As a country rich with natural resources, Indonesia is adapting to the soaring commodity prices with the hope to balance increasing profits while securing supplies for the domestic market.
One commodity seeing rapid growth globally is crude palm oil (CPO), mostly driven by demand from biofuel producers, rather than cooking oil producers.
In a bid to secure domestic supplies, the government implemented a progressive export tax in January for the commodity to keep up with increasing prices.
The export tax for CPO now stands at 20 percent from previously 10 percent in March.
For an insight on how CPO producers are adjusting to the situation, The Jakarta Post's Novia D. Rulistia talked to Sandiaga Uno, the president director of PT Saratoga Investama Sedaya, an investment firm with a strong focus in CPO, coal, oil, gas and infrastructure. Question: You are mostly engaged in the CPO industry, can you tell us how it has progressed so far, particularly in relation to export tax policy? Answer: Most of our product is sold locally. Traders normally use it both for local production as well as for export, but we also directly export it ourselves. What we know is basically the majority of our domestic buyers sell their products here.
We have two investments in two CPO companies with a total production average of 20,000 hectares. They consist of around 10,000 to 20,000 mature CPO plantations.
There is a lot of demand coming from foreign buyers for our CPO. But we are comfortable doing business as we are and I think we're comfortable with current pricing, so we think we will still rely on the domestic market. Indonesia is the biggest CPO producer worldwide. Unfortunately, our derivative products are not working very well and we rely heavily on exports. What do you think about that?
That's another challenge. The government has to give incentives so those companies will invest in refineries producing derivative products of CPO, rather than just exporting it in its raw form. The incentives can be fiscal or to do with licensing.
It's sad we export so much CPO, but we still import the derivatives. We need to change the mindset. Before, we did not think of it as an integrated value chain or that we needed to keep it in our country. Therefore, a lot of businesses just focus on getting the raw material and exporting it. That has to change. The raw material has to be processed locally and the value resulting from that processed material can be three to four times higher than what it is now. As an investment firm, how do you manage your investments in the rapidly changing global market?
This volatile market, especially in terms of energy, was pretty much well-predicted by our team as we saw high demand in energy pushing coal and oil prices up. This is also because of growth in China and India. Then there was the subprime mortgage issue resulting in the slowdown in the U.S.
We believe in the next three years commodity prices and food prices will remain very strong, simply because of supply and demand. So from where I'm standing now, we need to focus on increasing oil production, investing more in natural resources and fixing our infrastructure.
That is the recipe for success in this volatile market. And what is the target you have set for Saratoga this year?
We have about five investments to be made in the next 18 months -- they're mostly new investments. We will concentrate on them first.
I cannot tell you precisely, but it's going to be the same story involving natural resources and infrastructure, such as CPO, oil, gas, toll roads and ports. We hope we can make more than five investments. At the moment, we are focusing on these five in the next 18 months. It's still in progress.
We're also now handling our investment in toll roads that has not been progressing well because of land procurement issues. It's still problematic and the government is now addressing it.
We're also looking at projects in energy and ports. But right now we are working on a toll road linking Cikampek and Palimanan.
In the power sector, we're looking to invest in a power plant in South Kalimantan as well as one in Gorontalo. Hopefully, both of them can start construction this year. How about the plan to sell some of the stake in Adaro to the public?
We're looking to do it in the third quarter and we will sell up to 30 percent of the stake. We will use the funds to reduce our debts and finance expansion. There'll be a small increase in production of Adaro through the expansion.
But we are looking beyond 2010. We're looking at another reserve situated near the Adaro mine and we feel we have to supply energy for the growth of Indonesia and its surrounding countries.
Sixty five percent of our coal will still be exported and the rest is for domestic consumption. And we are on track for this year's production target. That's where Adaro plays a major part. Are there any other sectors attractive to investors besides the natural resource and infrastructure sectors?
The sector investors need to look at is the consumer sector, because Indonesia is a huge market with 240 million people, about 10 percent of which have an income of about $5,000 a month.
This is almost similar to the size of Malaysia. And within five to 10 years, about 30 percent of Indonesians will earn in that same income bracket. So you see, the Indonesian market is going to present itself as very hot for any consumer-based products.
It will be affected by the high inflation rate, but I think the government is doing a good job in terms of inflation. Let's face it, we can't rely on cheap food anymore. Food prices are rising due to high commodity prices. But this is good for our farmers.
Last year, our CPO farmers earned more; a better income than the average Jakarta-based banker. This is really amazing. We've done research with another global firm that found 70 percent of Indonesia's economy now rests outside Jakarta. The focus is no longer on Jakarta. It will spread to areas like Kalimantan, Sumatra and Papua, on the back of strong commodity prices.