Welcoming Petro-based Dollars

Investment from the Middle East comes flowing into Indonesia. The infrastructure and energy sectors are also targeted. Partnership between PT. Pertamina and Saudi-based Aramco could be a start for bigger projections.

Using a private jet, a group of Saudi businessmen landed at Lombok, West Nusa Tenggara on Friday, 18 December 2015. The group was led by Sheikh Al-Khateeb, directly appointed by Crown Prince Mohammed Salman Al Saud to manage investments in Indonesia. The visit was at the invitation of the Minister of Energy and Mineral Resources Sudirman Said, aimed at having a closer look on the locations offered by the Government of Indonesia for investment.

Mr. Al Khateeb and his entourage visited Lombok’s touristic areas, among other an area managed by PT. Pengembangan Pariwisata Indonesia (PPI), a state-owned enterprise in the tourism sector also known as Indonesian Tourism Development Corporation (ITDC). The company is also in charge of developing a tourism area in Mandalika, Central Lombok, which is now part of Lombok’s special economic zone.

Many notable top managers from Indonesian companies, not only from the tourism sector, were also invited to meet and greet the Arab investors. Among them were directors of the Jababeka Industrial Estate, which would partner the Arab investors for a project in Tanjung Lesung, Banten province. Members of the board of directors of PT. Pertamina, who would partner the Saudi investors in processing oil, gas and petrochemicals here, were also present in Lombok to expose some proposed potential projects and special economic zones to be offered to the Arab investors.

The visit of one of the most trusted aides of the Arabian Crown Prince occured through mere informal communications. A week previously, Minister Sudirman Said invited Mr. Al Khateeb to Indonesia, only via Short Message Service (SMS). Mr. Al Khateeb then asked the permission from Prince Muhammad Salman al Saud. Upon the latter’s blessings, Mr. Al Khateeb then confirmed his plan to visit Indonesia also via text message. In the hierarchy of the Saudi kingdom, not only Prince Mohammed Salman al Saud a Defense Minister, he is also the Chairperson of the Royal Court, in addition to becoming second-in-line as the kingdom’s Crown Prince.

Mr. Al Khateeb is surely not the first Arab investor to come visiting Indonesia. Last October, executives of oil giant Saudi Aramco, including its president director, came visiting Cilacap in Central Java. They attended the inauguration of Pertamina’s refinery expansion. Both Mr. Al Khateeb and Saudi Aramco’s presence in Indonesia is under the order of the Saudi’s royal family.

****

Actually, oil-rich countries in the Middle East, such as Saudi Arabia, the United Arab Emirates, Qatar, Oman, Yemen and Iran have long expressed their interests on investing their capitals in Indonesia. So far, however, this remains to be a mere interest and yet to be realized.

There were perceptions that the Middle East countries did not see any serious considerations from Indonesia to invite their investment. Contrariwise, Indonesia had seen that the Middle East investors had thus far mainly come up with false hopes only. To let go of such pessimisms and mistrusts, President Joko Widodo embarked in a diplomatic move to invite greater investment from the Middle East last September.

The President then paid a visit to Saudi Arabia, the United Arab Emirates and Qatar. A visit to Oman unfortunately did not take place due to unforeseen circumstances. Chief of the Committee for the Middle East of Indonesia’s Chamber of Commerce and Industry (KADIN), Mohammed Bawazir, assessed that the visit had brought a fresh breeze to the Indonesian business relations with the Middle East countries. President Joko Widodo was warmly welcomed in the three countries he paid visit to. In Saudi Arabia, he was directly greeted by King Salman bin Abdul Aziz upon his arrival at the Saudi airport.

Similarly in the United Arab Emirates, upon his arrival President Joko Widodo was met and driven around by the kingdom’s Crown Prince, Prince Mohammed bin Zayed al Nahyan. President Widodo was invited for a culinary function at a restaurant — a rare treat except for anyone considered really close to the hosts. While in Qatar, the President’s arrival was greeted by the State’s Emir, Sheikh Tamim bin Hamad Al-Thani.

The impact was immediately felt in communicating with potential investors. Communications with Middle Eastern investors have become very intense. “The function of my team would be to bridge Indonesian entrepreneurs and those from the Middle East,” explained William Sabandar, Chief of ESDM Ministry’s Task Force for Accelerated Development of Renewable Energy to TAMBANG Magazine on his team.

The move was meant as a proof for Middle Eastern investors on the Indonesian government’s seriousness in inviting them to invest here. “My team’s function is to arrange such communications. We would open up dialogues, build trust and help make (the communications) happen,” said Mr. Sabandar.

****

Slowly but surely, funds from the Middle East began to flow into Indonesia. On 26 November 2015, President and CEO of Saudi Aramco Amin al-Nasser also came here. With his private jet, he landed at Jakarta’ Halim Perdanakusumah Airport. He then traveled by a chartered plane, SusiAir’s Piagio P.180 Avanti, to Tunggul Wulung Airport in Cilacap.

Mr. Al Nasser paid a visit to the location of the Cilacap refinery to sign a memorandum of understanding between his company and the state-owned PT. Pertamina (Persero). The activity coincided with the inauguration of the operation of the Residual Fluid Catalytic Cracker Unit IV of the Cilacap refinery.

Saudi Aramco would take part in increasing the processing capacities of Cilacap refinery’s Unit IV. This is included in the so-called Refinery Development Master Plan (RDMD). It will involve an investment of US$ 5.5 billion, most of which would come from the Saudi petro-dollars.

The MoU was signed by Pertamina’s CEO Dwi Soetjipto and Mr. Amin al-Nasser. It was also witnessed by Vice President Jusuf Kalla, who was present there with several Ministers from the current cabinet.

Mr. Soetjipto informed journalists that the enhanced capacity of the Cilacap refinery’s Unit IV would increase the economic value of Indonesia’s largest refinery. There are three key parameters to be improved: total capacity of crude distillate units (CDU) from approximately 345,000 barrels per day to 370,000 barrels; complexity of the refinery would also increase from 3 to 9; and the refinery’s high value products would also go up from initially 73% to 96%.

After Pertamina and Saudi Aramco concluded their investment negotiations, the project’s site preparation and basic design would begin this year. If the design and tender documents, also known as front end engineering design – FEED, could be completed by 2017, and engineering plus purchase of equipment contracts could initiate by 2018, the project to enhance the capacity of Cilacap refinery’s Unit IV could well be completed by the end of 2021.

Mr. Amin al-Nasser announced that his side would be very happy to become part of the economic growth in Indonesia. “We will contribute through the cooperation with our strategic partner, PT. Pertamina,” he said. Mr. Al-Nasser then flew directly to Jakarta for his flighth back to his country, while Mr. Soetjipto and his entourage took a trip back to Jakarta by train.

Saudi Aramco had also actually shown its interests in participating in the development of three other refineries owned by Pertamina in Balikpapan, Balongan and Dumai. In Balongan, gas, oil, and petrochemicals refineries would soon be built. “They were keen to talk about overall investment, not only on the refinery but also on the supporting infrastructures,” said Mr. Sabandar.

Another Saudi Arabian businessman, Sheikh Said Al Hussaini, had also shown a desire to build a refinery in Bontang. He was also interested in entering into the field of infrastructure, among other to develop an industrial area in ​​Maloy, East Kutai Regency in the East Kalimantan Province.

The United Arab Emirates, through the Dubai and Abu Dhabi Ports, are said to be interested in entering into the development of a special economic zone in Tanjung Api-Api area, in order to catch up with Singapore. At present, the Abu Dhabi Port is already in cooperation with PT. Pelindo III to develop the port of Makassar in South Sulawesi, and it also has a port business with Pelindo III in Surabaya, although recently there was a dispute. The affairs in Surabaya should ultimately be resolved first, prior to entering a new project in Tanjung Api-Api. “Our team would be there to help resolve (the dispute),” added Mr. Sabandar.

As with Qatar, the Indonesian government has secured the commitment from Nebras, an SOE of Qatar in electricity business who was interested in building a gas-fired power plant in Indonesia. It would involve an investment of US$ 500 million to develop a facility with a capacity of 500 MW. On another note, the financier Qatar Investment has also injected funds in PT. Sarana Multi Infrastruktur (SMI) for investment in the field of infrastructure.

What is important now is to make these plans and commitments which have been agreed upon to be realized, in order to invite even more petrodollars from the Middle East to come flowing into Indonesia.

The cooperation between Pertamina with Saudi Aramco could be regarded as a first step in opening the door for investment from the oil-rich Arab lands to Indonesia in the energy sector. If seen from the list of investment realization in Indonesia in the third quarter of last year, none of the Middle East countries was listed among the top 20 investors. Saudi Arabia was recorded at number 22 with an investment of US$ 29.93 billion in 18 projects.

In all honesty, the potentials in Indonesia are considerably abundant. Moreover, cooperation with Middle Eastern businessmen would not only limited in the electricity sector, but also in others such as tourism, halal food and so on.

****

A sign of optimism was shown by Mohammed Bawazir, Chairman of KADIN’s Committee for Middle East. He claimed that since President Joko Widodo took office, there was a turning point in relations between Indonesia and the Middle East. There have been more visits paid to the country by senior executives from the Middle East, especially from Saudi Arabia. “This has never happened before; a visit by any senior-minister level officials never happened during the last 45 years. It is incredible,” he said.

“The goodwill trip (to the Middle East) by President Joko Widodo, in my view, was done successfully. Especially for the bilateral relationships between Indonesia and the Middle Eastern countries,” added Mr. Bawazir.

He noted that the opportunities to attract investment from the Middle East in Indonesia was incredibly huge. Not only in the oil and gas sector, but also for sharia-related investment in the tourism sector, which includes food, entertainment, payout system, to lodgings. Travelers should no longer be needed to ask whether halal food is served in various facilities, such as that on offer in sharia-touristic areas in Malaysia. Indonesia, in this case, is quite left behind.

Other countries, such as Malaysia, Thailand, Japan, and even New Zealand, have already seriously developed this sector. In some touristic regions in Japan, sharia-based menus are served. The hotels are quite decent, and the foods are all kosher. In fact, they also build mosques in certain locations. “Since they are not Muslims, they build mosques not to seek heavenly reward but to attract tourists from Muslim countries. So when travelling to Japan, Muslim tourists would not have to be bothered by looking for mosques for Friday prayers, for instance. The Imams are imported from Indonesia, and they are paid handsomely,” shared Mr. Bawazir.

***

Trade and investment relations with the Middle East should really be encouraged, for the sake of balancing Indonesia’s trade deficit. As exports to other countries crumble, sales to the Middle East are still satisfactory. This is quite remarkable, although relatively small in terms of numbers, as it only involves 4 to 5% of the total export of Indonesia.

The exported products are varied, ranging from textiles to furniture, electronics, plywood and food products. Exports of food could even reach 20% of the total Indonesian exports to the Middle East. If the government could further ensure that the food products exported are all halal guaranteed, sales to the Middle East are believed to become potentially greater.

“The market for halal products in the Middle East has reached US$ 1.3 trillion per year, and it will double within the next two years,” informed Mr. Bawazir. Non-Muslim countries such as the Netherlands, Germany, Thailand and Singapore have all braced to working on the world’s halal market, from certifications to the derivatives, such as the halal industrial areas and facilities, existing for instance in Malaysia and Thailand. In Indonesia, unfortunately, such a facility does not exist.

Dirgo W. Purbo, a visiting professor at the University of Indonesia, who is also an observer of geopolitical energy, stated that the Indonesian government might as well try to attract investment from the Middle East. “However, for the energy sector, the most important part is to focus on the construction of refineries, as well as the enhancement of already operational refineries’ capacity. No less important is the steady supply of crude oil,” said the author of a book titled “The Geopolitics of Oil”.

Indonesia is now a net importer of crude oil. In order to secure the national energy supply, Indonesia must also secure the supply of crude oil. “Why do we need to build new refineries if oil supply could not be secured. The cooperation with the Middle Eastern countries in the energy sector, therefore, should be directed to resolve this,” said Professor Purbo.

He argued that the investors would not be interested in investing in the upstream sector. “Why would they take the risk in investing in Indonesia’s upstream sector while oil and gas resources are abundant in their own country?,” he asked.

Indeed, to make the country more attractive to Middle Eastern petrodollars, including their accompanying fortunes to come flowing steadily into Indonesia, is what we need to ultimately pursue.

Realization of Investment from Middle Eastern Countries

Processed; Source: www.bkpm.go.id