The Indonesian downstream chemical industry has contributed significantly to the national economy, reaching the GDP value of IDR 91.7 trillion in the first half of 2019. It is recorded that the industry contributes around 1.19% to the national economy. According to the data from the Central Statistics Agency (BPS), the industrial sector of chemical goods also showed positive performance, reaching a 10.4% growth rate over the same period.
As stated by the Indonesian Ministry of Industry, the government of Indonesia is currently focusing on growing the chemical industry as one of the priority sectors based on the “Making Indonesia 4.0” roadmap. The government aims to further strengthen and deepen the manufacturing structure and also create integrated industries from upstream to downstream in the country.
Indonesia’s Chemical 4.0 strategies include: encouraging the development of domestic petrochemical supply capacity to reduce reliance on imports; building a chemical industry with competitive costs by utilizing oil and gas resources and the optimization of local industrial zones, including the construction of chemical production sites which are closer to natural gas extraction sites; driving productivity; and developing the ability for next generation of chemical production in biofuel and bioplastic production.
Addressing High Dependency on Raw Materials
On the road to Making Indonesia 4.0, the government has set a specific focus on the biochemical industry, by taking advantage of the nation’s herbal riches as well as a robust pharmaceutical industry. President Jokowi is also channeling attention on Indonesia's endeavors to make it the world's exporter of petrochemical products.
However, the government must first address the problems facing the industry, including the high-reliance of the chemical industry on imported raw materials. One specific case is in the petrochemical industry, which needs around 5.60 million tons of raw materials annually, but only 2.45 million tons can be fulfilled domestically. The pharmaceutical industry suffered the most as 90-95% of the raw materials it needs are imported. The high dependency on imported material has resulted in expensive production costs.
The government had taken efforts to allay the constraints by allowing foreign investors to take up to 100% ownership in drug material business in Indonesia. The Indonesia Ministry of Industry also continues to encourage investment in the petrochemical industry sector, aiming to boost the capacity to meet the domestic and export markets as well as to create import substitutes.
The Ministry highlighted that the petrochemical industry also made a significant contribution to the national economy. Investments in the chemical and pharmaceutical industries reached IDR 39.31 trillion in 2018. Addin to that, the chemical industry and goods from chemicals group carved an export value of USD 13.93 billion.
Major Projects in the Coming Years
The Indonesian unit of the Korean conglomerate LOTTE Chemical Titan Holding, PT Lotte Chemical Indonesia, has planned to build a petrochemical complex in the country. The plan was based on the encouragement from President Joko Widodo for South Korean companies to invest in Indonesia while pledging to create a more business-friendly environment at the same time.
The successful implementation of the USD 3.5 billion Lotte chemical Indonesia new ethylene project is expected to be the milestone for the LOTTE Group and the company’s plans to become the top tier petrochemical company in Southeast Asia. This project is currently at a planning stage and to be completed in 2023.
Additionally, Lotte Chemical Titan also planned to add a naphtha-fed steam cracker with feedstocks from its Malaysia facility. Upon the completion, the operation site will turn to be an integrated complex with HDPE and LLDPE plants, balancing the trade and reducing the trade deficit in the Indonesian petrochemicals sector.
President Joko Widodo also inaugurated the national petrochemical company, PT Chandra Asri Petrochemical Tbk’s new plant in Banten. With the total investment of IDR 60-80 trillion, the company’s petrochemical complex will be built during the period from 2019-2024, raising its capacity to 8 million tons annually.