Vincent Lingga - Opinion Column

RI commodities and infrastructure magnet for equipment suppliers

The Jakarta Post | Business | Tue, April 23 2013, 2:02 PM

Paper Edition | Page: 14

As the world’s 16th largest economy with an annual growth of more than 6 percent, Indonesia is predicted to become the third largest market for heavy equipment in Asia after China and India. It was simply the right decision for Bauma 2013 in Munich, the world’s largest heavy equipment fair, which ended Sunday, to make Indonesia its official partner country. Volvo Construction Equipment, one of the largest among the 3,300 exhibitors at the international fair, invited a group of journalists from Indonesia, including Vincent Linggafrom The Jakarta Post, to observe the massive display of power machines. Below is his report.

Indonesia took center stage at Bauma 2013 with a full-day conference where senior officials from the public works, transport, mining and finance ministries, along with the investment coordinating board briefed potential investors and international suppliers on the bright outlook of the heavy equipment market in Indonesia.

Back in February, Indonesia was, for the first time, selected as the guest country at the annual international trade fair in Basel, Switzerland.

In early March President Susilo Bambang Yudhoyono, accompanied by German Chancellor Angela Merkel, raised Indonesia’s global profile at the five-day Internationale Tourismus Borse (ITB) in Berlin, where it was also the official partner country.

But Indonesia’s “bing-bang” participation at Bauma 2013, the world’s largest heavy equipment fair, should top its string of global stage appearances.

Despite the mining and plantation sectors — which at the outset ignited the boom in the heavy equipment market — currently being in their down-cycle period, machine suppliers consider this a temporary phenomenon.

International suppliers remain upbeat about the future of the market, especially as demand from the construction sector had started heating up after the launch of the economic growth acceleration master plan, which needs more than US$460 billion investment in infrastructure alone within the next 10 years.

All major manufacturers of heavy equipment from the world, notably Europe, the United States, Japan, South Korea and China, displayed their machines within the 555,000-square-meter exhibition site.

But the Brussels-based Volvo Construction Equipment, the world’s third largest supplier, appeared to be the star among the exhibitors because last year alone the company released 60 new pieces of equipment, all employing new technology that makes the machines more fuel-efficient, more reliable and more environmentally friendly.

As Indonesia launched its 15-year master plan for the acceleration and expansion of Indonesian economic development (MP3EI) last year, which will require more than $460 billion in infrastructure development alone, Bauma 2013 was certainly the right place for public works officials to assess the latest technology available for the industry.

It is no wonder that Public Works Minister Djoko Kirmanto headed a large delegation to the exhibition. Besides delivering a speech as part of the Indonesian Day conference, Kirmanto also inspected displays at the huge fair.

 Volvo, which operates construction equipment manufacturing plants around the world, demonstrated for Kirmanto and his delegation the capability and performance of their equipment.

“I am impressed with the performance of your equipment,” Kirmanto told Volvo executive vice president Eberhard Wedekind.

Kirmanto also spontaneously asked Hediyanto Husaini, the director general for the construction development agency, to facilitate meetings between contractors in Indonesia and Volvo.

Danang Parikesit, special assistant to the minister, projected in a speech at the conference that Indonesian’s demand for heavy equipment for mining, plantation and construction, would increase from about 42,000 units last year to 50,500 this year.

The annual sales growth of more than 40 percent steadily booked over the past five years by publicly-traded PT Intraco Penta, the main distributor of Volvo heavy equipment, demonstrated the dynamic of the Indonesian market.

Parikesit estimated the value of construction contracts in the country to increase to $40.3 billion this year.

“Indonesia is a very important market for us and we remain upbeat about the market despite the current down-cycle,” noted Volvo CE president Pat Olney, pointing out that the emerging economies such as China, India, Indonesia and Latin America already accounted for more than 50 percent of Volvo equipment sales.

Olney’s optimism has strong foundations because much of the new investment projects approved by the Investment Coordinating Board over the past five years were for mining, tree plantations, property and infrastructure development projects such as toll-roads, bridges, seaports and airports.

Olney said that when it comes to mining, highway construction and maintenance Volvo CE offers an extensive product portfolio.

“We also keep ourselves updated of ideas from our customers and include their suggestions in our research to produce better machinery,” said Anders Larsson, Volvo CE executive vice president for research and technology.

Certainly, Volvo will have to compete fiercely with other major equipment suppliers as Caterpillar from the United States and Komatsu from Japan.

Petrus Halim, president of Intraco Penta (INTA), which has distributed Volvo equipment since the early 1980s, concurred, saying “it is not simply selling a machine but enlightening customers of the right economic concept of heavy equipment”.

The right investment concept is imperative because the prices of heavy equipment can range from tens of thousands to over a million dollars per unit, Halim said.

“We offer a total solution to our customers — not only in terms of operational reliability and operational life. We also tailor the schedule and method of payment to the cash-flow prospects of our customers,”
Halim added.

In addition, Intraco Penta operates about 40 branches around the country that serve as service and maintenance centers and depots for Volvo machinery spare parts.

“We reach out to our customers even in the remote areas, such as Kalimantan and Sulawesi, and go ‘all out’ to minimize the downtime of the heavy equipment we sell,” Halim said.

“Take for example, a coal mining firm that intends to buy our equipment but has difficulties in marketing their coal competitively. We can help this company to sell its coal because one of our subsidiaries is an independent power producer in Batam,” added Intraco’s finance director Fred Manibog.