Why PT Oiltanking chose Karimun to construct mega-port project

Why PT Oiltanking chose Karimun to construct mega-port project
The Asian ports industry is buzzing with optimism. In Tanjong Priok, Indonesia’s largest port, and
currently in the middle of a record-breaking port expansion project, major tenders will be decided
upon by the end of 2013. Similarly, massive projects are also taking place in the Philippines, Vietnam,
Singapore and throughout Asia.
With these great opportunities, key challenges related to financing, regulations and engineering come
into play. With expanding trade and increasing vessel-size, there is escalating pressure on ports to
upgrade and expand. Minimal dwelling time has become a norm and high-efficiency is more
important than ever. Ships want to get in, unload and load, and get out again as quickly as possible.
In Asia, two of the most significant port projects to date are the first independent bulk storage
terminal for petroleum products and gases in Indonesia, which is located in Merak and the more
recent independent bulk storage terminal, which will be located in Karimun. The mega-port project in
Karimun just broke ground recently and construction works have started on a petroleum bulk storage
facility of a size of 760,000 cubic meters (together with private port facilities.)
Sven Partzsch, General Manager for PT Oiltanking Karimun, in our recent interview, shared the
rationale for choosing Karimun to launch this mega-port construction project. Sven also explained the
relevance of having Indonesia’s first independent bulk storage terminal for petroleum products and
shared some of the key regulatory challenges they have to deal with on a day-to-day basis.
Please talk about your projects at Merak and Karimun. What is the relevance of having Indonesia’s
First Independent Bulk Storage Terminal for Petroleum Products?
Sven Partzsch: Our first bulk storage terminal is in Merak on West Java. The relevance here is that we
believed – and we still do – that the Indonesian petroleum market will be fully deregulated. This
investment in Merak took place about 6 years ago. It was commissioned in year 2009 and since then,
there have been developments on the deregulation process within Indonesia for the petroleum
market. However, the market is still not fully deregulated so that’s quite unfortunate.
Merak is a very good location with devoted access, existing port facilities and services. There are a lot
of industries around Merak which supports oil and gas activities, which is obviously an advantage.
The site itself has very good geotechnical features, space for expansion is still available, and there is
access to power and utility, which is important for our operations and the management of security at
the site.
We believe that once the Indonesian petroleum market is fully deregulated, that this will be one of the
first stops for foreign petroleum import companies to handle products and distribute from there. So
we are still very optimistic about this terminal in Merak.
The other project we have – and the most recent one – is our second independent bulk storage
terminal, which will be located in Karimun. We just broke ground recently and construction works
have started on a petroleum bulk storage facility of 760,000 cubic meters (together with private port
facilities.) Part of it is also is the establishment of a new shipping channel connecting our shipping
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channel with Malacca straits. We are currently in talks with the relevant Indonesian authorities to get
this shipping channel established.
Do you foresee any dates or any period where the market would be fully deregulated?
Sven Partzsch: That really depends on government policies. We have seen recently that subsidies
have been reduced further, which is a good sign, as it eases the burden on the state budget. But there
are still subsidies in place, which obviously is a disadvantage to foreign players who operate
petroleum pump station network in Indonesia. Subsequently, their turnover is still quite measly due
to the fact that they cannot compete on an equal basis with the domestic oil company.
What is the rationale behind the selection of the Karimun site? What were the pros and cons that
you have to weigh before arriving at a final decision on site location?
Sven Partzsch: It was basically the right location in the sense that we got feedback from companies as
well as our customers that this would be a very good entrance into Indonesia, into Java and into this
huge market where most of the population in Indonesia lives.
Other factors also played a role such as geotechnical conditions, land price, the devoted access as well
as the free trade zone benefits because that gives our customers some flexibility in their activities.
As for the disadvantages, well, it was our first step into Karimun, so there was a risk of not being 100%
sure what to expect – the risk of not being able to realize certain expectations are there. It needed a lot
of investigative work to understand the situation. Learning about licensing requirements and decision
making processes within local authorities take time before you can feel comfortable in taking a
positive investment decision. But that is not something unique to Karimun. In any other location
where you don’t have a footprint yet, you will face these same issues.
What would you consider are the key regulatory challenges in Indonesia?
Sven Partzsch: On the petroleum market, there is still a unique tariff regulation where upfront fee
payment based on trade estimates is required. Other issues that are related to deregulation include
free market access, level playing field and cutting of few subsidies. Business licensing is also an issue
that must be dealt with by the regulators. In our experience, there are a lot of local and national
permits to be obtained in order to set up storage facilities in a private port. There are even more
permits and licenses to be maintained once you are in operation. It would really be good if someone
could look into it and simplify the whole process.
Different ministries also have different views, which create some confusion in the industry. As a
foreign investor, I feel that there should be more coordination among the different agencies and/or
departments of the government. Obviously, investors always prefer a one-stop solution when it
comes to jetty permits, port issues and the likes so you don’t have to deal with too many parties.
Depending on the business case of our customers, the cabotage rule could also be a disadvantage,
especially for inter-Indonesian ship traffic. Ships need to be Indonesian-flagged (cannot carry any
For more information about Port Development and Expansion Asia 2013, visit
www.amlcomplianceasia.com or email enquiry@iqpc.com.sg or call +65 6722 938
other flag) so that means less flexibility for cargo owners – our customers – due to issues related to
availability of vessels, competitive pricing, etc.
Can you talk about the latest technologies/innovations in port construction? How do you think this
will impact future port construction projects?
Sven Partzsch: To be honest, I don’t really see a big jump in innovation or new technologies when it
comes to port facilities, which are related to our type of business. The way we design, operate and
maintain our private ports has more or less remained the same over the past couple of years.
What I would like to see is innovation on the way we improve the quality of our infrastructure and be
able to maintain them over a longer period of time at a lower cost. Once this is done, this could
actually trigger a beneficial cycle where we can do things more efficiently, which makes it easier to
build things more cost-effectively and eventually, would make maintenance a lot cheaper.
Sven Partzsch will be presenting a case study, “Merak & Karimun:
An Update on Indonesia’s Independent Bulk Storage Terminal for
Petroleum Products” at Port Development and Expansion Asia
2013. To attend the conference, email enquiry@iqpc.com.sg or
visit www.portdevelopmentasia.com for more information.
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For more information about Port Development and Expansion Asia 2013, visit
www.amlcomplianceasia.com or email enquiry@iqpc.com.sg or call +65 6722 938