The government is putting in place measures to combat the pandemic as well as boost the country's long-term growth.
December 11, 2020
In the face of a once-in-a-generation crisis, Indonesia is proactively taking steps to mitigate the impact of the coronavirus on its people and economy.
Among other steps, the government has rolled out a series of measures to support hard-hit businesses and industries. These include 35.3 trillion rupiah (US$2.26 billion) in new tax incentives for 18 sectors such as tourism, food and beverage, and healthcare. The authorities have also expanded social assistance programs for low-income citizens across the country to help them meet their basic needs and maintain their purchasing power.
Meanwhile, the recently approved Omnibus Law on Job Creation is expected to make it easier to do business in Indonesia by cutting red tape, easing restrictions on foreign investment and providing more incentives to free-trade zones. According to Fitch Ratings, the new law should significantly enhance the business climate and improve the country’s international competitiveness over time if the changes are fully realized.
In particular, the reforms will help Indonesia capitalize on shifts in global manufacturing supply chains. Many multinationals are looking to diversify their supply chains in response to uncertainties created by ongoing U.S.-China trade tensions. Some have relocated operations to Indonesia in recent years, and the new measures introduced by the government are aimed at accelerating this trend.
“We believe that the law will bolster Indonesia’s long-term economic growth prospects. All else being equal, faster growth would have a positive effect on the sovereign’s public debt metrics, boosting fiscal inflows and reducing debt-to-GDP ratios,” said Fitch in its October report.
“Perhaps more importantly, the potential boost in Indonesia’s manufacturing exports and FDI inflows could make the country less dependent on commodity exports and on portfolio flows to finance its current-account deficit.”
State-owned enterprises such as Pertamina continue to play their part in supporting economic growth. The energy giant has a key role in developing Indonesia’s energy security and self-sufficiency. According to Nicke Widyawati, President Director and CEO of Pertamina, the company not only seeks profit, but also to serve as an engine of economic expansion and a driving force for the growth of the country’s small and midsized businesses.
On the manufacturing front, Indonesian corporates such as apparel maker Pan Brothers continue to keep their production lines running to meet global demand. The company’s targeted production capacity in 2021 is 130 million garment pieces annually.
Over the longer term, Indonesia’s plans to focus on infrastructure—including new airports, power plants and transportation projects—and the booming digital economy will help fuel the country’s growth in the post-crisis period and lead to new opportunities for businesses and investors.
Pertamina: Energizing The Nation
Indonesia’s national energy company is a driving force for the country’s economic prosperity.
Pertamina is an Indonesian state-owned integrated energy company engaged in the production and distribution of oil, gas and renewable energy. The company plays an important role as the guardian of Indonesia’s energy security, self-sufficiency and sovereignty. With millions of people affected by its wide range activities, Pertamina has become a national economic locomotive: It not only significantly contributes to the country’s growth but it also underpins an integrated business ecosystem.
“As a state-owned enterprise, Pertamina not only seeks profit, but also serves as an engine of national economic growth and a driving force for the growth of the country’s small and medium-sized enterprises,” says Nicke Widyawati, President Director and CEO of Pertamina. The company also supports the development of Indonesia’s frontier, remote and outermost regions, known as 3T.
Pertamina aims to become a US$100 billion company and a global energy leader by 2026. To achieve this, it underwent a corporate restructuring this year and formed six business groups: upstream, gas, refining and petrochemical, commercial and trading, power and new and renewable energy, and shipping.
“This pandemic has accelerated business change and the future energy transition. Pertamina needs to quickly respond to the new global megatrend. Restructuring is a strategic step to be more adaptive, agile and more aggressive for business development. By integrating synergy within Pertamina Group, we are optimistic the target in 2026 will be achieved,” says Widyawati.
Pertamina has set a crude oil production target of 1 million barrels of oil per day (bpd), which will be achieved in stages up to 2026. It is also increasing production in its domestic oil and gas blocks, while conducting exploration activities to discover new oil reserves. As part of these efforts, the company is carrying out onshore and offshore seismic surveys across Indonesia, and has acquired oil and gas fields at home and overseas to boost its reserves.
In its downstream business, Pertamina manages six processing refineries in Indonesia that have a total capacity of about 1 million bpd. The company is upgrading some of these facilities to optimize their performance under its Refinery Development Master Plan. It is also developing new refineries under the Grass Root Refinery program.
These efforts are aimed at enhancing overall production capacity to help Indonesia achieve energy self-sufficiency. If Pertamina’s refineries can reach a capacity of 1.8 million bpd by 2026, the country will be able to produce enough fuel to meet domestic demand and lessen its reliance on overseas supply.
Pertamina also is preparing to expand the petrochemical business in Indonesia, with an eye on growing its presence in the industry across the Asia-Pacific. Its plans include integrating petrochemical operations at its refineries, with petrochemical production set to reach 8,600 kilo-tons per annum by 2026.
Besides helping Indonesia reach energy self-sufficiency, these development and revitalization initiatives will boost other sectors, such as manufacturing. The construction and operation of the refineries is expected to require more than 140,000 workers and create an additional 3 million jobs.
Pertamina will continue to absorb domestic crude from foreign oil and gas contract holders that operate in Indonesia. The aim is for crude oil produced in Indonesia to be processed by domestic refineries and reduce crude imports.
Equal Access to Energy
To ensure equal and easy access to fuels, Pertamina was tasked by the Indonesian government to implement the one-price fuel policy in the 3T regions. In addition to its 7,000 gas stations found nationwide, Pertamina also distributes fuel to rural areas through its retail chain Pertashop. Its fuel pumps play an important role in realizing the government’s strategic program for developing villages. The company expects to have more than 4,500 Pertashop pumps operating by the end of the year.
Reflecting its commitment to an energy security strategy that prioritizes availability, accessibility, affordability and sustainability for all people across Indonesia, Pertamina has set up more than 180,000 LPG retailers in over 5,000 villages while increasing natural gas deliveries to household customers in more than 23 cities nationwide.
Commitment to Sustainability
Pertamina remains committed to Sustainable Development Goals (SDGs) through its collaboration with all business units and subsidiaries, its implementation of corporate governance and its stakeholder engagement. Priority goals to support SDGs are tailored for various company programs to achieve targets that are in line with the company’s overall strategies in the upstream and downstream sectors.
To adapt its business for changes in the global environment, Pertamina remains focused on developing greener and cleaner energy. A number of innovative technology solutions have been developed to take advantage of sources of new and renewable energy in Indonesia.
“We put high priority on and hold the commitment to sustainability. We are ensuring the development of green energy in line with the government’s vision to enhance national energy security and independence, while responding to the challenges of transitioning to clean and renewable energy,” says Widyawati.
The company has accelerated domestic production of B30 biofuel, which will allow Indonesia to slash its fuel imports and protect the country’s foreign exchange reserves. Pertamina is also trialing environmentally friendly green diesel, green gasoline and green aviation fuel. These green fuels use palm oil—widely available in Indonesia—as the primary raw material, helping to support local workers and industry. In line with these plans, Pertamina established the Biogas Power Plant Project to process palm oil waste and added solar power to several of its facilities.
Pertamina is also tapping the potential of the country’s geothermal reserves. The company, which has realized 1,877 megawatts in power generation from geothermal sources, will continue to develop this renewable source for energy production.
Recognizing its role as a responsible corporate citizen, Pertamina is actively implementing corporate social responsibility (CSR) and environmental protection programs. In September, Pertamina was recognized with the International Global CSR Award at the 12th Global CSR Awards 2020 for its dedication to sustainable business and environmental protection programs.
Through these programs, the company has channeled more than 3.5 trillion rupiah (US$250 million) to help more than 1 million people, which includes funding to build hospitals for Covid-19 patients and to provide medical equipment. The company has also continued to support Indonesia’s small and midsized firms as they navigate the Covid-19 crisis, such as offering training programs focused on digitalization.