Lafarge stays on in post-tsunami RI to rebuild facilities

Abdul Khalik, The Jakarta Post, Jakarta

Even though its production facilities were ruined and 182 employees killed or missing after the tsunami that devastated Aceh on December 26, 2004, France-based company Lafarge, which owns PT Semen Andalas Indonesia, has opted to stay in the province.

The world's largest cement producer officially opened a cement packing terminal there last week as part of its post-tsunami recovery projects. These also include the construction of an upgraded cement plant and coal-fired power plant.

The company will spend a total of US$150 million for the project, making it the largest industrial investor in Aceh.

Below are excerpts from an interview with PT Semen Andalas president director Marcel Cobuz about the company's plans and expectations for running a business in Indonesia, especially in still-recovering Aceh.

Lafarge is probably one of the foreign companies hit hardest by the tsunami, Why did Lafarge decide to stay on in the province?

First of all, Lafarge has a strategy of maintaining a good balance of its presence between mature markets, such as Western Europe and Japan, and developing markets, such as Asia and the Pacific region. So, we give a lot of attention to Asia, particularly Southeast Asia. We are almost everywhere in the region. We are present in Malaysia, the Philippines, Bangladesh, India, China, South Korea, and Japan. And this trend will continue.

Of course, even before tsunami, we were quite small in Indonesia. But how else you can start or get a foothold in a market and test the appetite of customers for new products than to start a small operation and grow bigger.

The tsunami was an unfortunate event, leaving a lot of bad impacts. We lost over 180 employees and all of our industrial assets and the plant -- the only manufacturing facility we had in the country. But we got back on our feet quickly. First, we ran logistical efforts to help rebuild Aceh and provide logistical supplies. In fact, we were able to supply cement a couple of weeks after the tsunami.

After the tsunami, we had to think about how to maintain our market share and how to supply cement to our customers. We are fortunate enough to have a plant in Langkawi, Malaysia, to supply North Sumatra and Aceh. And we will continue to do so until our plant in Lhok Nga is completed sometime next year to supply our markets, which are mainly in Aceh, North Sumatra, and the Riau mainland and islands.

How is progress going on the plant reconstruction?

An investment budget of US$150 million has been approved to finance plant reconstruction, while an initial bridging loan of US$30 million from Citigroup has been leveraged to start the project. The new cement plant, which will have a production capacity of about 1.6 million tons a year, is expected to be fully built by the end of 2007 and will be commissioned in early 2008. We are just completing our fourth terminal in Dumai in Riau, and constructing our port in Lhoknga.

Today, we are importing 1.3 million tons of cement from Langkawi and channeling them through our four terminals in Lhoknga in Aceh, Batam in Riau, Belawan in North Sumatra, and Dumai terminal. We have approximately 35 percent of market share in our markets, which comprise Aceh, North Sumatra, and Riau.

What about the issue that the government will tax the proceeds of your insurance claim?

Our capacity depends very much on our financial capability. For instance, if the insurance claim is going to be taxed, then of course that will limit our investment capability. Look, we've already lost the plant and we hope our insurance claim will not be taxed. We are now discussing the issue with the Ministry of Finance, the Aceh governor, and the Investment Coordinating Board (BKPM). We hope we can find a proper solution on the issue by the end of January.

Do you have a legal basis for this?

Yes, the President of Indonesia has issued a post-tsunami presidential decree allowing tax exemptions in order to improve the business environment in Aceh. We believe we qualify for such an incentive.

Are there any new plans for expansion -- for instance, a new plant in North Sumatra? What about the failed attempt to acquire Semen Gresik?

Lafarge is a big international player. We keep on eye on many possible developments, not only the PT Semen Gresik acquisition. For the time being, what I can tell you is that we want to focus on the reconstruction of our state-of-the-art plant in Aceh. But we also see some other developments in Sumatra. Many things will happen in the future. North Sumatra, for instance, has a good potential market. Today, we don't see much infrastructure work but there are plans to build a new airport, expand Belawan port and do other infrastructure projects. So, a lot of cement will be needed, and we want to play an important role.

Speaking of political conditions in Aceh, how do you see the election of Irwandy Yusuf as Aceh governor?

I believe the business environment in Aceh will improve. First, anyone who becomes Aceh governor will realize that without infrastructure, educational development and a sound business environment, this region will be forced to depend on subsidies. We believe that by supporting the business environment, more and more revenues will be generated in the form of local taxes and central government taxes. That investment will create jobs and reduce unemployment, which is high in Indonesia. It will also create welfare and boost other businesses. There will be a full chain of value creation.

All in all, we believe in local autonomy. Whoever is in the decision-making position, they have only one option, which is to give incentives to foreign and local investors to put their money in the province.

Do you have any suggestions on what Aceh or Indonesia in general can do to attract more investment?

I think foreign investors want stability -- economic and political stability. Macroeconomic stability is one of the fundamentals that should be in place. Indonesia has proved over the past two years that its macroeconomic fundamentals are improving. The inflation rate is dropping towards single digits while economic growth is quite high. Foreign currency reserves are quite strong, and the level of debt allows the government to be flexible. I think the fundamentals are there, but we need political willingness to improve the business environment, fight corruption, and allow incentives.

Above all, we need some success stories, since the more success stories are available, the more foreign investment comes in. You see, foreign investors like the rainmakers. They look at Lafarge and other pioneers, and if they think these companies have success stories then they will follow.