Industrially profound Banten area expects more tenants

By I. Christianto

The Jakarta Post, in cooperation with Banten West Java Tourism Development Corporation, is presenting weekly issues on the Banten region. This week's issue is on industry.

JAKARTA (JP): Despite lacking its own resources for hard commercial activities, West Java's Banten area has been a popular site for chemical-related industries due to its ideal location. This can be seen from an increasing numbers of huge industries, plants and factories operating in the area.

Situated some 80 kilometers west of Jakarta, Banten covers more than two million hectares of land, about half of the West Java province. It has four regencies: Lebak, Pandeglang, Serang and Tangerang. Most of the large-scale industries are located in Cilegon, Serang. There is also a big petroleum plant in Merak, Serang, which is run by the state-owned oil company Pertamina. A wide range of smaller plants and factories are located in Tangerang.

The Ministry of Industry and Trade's Chief of Research and Development on Resources, Industrial Zone and Environment, Kasru Susilo, said that a particular place did not need an industrial estate since it had potential market.

"Investors will automatically come to an area since they understand it has good location and demand, crucial points in the economy," he said.

This happened to Banten, he said. "The history of industry in Banten was initiated with the operation of the state-owned steel maker PT Krakatau Steel in Cilegon. It was developed with Russian technology when (president) Sukarno was in power. Cilegon was regarded as a feasible location as it has a good link to Sumatra, an island which also has a potential market."

He said that at that time, a link for agronomic was, originally, the major consideration as another steel factory had been operating in Lampung, Sumatra.

"But the steel factory in Lampung used wood-based energy, so it was not feasible. Cilegon was also not feasible for a steel- based industry but the government provided protection. Therefore, the industry is growing well. Fortunately, many steel-based industries have been established there, because protection violates the World Trade Organization arrangement," he said.

Susilo said that from steel-based industries, Banten was now popular as the site for chemical-related industries.

"This happened in three phases. First, during the 1960s, when the government launched incentives to attract foreign investors. The phase lasted until the 1970s, when many industries purchased semifinished materials to be assembled in Indonesia. Such operations needed a lot of steel. This benefited Krakatau Steel."

The 29-year-old Krakatau Steel now exports its products to Britain, China, India, Japan, Korea, Middle East and Southeast Asian countries. The company employs over 6,000 personnel.

"In the second phase, during the 1970s and 1980s, Indonesia began its export-oriented industry and set an outward looking strategy. Many businesses eyed imported products to be resold, including chemical and chemical-related goods, which were then located in Banten. There are also certain industries developed under government protection like PT Chandra Asri Petrochemical Center," Susilo said.

He said the price of products of chemical-related industries in Banten were relatively less competitive internationally. "It's the duty of the local authority of West Java to create more infrastructure, services and other supporting businesses, such as banking, to lower the industries' production costs."

Starting in the 1990s, when the third phase began, Indonesia returned to agronomic-based products, Susilo said.

"Unluckily, we sell the products to several developed nations, where consumers are very keen to select quality. Our products are not so well. This is another problem for Indonesia."

"Banten, however, has the chance to invite more industries which offer products with good quality, including agronomic- related commodities. Again, Banten has the advantage. Strategy can't always be smooth, we have to keep on watching for any changes," he said.

What kind of advantages does Banten have? According to Susilo, Banten is an ideal location and attractive to foreigners as the area also has good places for leisure and natural recreation areas.

"Banten can develop as a site of intellectual or capital intensive industries. It doesn't need labor-intensive industries. The area's sustainability is poor as it does not have adequate resources for clean water. The soil in Banten is nonporous. If labor-intensive industries are designated for Banten, the local authority must start thinking about developing dams, housing and other amenities," he said, reiterating that Banten has a best geographical location.

"In addition to Banten, there are four other industrial areas in Indonesia, namely Bontang, East Kalimantan, Lhokseumawe, Aceh, Palembang, South Sumatra, and Gresik, East Java," he said.

He said that Bontang and Lhokseumawe are homes to various gas, LNG and fertilizer industries, while Palembang is for oil-related industries and Gresik for cement plants.

"Most plants in Gresik have moved to Tuban as the first location is too close to East Java's capital Surabaya, which is highly populated," he said.

Banten remains, however, at the top as it is located near Jakarta, the center of government, and situated in the hub of Java-Sumatra crossings.

"The business climate in Banten is also more developed than the other three locations. In addition, Banten has prospective seaports. In the meantime, social capability to accommodate industrial activities is much higher in Banten. Someday, it will be able to become a place like Japan or Hong Kong, which are poor in resources but rich in intellectuals.

Susilo stressed that nobody can ignore the impacts.

"There are two kinds of bad impacts, social-economy-cultural and environmental impacts. I believe there won't be much cultural shock when more newcomers start flooding to Banten. First, it's because Banten is close to metropolitan Jakarta, and, second, Banten has tourism activities which have attracted lots of visitors," he said.

He said that Banten became a unique place by having industrial as well as tourism potency.

"Everyone, therefore, must be very careful to maintain Banten. Industry can affect the environment, which is crucial for tourism. On the other hand, tourism is alive due to the industries which hire many expatriates. High-quality tourist facilities prepared to serve foreigners and local travelers from Jakarta also want to taste the services. So the tourism is lively," he said.

Such a condition allows the local authority to attract more investors, Susilo said. "Don't focus only on huge chemical- related industries, but also the supporting businesses, including financial and banking, entertainment and port management. If necessary, collaborate with foreign investors."

Publicly listed PT Tri Polyta Indonesia (TPI) which produces polypropylene, shared a success story in operating its business in Banten. There are three industries making polypropylene in Indonesia, TPI is the largest. The other two are located in Palembang and Balongan.

The company's director and executive vice president of finance, Suryandi, said that TPI had several reasons for opening a factory in Cilegon.

"We understand that the government has planed to develop the Cigading seaport in Banten to anticipate the potential congestion at Tanjung Priok Port in Jakarta. Therefore, we are sure that Banten will be a great area with its own container port. Second, the shore in Banten is also great in that private jetties can perfectly accommodate containers," he said.

He said that from a chemical-related angle, TPI is a high-risk industry, so it must be away from any dense area. "Our industry site is located away from populated areas."

From the point of location, Banten is indeed great, he said.

"The raw materials for chemical-related industries are gas, so the industries are not supposed to be situated in the greater Jakarta area. In the meantime, the down stream industries are mostly located in West Java, this means transportation cost can be reasonable," he said.

He said that TPI had not faced significant barriers during the development in 1990. "We could download and take various hardware close to the site as we operate our own jetty."

As a matter of fact, Banten has over 30 seaports, most of which are jetties owned by private companies in the business lines of propylene, oil and gas, detergent and other related industries.

"Electricity really became reliable starting in 1992, when the plant started to operate. Prior to that, it was poor. Luckily we had not began operating yet," said Suryandi.

The state-owned electricity provider PT PLN in Banten operates 14 main stations in the region, located in Cilegon, Cikande and Labuan. PLN Banten covers five operation areas -- Cilegon, Cikande, Rangkas Bitung, Pandeglang and Labuan -- with a total installed power of almost one million kilo-volt-amperes. In terms of electrification, PLN has covered 100 percent of all villages in Cilegon, 99 percent in Cikande, 79.66 percent in Rangkas Bitung, 97.83 percent in Pandeglang and 86.96 percent in Labuan.

Suryandi said that land transportation had also greatly contributed significant support for various industries in Banten.

"Before the toll roads were develop, it took four hours to get to Cilegon from Jakarta. But now it takes only 1.5 hours at the most. The government has done a very good job," he said.

Banten region, claiming to have a wide range of tourist attractions, has been a popular site for huge factories and industries. Access to get into the area has been very easy since the operation of the Jakarta-Merak toll road, which includes a 26-kilometer toll road linking Jakarta and Tangerang, a four- kilometer Ciujung toll road and a 8.4-kilometer Serang toll road. This infrastructure totals more than 100 kilometers in addition to common roads in the area.

Railway services remain a favorite facility. The railway operator PT Kereta Api operates passenger trains, while the railway network can be used for container cars as well.

"We can use the railway service in the last two years. It's very useful, particularly during the riots and violence which hit Jakarta last year. We use the railway service to reach Semarang and Surabaya," Suryandi said.

He said that to reach Sumatra, TPI expended less costs since Banten was very close to Lampung, Sumatra's major entry point.

"There was a time when several employees had hardships realizing they were assigned in Cilegon. They thought that the city was remote with no entertainment facilities. This doesn't occur anymore," he said.

According to Suryandi, since more people are working in Banten, the area needs to have more hospitals offering modern facilities.

TPI's executive vice president corporate support and human resources, Edi Prabowo Soebandi, said the company had absorbed many local people.

"Out of some 500 employees at the plant in Cilegon, 15 percent are local people. At the beginning, in 1992, local people were working at the lowest level but they have gradually improved, including the new employees. This is because Banten has a diploma program petrochemical school at the University of Tirtayasa."

"Now, some local people work at the supervisory level," he said, adding that TPI has also created good loyalty from its employees.

"When there were many layoffs, lots of workers in the Banten area held protests, but not at TPI. Based on self-conducted research, this was due to the belief that TPI hired an adequate number of local people. TPI is involved in various social activities, including extending various educational support," he said.

Soebandi said TPI extended contracts to local vendors and suppliers in various smaller deals to boost local businesses.