years, which will affect the production output of this asset in the next few years. During the two years of uncertainty, we have seen many jobs lost and we have seen the economy decline in the city of Balikpapan.
The Indonesian government wants Pertamina to play a major role in the nation’s oil and gas market. Currently, the company only contributes about 20% of Indonesia’s total oil and gas output. The grand strategy for Pertamina to become a major player in Indonesia is good, but they need to have strong financial backing as the exploration and development of new blocks is very capital intensive and risky. In the past Total E&P invested around USD 2 billion per annum in the Mahakam block. Hopefully, Pertamina can continue that investment trend.
What opportunities are available to investors in Indonesia?
I personally believe that gas will be the future of Indonesia’s energy market. Oil is there, but it will not last very long. We will see a continuous decline in the production of oil, but the production of gas will continue to rise. We see an opportunity for the gas sector, not only in exploration and production but also in the transportation of LNG. As there are thousands of islands, it is almost impossible to build a pipeline network; it would be too expensive. So, we see an opportunity for LNG transportation between islands.
As you prepare for the future, when do you anticipate these changes taking place?
Those are things that we hope will happen in the next few years. Again, we need the government to have a clear roadmap or blueprint on how they will want to execute this plan to make it a reality. In doing so, we hope that the private sector has a chance to participate. Another issue that I want to raise is that the government has put too much emphasis on state-owned businesses. In every healthy and mature nation, the state-owned and private sectors are given a fair chance to complement each other and not compete.
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