Updated News August 24, 2010
- Indonesian Economy Only to Grow at 6.5 Pct
- Low Debt Ratio helps achieve sustainable fiscal self-reliance: economist
- Indonesia to apply new regulation on imported goods: official
- Imports of F&B products begin to hurt local producers
- CIMB on track to achieve double-digit growth target
- Indian Reliance Offers Electricity to Indonesia
- House Calls on Govt to Cancel Tariff Increase
- Govt Should Rise Oil Lifting Target: House
- Energy Department Launches Renewables Directorate
- Pertamina says may delay $1.5 bn bond issue to 2011
- Korean Energy Firm Bids for Power plant Project
- Success Ratio of Pertamina EP’s Exploration Drilling Increases to 84, 6 Percent
- Dirgantara eyes big share of MRO market
- Kid Fly Free with Garuda Indonesia
- Airlines to Serve Bali-Baubau Route
- WB says dredging project will be ‘corruption free’
- A Sleeping Giant Awakens: Telkom’s Reinvention
Government Relations & Economic Development
Indonesian Economy Only to Grow at 6.5 Pct
VIVANews, Jakarta – 24/08/2010
The Susilo Bambang Yudhoyono administration targeted that the Indonesian economy will grow at between seven and 7.7 percent by the end of 2014. However, many have doubted the president's expectation.
In fact, Chief of Economists at Bank Mandiri, Mirza Adityaswara, viewed that the Indonesian economy can only hit 6.5 percent of growth. "It is due to the limited infrastructure in this country," he said in Jakarta on Monday, August 23.
He reminded that the economic growth of more than 6.5 percent will in fact spark higher inflation rate and result in current account deficit.
The most worrying possibility is that if the economic growth is boosted to exceed 6.5 percent. It may set off an economic bubble.
He cited the economic growth is only six percent for the time being but the inflation rate hikes due to minimum infrastructures.
Another impact of the economic growth include the stagnancy of export at US$12 billion. On the other hand, import soars to US$11.7 billion. According to him, every country has its own growth capacity. An example of this is China, which records a safe economic growth of until nine percent.
Low Debt Ratio helps achieve sustainable fiscal self-reliance: economist
ANTARA News, Kupang – 24/08/2010
The government`s determination to lower the country`s debt-to-gross domestic product ratio to 26 percent from 27.8 percent at the end of 2011 will hopefully strengthen fiscal resilience to achieve sustainable fiscal self-reliance, an economist said.
Prof Dr Vincent Gaspersz, SE,MM, of the Catholic University of Widya Mandira in Kupang was responding to the amount of Indonesian debts which fell around 1.7 percent of GDP. However, the government still had to allocate Rp100 trillion in funds per year to pay interest and principal.
He said the government has been determined to set a deficit in the 2011 state budget at Rp115.7 trillion or 1.7 percent of the GDP.
The figure represented a 13 percent decline compared to the deficit target of the 2010 state budget, he said.
President Susilo Bambang Yudhoyono when presenting the draft 2011 state budget and its financial notes to a plenary session of the House of Representatives (DPR) on August 16 said the low deficit in the 2011 state budget was related to the direction of the country`s consolidated fiscal policy to create a sound and balanced state budget in the future.
"The decision on low deficit in the state budget was taken after the government had considered the need for fiscal stimulus to preserve the national economic resilience," Gaspersz said.
He said the stimulus was important to boost the domestic economic growth and create more jobs.
The greater the foreign capital inflows the greater the potential threat of overheat to the Indonesian economy would be. As a result, the high economic growth would be followed by high inflation rate, he said.
"The foreign capital inflows are caused by high disparities in interest rates and good economic fundamentals in the country," he said.
Therefore, the foreign capital inflows must be managed properly to avoid a surge in inflation rate, he said.
Indonesia to apply new regulation on imported goods: official
Xinhua, Jakarta – 24/08/2010
Indonesia will apply new regulation on imported goods on Sept. 1, when all imported food and non-food products must carry Indonesian label with explanation in Indonesian language, an official said here on Monday.
"Trade Minister Mari Elka Pangestu and officials from the Agency of Food and Medicine Surveillance (BPOM), have agreed that starting on Sept. 1, all imported products must carried instruction in Indonesian language, including in the ingredients, side effects and others," said Chris Kanter, deputy chairman of Indonesian Chamber of Commerce and Industry told reporters.
He said that it is a part of a policy to show that entering the Indonesian market is not as easy before.
"This is called non-tariff barrier. This is important as many developed countries adopt such policy in various ways," he said.
He added that even small countries implement the policy.
"If small countries could do that, how about Indonesia that has a huge market? We must have such policy," he said.
Imports of F&B products begin to hurt local producers
The Jakarta Post, Jakarta – 24/08/2010
Imported food and beverage products have begun to flood the domestic market following the implementation free trade agreements between ASEAN and China early this year, a business executive have said.
Sofjan Wanandi, the chairman of the Indonesian Employers Association (Apindo), said in Jakarta on Tuesday the monthly imports of beverage and foods had risen by 70 percent to US$22 million in June from $13 million in January, when the ASEAN China Free Trade Agreement was fully implemented.
He blamed the influx of imported products not only on the removal of import duties as part of the free trade arrangements, but also on the government’s inadequate protection of local producers.
“Imported biscuits, for example, increased by 1,100 percent in the first semester,” he said in a press conference. “This has caused a 25 percent decline in the local food production,” he added.
Besides biscuits, Sofjan added, imported candies and herbal medicines increased by 1,060 percent and 200 percent.
Most of the imported food and beverage products originated from China and ASEAN member countries such as Malaysia, Singapore, Thailand and the Philippines.
Sofjan said local producers were being squeezed because, in addition to cheaper imported products, local producers were hampered by high-cost economy.
“Domestically, the recent rise of electricity rates has caused production costs to increase,” he said, adding the government’s plan to raise again rates by 10 to 15 percent next year might further result in a further increases to business’ overheads.
Furthermore, he added, poor infrastructure had caused logistic and transportation costs to increase, saying that logistics alone accounted for an estimated 10 to 15 percent of total costs.
“Overseas, logistic costs never exceed 5 percent.”
He said one way to help local producers against the flow of imported goods was consistent implementation of regulations that protect the local market.
For example the government should enforce the regulation requiring the unloading of imports of five commodities — socks, electronics, toys, garments, food and beverage — be restricted to five ports: Belawan in Medan, Tanjung Priok in Jakarta, Tanjung Emas in Semarang, Tanjung Perak in Surabaya and Makassar’s Soekarno-Hatta port.
Another policy that should be enforced is a 1999 government regulation that requires food labels and advertising be displayed in Indonesian.
“Such non-tariff policies, like the use of Bahasa, should be implemented to curb imports,” he said after the press conference.
CIMB on track to achieve double-digit growth target
The Jakarta Post, Jakarta – 24/08/2010
The country’s fifth-largest lender by assets, Bank CIMB Niaga, announced Monday a 62 percent increase in net profit in the first half of this year, confirming the bank is on track to achieve double-digit growth in profits this year.
“We did not officially revise our targets, but within the internal system, we see a better outlook in the near future, as first half figures have been strong,” CIMB Niaga vice president director Catherine Hadiman said on Monday.
With the first half’s promising results, Catherine said she is confident the growth target could be achieved.
CIMB Niaga’s net profit increased to Rp 1.13 trillion (US$126.56 million) in the first half of this year from Rp 696 billion in the same period last year, thanks to the 32 percent increase in operating
revenue to Rp 1.5 trillion.
“The jump in operating revenue was partly due to the significant increase in lending,” said finance director Wan Razly.
The bank disbursed Rp 91.8 trillion in loans in the first half, up 26 percent compared to last year’s Rp 73.1 trillion, or faster than average national banks loan growth of 18.88 percent. CIMB Niaga officials attributed the increase in loans to the growth in demands from the corporate and retail sectors, which grew by 33 percent and 22 percent.
Deposits, meanwhile, grew by 29 percent to Rp 106.2 trillion in the first semester this year, from Rp 82.6 trillion last year.
“The increase in loans enables us to book one of the highest loan-to-deposit ratios (LDRs) compared to other banks,” president director Arwin Rasyid told reporters. CIMB Niaga’s LDR stands at 85.5 percent for the first six months of this year.
Data from Bank Indonesia showed that the average bank LDR in the first half of 2010 was 75.31 percent.
CIMB Niaga net interest margin (NIM), however, is higher than average banks’ 5.8 percent rate, or 6.73 percent. “Therefore, we’re going to maintain our NIM in the second half at around 6 percent,” Arwin said.
Gross non-performing loans remained manageable at 2.7 percent throughout the first semester, lower than national banks’ average NPL of 3 percent. (est)
Energy and Mining
Indian Reliance Offers Electricity to Indonesia
Eko Wibowo. Tempo Interactive, Jakarta – 24/08/2010
Business delegate sent by India's Reliance Anil Dhirubai Ambani Group met with Vice President Boediono taoday (24/8) at the Vice Presidential Palace where the energy company expressed interest to expand its investment into the electricity sector.
Chief Excutive Officer Reliance Power Jayarama Prasad Chalasani and Vice President Business Development Mukund Dongre were assisted by Indian Ambassador Biren Nanda, who vice presidential spokesman said "are very serious about making a power plant in Indonesia."Speaking after the meeting between Boediono and the Indian businessmen government spokesman Yopie Hidayat said "They are learning the possibilities and very interested in investing in Indonesia," but explained further that Reliance have come with detailed figures for electricity.
It offered Rp2.5 cents cost per kilowatt hour, far below the Rp8 cents paid by the government Yopie told reporters.
The company holds three coal mining license in South Sumatra and expected to handle a railroad project connecting the province and the Malacca Strait.
Yopie said the vice president wecomed the offer and encouraged Reliance to enter the electricity sector and other source of energy extraction like coal bed methane in Kalimantan.
House Calls on Govt to Cancel Tariff Increase
Ismoko Widjaya. VIVANews, Jakarta – 24/08/2010
Commission VII of the House of Representatives (DPR) declines the government's plan of increasing electricity tariff by 15 percent in 2011.
"The commission insists that the current tariff is maintained. The new tariff revision (which took place in July) is not yet perfect," DPR Chief of Commissions, Airlangga Hartarto, told reporters in Jakarta on Monday, August 23.
According to Airlangga, there are ways to reduce the production costs of the state electricity company PLN. First, PLN should revise its subsidiary loan agreement. PLN's long-term debt is modified into equity, enabling a decrease in the cost of fund.
PLN should also cut its losses, which may reach eight percent. If PLN can replace the old transformers, then the potential losses that PLN may get can be reduced to eight percent.
According to Airlangga, PLN is not obligated to cut subsidies due to low budget deficit (1.7 percent) and debt service ratio.
The budget deficit can be multiplied by two percent and the debt service ratio can be improved.
Govt Should Rise Oil Lifting Target: House
VIVANews, Jakarta – 24/08/2010
Two factions in the House of Representatives today, August 24, in a plenary meeting claimed that the government has been instransparent in setting the oil lifting in the 2011 Revised State Budget. The target of 970 thousand barrels per day is considered unrealistic.
"The targeted lifting is not enough because the Cepu production has increased," parliamentary member Machmud Yunus said.
Therefore, the oil and gas lifting should have advanced. "It should have been better. But in fact, the oil and gas production is still low," he said.
The Indonesian Democratic Party of Struggle, through its member Utut Adiyanto, urged the Indonesian government to set up the oil lifting to one million barrels per day by 2011.
"We want the government to have the oil lifting target at one million barrels per day through the optimization of new wells, technology advancement, production increase and human resources," he said.
The faction also suggested the government to revise tax ratio in the 2011 Revised State Budget from 12 percent to 12.5 percent.
Energy Department Launches Renewables Directorate
Maria. Tempo Interactive, Jakarta – 24/08/2010
The Energy and Mineral Department has unveiled today a new directorate which will in charge on the new field of energy which had not received the size of emphasize before, the renewables.
In its official website the energy department introduces the Renewable Energy and Energy Conservation Directorate General, a level which the oil and gas have long has its own directorate established.
The new directorate will responsible to draw and implement the policies and technical standardization in renewable energy and energy conservation to achieve the target of 17 percent renewable energy portion of the total domestic energy use by 2025.
Depleting oil reserve have forced the nation out the OPEC, a group it joined in 1962, and rely some of its energy consumption back on coal. Based on the 2007 data on Renewable Energy Reserve and Production from the department, the government have only produced 3.6 percent (5,200 megawatt) of energy from a total of 162,000 megawatt of potential energy with the largest portion came from hydropower (17.2 percent) and the smallest part from windpower (0.01 percent).
Pertamina says may delay $1.5 bn bond issue to 2011
Muklis Ali. Reuters, Jakarta – 24/08/2010
Indonesia's state oil and gas firm Pertamina may postpone its planned $1.5 billion bond issue to next year because it needs to prepare a financial statement for investors, a company official said on Tuesday.
In February, Pertamina appointed Citigroup , Credit Suisse , and HSBC as underwriters for a planned bond issue this year.
Mochamad Harun, Pertamina's spokesman, said that it may complete its financial statement in October or November, and would then issue the bonds next year.
Pertamina has said previously it needs to raise funds for capital expenditure and to finance several upstream projects, including the Cepu block, which it is jointly developing with Exxon Mobil.
Korean Energy Firm Bids for Power plant Project
Gustidha Budhiarti. Tempo Intractive, Tempo Interactive, Jakarta – 23/08/2010
A South Korean energy firm the East-West Power Co. Ltd has stated interest to join the bid for a project in the second batch of the 10,000 megawatt power plants, and buy existing coal plant(s) a spokesman for the firm said today (23/8).
Deputy General Manager Overseas Business Division Min Tae Bang told Tempo that his company is targeting the 200 megawatt coal power plant in Bontang, East Kalimantan, and other projects in the second batch of the 10,000 megawatt project.
"Last month we have proposed a pre-qualifying documents for Bontang coal power plant," Min said, which if won would be the first Korean power project in the country.
The company will cooperate with a local partner for the project PT Bakrie Power which control 65 percent of stake in the venture. EWP has involved in some power projects in India, Japan, and the philippines and seek to stretch its in Indonesia.
Beside the power plant EWP also interested in controlling supply chain for its plants in the countries aforementioned by getting inside the coal mining business. Another executive with the company, Executive Auditor, Lee Jung Won said "We haven't had coal mine(s) in Indonesia, and we indeed are planning to buy."
Success Ratio of Pertamina EP’s Exploration Drilling Increases to 84, 6 Percent
The Ministry of Energy and Mineral Resources, Jakarta – 23/08/2010
PT Pertamina EP is able in increasing success ratio of exploration drilling along the period of January-August 2010 to 84, 6 %. From 12 wells which had been drilled until August 2010 and one re-entry well, 11 wells were claimed to be successful while 2 wells were not.
Success ratio of exploration drilling in the period of January – August 2010 is higher than the same period in 2 years before. From 8 wildcat wells, 7 of them were successful and produced oil and gas. It is as stated by Exploration and Development Director, Syamsu Alam, Sunday (8/22).
The increasing ratio of this exploration drilling is a result of business process improvement to decrease risk and improve success chance of exploration. This effort was done by involving technology support and EP Technology Center, and also optimizing the drilling operation supervision to identify exactly and fast about the indication of oil and natural gas existence.
In 2008, success ratio of exploration drilling in the period of January-August reached 76 % or from 8 wells which had been drilled up to August 2008, 6 wells were successful and 2 wells were not. Next, in 2009, success ratio of exploration drilling in the period of January-August reached 76, 9 % or from 12 wells which had been drilled up to August 2009 and 1 re-entry well, 10 wells were successful and 3 wells were not.
In the period of January to August 2010, Pertamina EP held 12 exploration drillings and one re-entry well. Exploration drilling consisted of 8 wildcat wells which cover 5 wells in West Java (Akasia Bagus 1, Karangluhur 1, Karangdegan 1, Jati Keling 1, and Pondok Mekar 1), 1 well in Jambi (Kalalili 1), and 2 wells in South Sumatera (Manduru 1 and Ginaya 1). From 8 wildcat wells, 7 of them were successful in finding oil and gas, and 1 well was not. However, one re-entry well in Arjawinangun in West Java was not successful.
Next, Pertamina EP also held three drillings of delineation Pondok Makmur in Bekasi (PDM-3, PDM-4, PDM-5) and one drilling in Pagardewa, South Sumatera (PDW-6X). Four of those delineation drillings found oil and gas. Pondok Makmur well will be developed soon in the second phase of Plan of Development (POD) and it is predicted to be produced by the end of 2011.
In the first semester of 2010, said Syamsu Alam, Pertamina EP has found new oil and gas reservation for about 61 million barrel and gas for about 619 billions cubic feet in the first semester of 2010. The finding of this first semester is higher than predicted amount of oil and gas production which will be produced in 2010 for about 46, 7 barrel and 381 billion cubic feet. (AK)
Information:
1. Exploration Drilling: The well drilling which is done to prove the existence of hydrocarbon reservation (oil and gas), and also to get the under surface data.
2. Delineation Drilling: The well drilling to find the border of oil and gas spreading
Transportation
Dirgantara eyes big share of MRO market
Nani Afrida. The Jakarta Post, Jakarta – 24/08/2010
PT Dirgantara Indonesia said it expects to win at least 30 percent of the national market for aircraft maintenance, repair and overhaul (MRO) after it was appointed an authorized provider of spare parts and MRO service for Russian-made Sukhoi Superjets, says the state aerospace company ’s chief.
Dirgantara president director Budi Santoso said in Jakarta on Monday that the appointment would allow the Bandung-based airplane manufacturer to handle MRO bids for all variants of the Russian-made aircraft.
“Currently, we have secured just 5 percent of the MRO market share by servicing 100 aircraft per year, but with the appointment we hope we can increase our market share to 30 percent,” he said.
Private airline company PT Kartika Airlines, which recently signed a US$951 million contract to buy 30 Sukhoi Superjet 100 (SSJ-100) airplanes, will be Dirgantara’s first client for the maintenance of the Russian-made jets.
Budi said that Kartika had named Dirgantara to handle the MRO works for its new fleet of Superjets.
The SSJ-100 is a medium-haul passenger aircraft developed by Sukhoi in cooperation with US and European aviation corporations, such as Boeing, Snecma, Thales, Messier Dowty, Liebherr Aerospace and Honeywell.
Kartika new fleet of Superjets aircraft are slated for delivery between 2012 and 2015. “We have three years to prepare the workshop and hangar for MRO,” Budi said, adding that Dirgantara Indonesia had allocated more than $1 million to add more hangars in West Java.
Indonesian Aircraft Maintenance Shop Association (IAMSA) previously said that total aircraft maintenance expenditures will reach $750 million in 2010.
However, only 30 percent, or $250 million of total expenditures would be disbursed domestically while the remainder would go overseas due to facility shortages, he said.
Dirgantara Indonesia is one of several aerospace companies in Asia with core competencies in aircraft design and civilian and military regional commuter aircraft development and manufacturing.
The company, previously known as Industri Pesawat Terbang Nusantara (IPTN) and Industri Pesawat Terbang Nurtanio (IPTN), recorded sales of Rp 771.63 billion in 2009, returning profits of Rp 117.08 billion after losing Rp 84.34 billion in 2008. The company said this year`s sales will pass Rp 1.29 trillion, and that it has allocated Rp 225.11 billion for capital expenditures, up from Rp7.3 billion in 2009. The operating expenditures meanwhile were projected to increase to Rp 1.63 trillion from Rp 889.7 billion a year earlier.
Kid Fly Free with Garuda Indonesia
Eglobaltravelnews.com.au – 24/08/2010
Garuda Indonesia launches a ‘Kid Fly Free’ offer, with children under the age of 12 entitled to a complimentary airline ticket when travelling with two adults.
Available for travel to Jakarta and all domestic connections within Indonesia, the ‘Kid Fly Free’ deal gives families the perfect opportunity to beat the Christmas rush and enjoy the diversity and warm hospitality of Indonesia.
Bagus Y. Siregar, Senior General Manager Australia/SWP Garuda Indonesia said: “This offer provides families with exceptional value and once in Jakarta passengers have the option of same day connections to Indonesia’s favourite holiday spots such as Bali, Lombok, Bandung, Yogyakarta and Borneo.
“While in Jakarta, I urge families to stop over for a few nights and explore the diversity, culture, excitement and numerous kid friendly activities such as water parks and animal attractions that this incredible city has to offer.”
For ultimate convenience, a number of holiday packages are also available for families connecting to Bali via Jakarta in conjunction with Bali Tours. These include seven nights at the Legian Village Hotel in a standard room including daily continental breakfast and return economy class airfares with Garuda Indonesia from $1240* per person.
Also available, seven nights at the Melasti Beach Resort in a superior room including daily American breakfast and return economy class airfares with Garuda Indonesia from $1355* per person. As well as seven nights at the Ramada Bintang Resort in a deluxe room with daily American breakfast and return economy class flights from $1635* per person.
All holiday packages include one child under twelve flying, staying and playing for only $47.00 extra.
On-route to Jakarta from Sydney and Melbourne, passengers will travel direct on-board Garuda Indonesia’s brand new aircraft.
Airlines to Serve Bali-Baubau Route
Kompas.com, Baubau – 23/04/2010
Several airlines have expressed their willingness to open a flight route from Bali to Baubau in Southeast Sulawesi, Baubau Mayor Amirul Tamin said."So far, we have opened several routes such as Baubau-Makassar, Baubau-Surabaya and Baubau-Ambon," he said here on Monday.
The mayor said that the Bali-Baubau roue would be opened because many foreign tourists from Bali to Baubau had to make a transit first at Kendari’s Haluoleo airport before flying to Baubau.
"I have consulted with several airline companies such as Lion, Wings and Express Air. They welcomed the plan to open the route to make it easier for the tourists to visit Baubau from Bali," Amirul Tamin said.
He said that the Bali-Baubau flight route would be opened at the end of 2010 at the latest.
Infrastructure
WB says dredging project will be ‘corruption free’
Indah Setiawati. The Jakarta Post, Jakarta – 24/08/2010
The World Bank said it will ensure that its US$150 million loan for a river dredging project will be free from corruption.
The Jakarta Urgent Flood Mitigation Project (JUFMP) project is expected to reduce the impacts of major floods, such as those that affected 2.6 million Jakarta residents in 2007, by restoring drainage systems in 15 sites by 2014.
The bank has prepared for any possible loopholes or vulnerabilities that might be exploited, and has mapped corruption risks that might occur during project development, World Bank infrastructure specialist Hongjoo J. Hahm said.
Corruption may occur during the tender process when bidders enter into clandestine and collusive arrangements with government officials to win the bid, Hahm said.
The World Bank would directly channel funds to contractors instead of via government officials to prevent this kind of corruption, he said.
Measures are also being taken to stop fraud during implementation if contractors misrepresent the volume of silt and trash removed from 10 rivers, four dams and the West Flood Canal, Hahm added.
The bank will work with the Ministry of Public Works and the city administration to hire consultants to monitor the exact volume of silt and garbage removed during the dredging process, he said.
“The consultants supervise each contractor’s work to ensure that the outcome is in synch with established guidelines,” he said, adding that a complaint hotline will be installed for public input.
The city administration will repay 41 percent of the loan while the remainder will be repaid by the central government.
The Indonesia Corruption Watch (ICW) recently reported that Jakarta, with 16 corruption cases, tied third with West Java on the list of provinces with the highest number of graft cases, behind North Sumatra, which had 26 cases.
In terms of potential state losses, corruption in Jakarta posed the largest threat to state coffers, causing potential losses of Rp 709.5 billion (US$79.7 million). Lampung followed with Rp 408.3 billion in state losses and Nanggroe Aceh Darussalam with Rp 117.7 billion.
The project was initially planned to start in June, but may be delayed further delays due to the loan disbursement, the city administration said last week.
“We expect a presidential decree to be issued in October, in time to kick off the project early next year,” Governor Fauzi Bowo said.
The project was previously postponed because of administrative problems.
Information and Communications Technology
A Sleeping Giant Awakens: Telkom’s Reinvention
SK Zainuddin. The Jakarta Globe, Jakarta – 23/08/2010
When Rinaldi Firmansyah joined Telekomunikasi Indonesia as its chief financial officer in 2004, he soon learned that the task before him was enormous.
The company faced serious issues. Its financial report had been rejected by the Indonesia Stock Exchange and it was his job was to fix the problem.
An investment banker by training, Rinaldi rolled up his sleeves and got to work.
“It was a long first day and the days got longer in the first few months,” he said. “Sometimes I slept in the office, as we used to work through the night.”
State-owned Telkom, Indonesia’s largest telecommunications company, also faced rising competition from new and more aggressive rivals, and a battle for market share that has driven cell ular prices down.
Change was absolutely necessary if the company was to survive and grow.
Fast-forward six years and the need to sleep in the office is long past. Rinaldi is now Telkom’s president director and chief executive officer.
Over the past three years, he has slashed costs by reducing Telkom’s work force and has guided the company into new business areas such as cable television and data transmission.
He is now undertaking an even bigger challenge: transforming the company into a lean, competitive and innovative multimedia enterprise.
“About three or four years ago, we realized that telecommunications was just a commodity,” he said. “That is when we started our transformation from telecom to multimedia.”
Today, Telkom focuses on telecommunications, information, media and edutainment — a strategy the company calls “TIME.”
“This was a bold move for us but we knew we had to modernize our infrastructure or we would see our market position erode,” Rinaldi said.
Telkom, Rinaldi said, had no choice but to transform itself.
To compensate for the lost revenue from its fixed-line business, the company invested in a number of new businesses, and those investments are starting to pay off.
The company has spent Rp 2 trillion ($224 million) a year for the past four years upgrading its fixed-line networks and offering new services and products.
It spent another Rp 500 billion a year improving its information technology systems and Rp 1.3 trillion acquiring new businesses.
“Now the industry looks at us as a market leader and innovator instead of a lazy incumbent,” Rinaldi said.
This strategic push has caught the eye of investors and market players, particularly after the company enjoyed a strong first-half performance.
Telkom posted 7 percent higher revenue growth than expected on the back of impressive cellular growth.
Raymond Kosasih, a research analyst at Deutsche Bank Verdhana Indonesia, said cellular prices had bottomed out, meaning Telkom can look forward to improved performance.
“We like Telkom in general and we have put a buy recommendation on the stock,” Raymond said. “The TIME strategy makes sense as it will help the company maintain growth.”
Going forward, the key challenge for Rinaldi and Telkom will be to fully implement the TIME strategy and cost-efficiency programs, Raymond said.
Near-term revenue growth will still come from its fixed-line and cellular business, while in the longer term the company will reap the benefits of pushing into cable television and data, he said.
“Personnel costs currently make up the second largest cost for Telkom, so trimming staff numbers is important for the bottom line,” Raymond added.
Harry Su, senior vice president at Bahana Securities, said Telkom had little choice but to make the changes. “Its part of the natural transition of the company from fixed-line to cellular, and now to data and multimedia.”
He predicted the telecom sector would continue to post healthy growth over the next few years, even though penetration rates are already relatively high.
He said diversification would be the main challenge for all the large players in the industry.
Rinaldi understands this quite well: Telkom must change or die.
His next big undertaking will be to expand the new wave of businesses as quickly as possible. Content, he said, will be king in the future and Telkom must be able to compete on that front.
“The industry is moving toward content-based operations and we have to be able to provide content on our network,” he said.
Telecommunications providers are all facing this dilemma — they provide the network, but the growth is in content.
“Everyone is googling on our network but we earn nothing,” Rinaldi noted.
“Content is an industry with many small players while telecommunications is a capital-intensive industry with a few players, so we must find some way to cooperate.”
A longer version of this article appears in the September issue of GlobeAsia magazine, a sister publication of the Jakarta Globe.