The world’s largest vertically integrated polyester producer, Indorama Group, recently summoned all of its executives from all around the globe for a three-day conference in Jakarta. The group’s vice chairman and CEO, who also heads the Bangkok-based Indorama Ventures PCL (IVL), Aloke Lohia said that the conference was held to formulate a better business strategy for conducting the consumer-driven business in today’s tougher business environment. To gain insight on where Indonesia is placed in terms of the company’s global strategy, The Jakarta Post’s Nurfika Osman spoke with the man, who has lived in Indonesia for 10 years and speaks fluent Bahasa.
Question: Why did you choose Jakarta to host the annual Indorama Group this year and what message are you trying to deliver to the managers?
Answer: One of the reasons why we showcase Indonesia to our whole management is because Indonesia is such an important country for us. We want them to see Indonesia and propose what kind of technology we should have here.
My message in this fiber conference is that we are in a very tough environment; we are watched by everybody and our competitors, of course. So, we still have to be very careful and work very hard because we have to continue and satisfy our customers and shareholders. Both are very demanding; the shareholders want more dividends and the customers want better products at lower prices.
We believe that communication is very important because we are getting bigger and we do not want to lose our structure. We have to continue making strategies on how to succeed in the future.
What plans do you have to expand your business in Indonesia?
The Indorama Ventures in 2010 issued a statement that we called aspiration 2014. We decided that we would invest US$3.8 billion from 2011 to 2014 around the world. Up to now, 2012, we have already spent, or we have committed to spend, about $1.5 billion. So, we still have $2.3 billion in our budget and we are using the money for both organic and acquisition growth.
When we announced that plan, our combined capacity of PTA, PET and Polyester fiber was 3 million tons annually. Today, our combined capacity has reached 6.5 million tons, including the joint ventures; 5.5 million tons is under the subsidiary of Indorama, our personal capacity and the rest is under the joint ventures.
From the joint ventures we have the Polyprima in Cilegon, Indonesia, that gives us a half million tons. In Italy we have Ottana PET that has 350,000 tons capacity, and lastly Trevira, in Germany, gives us 100,000 tons. So, we have 950,000 tons from joint ventures.
Our target is to be a 10 million ton company by 2014. How much of that aspiration will be achieved in 2012?
I think it is between 12 and 14 percent.
For Indonesia alone, in the last one year, we have invested more than $500 million used to acquire the Sunkyong group’s Polyester business in Tangerang and Karawang, PT Polyprima in Cilegon, and the establishment of $200 million greenfield plant project in Jatiluhur, which includes a recycling component.
The Sunkyong Keris in Tangerang becomes Indorama Ventures Indonesia (IVI), Sunkyong Fiber in Karawang becomes Indorama Polyester Industries Indonesia (IPII), and the Greenfield Jatiluhur is Indorama Petrochemical Indonesia (IPCI).
When will the Polyprima start its operations?
Polyprima is expected to start commercial production this March on completion of required maintenance, revamping and capacity ‘de-bottlenecking’. Our target is to increase the capacity; the old owner’s capacity was 400,000 tons and we are going to increase it to 500,000 tons per annum when we start up.
IVL holds a 41 percent stake in PT Polyprima, PT Indorama Synthetics Tbk holds another 41 percent and the balance 18 percent by other shareholders.
Indonesia is growing to become one of the large polyester markets and has a shortage of PTA supply. IVL through its equity stake in PT Polyprima will secure the PTA supplies for polyester plants in Indonesia. The polymer capacity of IVL in Indonesia after the greenfield project in the first quarter 2013 will be approximately 460,000 tons per annum.
What do you think about the investment climate in Indonesia and do you think Indonesia is competitive compared to Thailand and other ASEAN countries?
We have had a very positive experience investing in Indonesia and that is why we are very excited about the growth of Indonesia. Indonesia will be the largest part of the ASEAN economic community by 2014. We believe that Indonesia has the potential, after China and India, as the largest consumer in the future.
We see many opportunities here because Indonesia has a large population. It is just like China 15 years ago, they consumed everything; low-tech, high-tech and look at China today. Indonesia is like that, you consume everything from the low-tech to high-tech. Now, can you imagine Indonesia in the next 15 years?
I will say Indonesia is one of the better countries to invest in because we face fewer constraints to do business here, even if compared to my mother country, India. While in Thailand, it is also very easy to do business.
How much does Indonesia contribute to the Indorama Group worldwide?
At the moment, 2012, we expect our sales to be $8 billion around the world and Indonesia will contribute about 10 percent. But, it is growing because now we have Polyprima and when the Jatiluhur plant starts up, there will be further growth.
Last year, Indonesia’s contribution was around 5 percent from our $6 billion in sales. Indonesia helps Indorama grow.
Besides Thailand and Indonesia, are you planning to invest more in ASEAN?
No, we are not, just the two countries at the moment; Thailand and Indonesia. We are yet to start looking into Myanmar, maybe that is after the aspiration 2014. At the moment it is too early for us to include Myanmar.
Of course Myanmar is an exciting place for investment with the opening of election this year and the lifting of sanctions by the US; it is a huge opportunity for businessmen.
But, I would say it is still an unclear picture because we have to see the attitude of the government and the attitude of the citizens. Petrochemical requires large investments and we have to see infrastructure build up first. But, it is very promising.
What about expansion to other regions?
We are now the world’s largest polyester company and we have manufacturing facilities in North America, Europe, Asia and Africa. In Asia, we have manufacturing in Indonesia, China and Thailand. We would like to be in the Middle East and India because we would like to be in the country that has a lot of polyester business potential.
The emerging countries for polyester now are Africa and the Middle East. We are already in Africa, Nigeria and we now want to be in the Middle East, but we do not want to mention the name of the country now.
The total combined capacity of our plant in India will be about 2 million tons per annum; 1.2 million tons of PTA, 0.3 million tons of Polyester and 0.5 million tons of PET. In India alone, we plan to invest $700 million and we will start up by 2014.
For our project in the Middle East, we will focus on the PTA and PET. The Middle East will be have capacity of 1.7 million tons; 1.2 million tons of PTA and 0.5 million tons of PET.
An economic slowdown has now hit Europe and America. Are you worried about your business?
Of course we worry, but I must say that polyester has proven itself as a very crisis resilient product because it is a consumer driven product. It is actually — if I may say so — recession proof because we still see good demand from Europe and America.
Other fibers, such as nylon, acrylic and cotton are limited in production and they are just about stable. Polyester grows 4 percent per year and it continues to enjoy eating into the market share of other fiber because it is affordable, flexible and recyclable.
That is what our shareholders love about Indorama; clothing and packaging are consumer-driven products; no recession in our business.
