BHP sees Indonesia as important target for expansion
Broken Hill Proprietary Company Limited (BHP) is seeking more projects to expand its operations in Asia. Hendarsyah Tarmizi of The Jakarta Post and three other Asian journalists recently visited the Melbourne-based business group's iron ore operations and took part in its annual conference.
MELBOURNE (JP): Broken Hill Proprietary Company Limited (BHP) sees Indonesia as an important target for its business expansion into Asian countries.
John Prescott, managing director of the diversified resource company said here last week that there were a number of projects on the list to boost its Indonesian operations.
"We have been in Indonesia for years and we expect more business projects in the future," he told The Jakarta Post.
BHP through PT BHP Indonesia, operates fields in the country that range from coal mining to building steel production to transport and information technology services.
BHP was expected to start crude oil production in the Timor Sea next year and natural gas in the following years, he said.
He said the company was also seeking to expand its operations into other mineral activities such as nickel mining and power generation projects.
Prescott said that Indonesia was not only an important production base but also a potential market for BHP's iron ore and steel products.
"Krakatau Steel (Indonesia's largest steel producer), is one of our main customers," he said.
BHP's links with Indonesia date back to the early 1970s when it surveyed tin reserves at Kelapa Kampit, a formerly Dutch run mine on the island of Belitung, South Sumatra. BHP reopened the mine and undertook to investigate other areas of the island suitable for primary tin.
Commercial production started in 1979. By 1980, production was 500 tons of contained tin metal. The mine was sold to Pressug in 1984.
BHP, with operations and offices in more than 59 countries and with over 65,000 employees worldwide, has now four main business sections in Indonesia -- copper, minerals, petroleum and steel, and support businesses such as engineering, transport and information technology.
The petroleum sector is BHP's latest new venture in the country.
Oil field
BHP Petroleum, a part of the Melbourne-based business group, and its joint venture partners were given the go ahead to develop two oil fields in the Timor Sea. The two oil fields, Elang and Kakatua, fall within the part of the Timor Sea known as the Zone of Cooperation between Australia and Indonesia.
The authority was granted by Indonesian and Australian Directors of the Joint Authority, which oversees operations in the zone of cooperation.
In April, 1996, the first well in the Elang field was sunk. The joint venture now has four wells in the Elang field and another one in the Kakatua structure, about 15 kilometers to the north west.
The two Elang wells and one Kakatua well have been suspended as future producing wells. Another field was discovered in January this year, named Kakatua North, 1.2 kilometers north of the Kakatua discovery well.
"Elang-Kakatua field will produce oil in the second half of next year. We are very excited about the development," PT BHP Indonesia's president Colin E. Smith told the Post.
He said the field was not so large, but new findings early this year could expand the size of the crude oil reserve.
Due to the size and expected life of the Elang and Kakatua fields, a development based on a floating production storage and off-loading facilities, rather than a fixed platform, was chosen.
As part of the development, the subsea wells will be connected to flexible flow lines that will flow into floating production vessels moored at the field location, according to BHP's development program.
The estimated commercial reserves for Elang and Kakatua are about 15 million barrels of relatively light crude. The expected life of the field is two years, and production is planned to start next year, with production expected to peak at 33,000 barrels a day.
Smith said that BHP and its partners were also currently discussing appropriate technology to produce Liquefied Natural Gas (LNG) from its Bayu-Undan field.
The large gas-condensate discovery in the Bayu-Undan field, is also in Block 91-12, about 25 kilometers south-east of Elang.
"BHP's idea is to build a floating platform in the area. Some of the partners want the establishment of a plant in Darwin," he said. "So we are discussing with the partners and we think that our technology would be more appropriate and also much cheaper."
Smith said he hoped BHP and the partners would be able to decide next year what technology would be used to develop the planned LNG plant.
He said investment for the LNG facilities could reach US$2 billion.
"That is very exciting both for Australia and Indonesia," Smith said.
In the mineral sector, BHP now has two joint ventures, PT Arutmin Indonesia and PT Kendilo Coal Indonesia.
PT Arutmin manages the Senakin and Satui thermal mines in Kalimantan. The Senakin mine was commissioned in 1989 and now produces 4 million tons a year. The Satui mine made its first shipments of coal in 1990 and now produces 2 million tons a year.
In the Senakin and Satui coal mines, BHP Minerals has an 80 percent stake, while its local partner PT Bakrie Brothers owns 20 percent.
PT Kendilo, which is 80 percent owned by BHP Minerals and 20 percent by Japan's Mitsui Mining Company, developed a thermal coal mine in Petangis, also in East Kalimantan. The first shipment was in March 1994 and the mine produces about one million tons a year.
Smith said the two mining companies produce about 7.5 tons a year.
Coal from the Senakin, Satui and Petangis mines is shipped to customers in Japan and other Asian countries from the North Pulau Laut Coal Terminal, which was built at a cost of about US$80 million in 1994.
The three mines employ about 2,500 people, 1,300 of whom are contract workers.
Offices in Bogor and Jakarta are the bases for BHP's mineral exploration efforts in Indonesia. The company is exploring for non-ferrous precious such as nickel in North Sulawesi, North Sumatra and South Kalimantan.
Smith said BHP also planned to develop a nickel mine on Gag island, some 150 kilometers off Irian Jaya in cooperation with state-owned general mining company Aneka Tambang.
Smith declined to say how large the nickel deposit was but said it would be a large project using a new nickel processing technology.
BHP's nickel contract is one of 176 seventh generation contracts of work (COWs) initiated by the government in September, last year. The Ministry of Mines and Energy said last week the 176 COWs, together with 15 new coal mining contracts would be soon be submitted to the House of Representatives for approval.
In the steel sector, BHP operates in Indonesia through PT BHP Steel Indonesia, which built coating and paint lines at Cilegon, West Java in 1993 at a cost of about US$55 million. The paint line commenced operation in 1995 and the metallic coating line was commissioned in 1995.
BHP owns 65 percent of the Cilegon plant, while local partners, Yayasan Dana Pensiun of Krakatau Steel, owns 10 percent, Krakatau Industrial Estate Cilegon, 10 percent, Cilegon Cahaya Steel nine percent and YKK Bank Indonesia, the remaining six percent.
BHP, through its subsidiary PT BHP Steel Building Products Indonesia, also operates a rollforming and welded reinforcing mesh plant at the Pulogadung Industrial Estate in Jakarta and a similar plant in Surabaya.
Service companies
The business group's service companies -- engineering, information technology, insurance, power and transport, also support BHP's activities in Indonesia.
BHP Engineering, for example, provided project management for construction of the North Pulau Laut Coal Port and engineering services for the Petangis coal mine in Kalimantan for PT Arutmin Indonesia.
BHP Engineering also provided engineering and management services to BHP Steel Indonesia's plant in Cilegon and is providing supervisory services to BHP Steel Building Products Indonesia for the upgrade of the plant.
Another service company, BHP Transport, works with BHP Steel to provide logistics solutions at its Cilegon operations as well as advising logistics for new BHP developments.
Ships chartered by BHP Transport carry steel from Australia to Indonesian ports, as well as carrying export coal from Indonesia to Asia and Europe.
In the field of information technology, BHP operates in Indonesia through its sole agent, PT Citra Fajar Gemilang. Services are provided to BHP businesses in Indonesia, particularly PT BHP Steel Indonesia, PT Arutmin Indonesia and PT BHP Steel Building Products Indonesia.
In addition, BHP Information Technology, through PT Citra Fajar has major projects at Krakatau Steel and Mercedes Benz.
Smith said that BHP's Indonesian operations, involving 3,600 employees and investment of nearly US$500 million, was the largest in Asia.
"In other Asian countries we will see only steel operations, but in Indonesia you can see, steel, mineral and petroleum and all services companies operate," he said.
This indicated that BHP had a strong commitment to expanding its operations in the country, he said.