Shell targets more growth in Indonesian market

Ika Krismantari, The Jakarta Post, Jakarta

Since the government opened Indonesia's downstream oil and gas business two years ago, the sector has attracted numerous new players interested in entering the market.

A subsidiary of oil giant Royal Dutch Shell Plc, PT Shell Indonesia was the first foreign oil giant to enter Indonesia's retail gasoline market when it opened its first gas station in Jakarta in 2005. This was made possible only after the government revoked the monopoly held by state oil and gas firm PT Pertamina over the country's non-subsidized gasoline retailing industry.

Following on the heels of Shell were Malaysian state oil and gas firm Petroliam Nasional Berhad, or Petronas, and a number of other international companies.

The Jakarta Post recently interviewed the newly appointed president director of Shell Indonesia, Darwin Silalahi, on the company's plans in the downstream sector.

Question: How do you see Indonesia's retail gasoline market following the liberalization of the sector in 2005

Answer: For major players such as Shell, the retail business is significant and a critical part of our portfolio business. We will always be looking at business opportunities in emerging markets such as Indonesia. Indonesia has always been on the radar screen of Shell and, in fact, Shell actually had a retail development team in anticipation if the government opened the market.

Indonesia, with over 220 million people, is one of the key strategic markets for Shell globally, and Shell is keen to grow its business in Indonesia. Our global retail strategy is to grow in high-growth markets, such as Indonesia.

Indonesia is a highly under-pumped market, meaning that the number of stations, compared to the population, is still too small. Compare it to Malaysia, where we are number two in the country. There, the population is between 20 and 30 million people, and they have 900 stations. Indonesia as a whole only has 3,000 plus pump stations, and that means a huge growth potential.

The government is considering opening up the entire retail market for other business players, either by easing the requirements for distributing subsidized fuels or revoking the subsidy. Your comment on this?

What we need is predictability and clarity in the way the governing regulation is implemented. This is very important for players which will be looking at investment with suitable size and a long-term time line.

The way we see it the government seems to be serious about reducing or taking out as much of the subsidy as possible from the state's budget. We hear the plan for the government is to open the market for subsidized fuel.

If there is a plan to open the subsidized fuel market, I think that will allow us to be able to serve our customers better with a broader portfolio of fuel products. And that is something that we are looking forward to doing.

What is Shell's plan to open more gas stations outside Java? Will you also be interested in placing a bid in the tender for subsidized fuel?

It's fair to say that for us Indonesia is not just about Jabotabek (Greater Jakarta). Our longer term plan will be to serve the entire country, in a way that makes sense for the customers.

Our development to be able to serve a wider section of Indonesian customers will be contingent on a few things, such as access to subsidized fuels and how quickly we roll out the plan, as well as how well customers respond to our propositions.

We need to make sure that we have the ability to adjust our propositions depending on customers' characteristics, market economics of the area, the supply chain and the regulatory framework of the area.

We don't normally disclose the next location for very obvious reasons. We need to make sure that all the products will work and are in place. We will be not talking in terms of the rate of growth of number of stations, because that is very much determined by how fast the market is being opened up.

And for joining the bids for subsidized fuel tender, we need to make sure that we are able to qualify for that tender, and the key there is distribution infrastructure. I think for us at this stage of development, there is still significant room for growth there, both in Jakarta and other locations.

Beside the gasoline business, is Shell also interested in tapping other fuel markets In Indonesia?

We love to be pioneering the opening up of the Indonesian downstream market, and Shell will also be the first to enter into the Indonesian aviation fuel industry. We have signed an agreement with Pertamina in the aviation sector (in April).

Shell is a global leader. We are serving 20,000 aircraft at 1,100 airports. We are very happy to add Jakarta's Soekarno-Hatta airport to our portfolio of 1,100 airports.

We are also excited to hear about the government pushing strongly for the conversion of kerosene to LPG.

We are currently looking into how and when we can participate in this emerging LPG market here. After all, we too are a global leader in LPG sales.

How do you respond to plans by other major oil firms, such as Total and Chevron, to play a role in Indonesia's downstream business?

Globally, we have proven to be the world's largest retailer with more than 46,000 stations operating globally. And in a lot of markets, we have been competing head to head with some of the global companies you have mentioned, and the fact is that we are still commanding our global leadership.

Shell welcomes new competitors to the Indonesian retail space and we believe it is the customers who will eventually benefit.