Indonesian Ethanol Overview and Update

Discussion paper
19th March 2013
Table of contents

■ Company overview
■ Indonesian market
■ Industry regulations
■ Q&A

2
PT Karsavicta Satya has more than 60 years of presence backed by
dedicated professionals who are experts in their fields

Company overview

• Established in 1950, one of the true pioneers of

Indonesia's chemical distribution industry
• Became one of the first Indonesian companies to
operate a modern chemical warehouse in the late
70’s, bringing Ethanol supply nearer to its users
• Expanded its facilities to include advanced
container tank equipment and other leading-edge
technology in the last 20 years
• Has a dedicated Government Relations Office
who monitors policies and legislation affecting the
chemical industry and related sectors as well as
advises staff and customers on the operational
implications

3
Table of contents

■ Company overview
■ Indonesian market
■ Industry regulations
■ Q&A

4
Indonesia’s social and demographic trends position it as one of
the most attractive market for businesses across the region
Growth platform …Building a sustainable economy
 More stable political environment and
government
 Expected to remain democratic Upgrade to investment grade rating
 Supportive regulations with more
balanced open market
Increasing FDI confidence
 Regional autonomy
 Integration with regional and global
Move towards liberalization (some
networks sectors)
 Attractive demographics
 Growth in productive population (51% Lower Government Debt to GDP ratio
of total population by 2030)
 Low dependency ratio (from 48.7% in
2010 to 44.3% in 2030) Inflation control
 Resilient financial system with healthier
balance sheet and foreign reserves

Source: PT. Karsavicta analysis 5

Indonesian ethanol industry value chain

Overview of players Non-exhaustive

Ethanol Bonded
Factories Retailers End users
Warehouse

PT. Indo Acidatama Cosmetics

PT. Karsavicta Satya PT. Karsavicta Satya
TBK

PT. Indo Lampung PT. Parama Liquor

PT. Sumber Kita Indah
Distillery Mandyadana
Tobacco
PT. Molindo Raya
PT. Sumber Kita Indah CV. Budiarta
Industrial
Pharmaceutical
PT. Medco Ethanol
CV Budiarta
Lampung
Printing
PT. Indonesia Ethanol
Industry
Sanitation
PT. Perkebunan
Nusantara X* Fuel

Source: PT. Karsavicta Satya analysis 6

Environmental concern in the form of Bio Fuel has started to
make inroads in Indonesia

120000
100000
80000
60000 Bio Premium (E5)
Bio Pertamax (E5)
40000
20000
0
2006 2007 2008 2009 2010 2011 2012

• Green Initiative
• Oil Prices

Source: Pertamina report 7

If implemented, Bio Fuel presents ample opportunity for the
ethanol industry

KL KL
30,000,000 6,000,000

25,000,000 5,000,000 Ethanol

Required
20,000,000 4,000,000
Current
15,000,000 3,000,000 Production

10,000,000 2,000,000

5,000,000 1,000,000

0 0
Premium Pertamax Pertamax E5 E10
(88) (92) Plus (95)

Sources: Pertamina report; PT. Karsavicta Satya analysis 8

Table of contents

■ Company overview
■ Indonesian market
■ Industry regulations
■ Q&A

9
As the biggest Muslim country in the world1, excise regulation
has become a critical monitoring tool in the country
Key products governed by excise Types of application for ethanol

Free excise
• Application for free excise can be submitted
to Customs for ethanol used to produce
liquor and tobacco2
Liquor Excise exemption
• Application for excise exemption can be
submitted to Customs for ethanol used to
Excise produce any other products (e.g. cosmetics,
Duty etc.)

Full payment of excise

• If no application form is submitted for any of
Tobacco Ethanol the above, excise duty of IDR 20,000/L will
be applicable

1. ~90% total population

2. To avoid double excise duty as tobacco and liquor are subjected to excise duty
Sources: Badan Pusat Statistik; Indonesian Customs 10
Excise applications impact players in the value chain differently

• License to operate • License to operate1

• Denaturing • Denaturing
• Reporting documents (inflow • Reporting documents (inflow
and outflow of ethanol for and outflow of ethanol for
the last 10 years)2 the last 10 years)2
Ethanol
Factories bonded
warehouse

Retailers End users

• Reporting documents (inflow

• License to operate1 and outflow of ethanol for
the last 10 years)2

All players are also subjected to audit from the directorate of customs as and
when required
(1) Renewal required every 5 years
(2) Monthly report is required for those who applied for free excise and excise exemption
Source: Indonesian Customs 11
Various regulations and agencies govern the Indonesian
ethanol industry
Regulations overview

Agencies Regulatory paper Content

Government • UU No. 39/2007 • Excise

Ministry of • PMK 202 / PMK 04/2008 • How to get license for manufacturing,
Finance ethanol bonded warehouse, and
ethanol retailer
• How to get excise exemption
• PMK 109 / PMK 04/2011
• Free excise (how to avoid double
• PMK 237 / PMK 04/2009 excise and export)
Directorate of • Per Dirjen 46/BC/2012 • Similar to PMK 109
Customs • Per Dirjen 53/BC 2011 • Similar to PMK 237

Source: Indonesian Customs 12

Customs is the main controller and auditor for across the
ethanol industry value chain

Customs
(control and
Ethanol audit) Retailers
Producers

Ethanol Bonded
Ethanol Users
Warehouses

13
Table of contents

■ Company overview
■ Indonesian market
■ Industry regulations
■ Q&A

14
This document is exclusively intended for IBC Asia Ethanol Summit 2013 participants.
Distribution, quotations and duplications – even in the form of extracts – for third parties is only
permitted upon prior written consent of PT Karsavicta Satya
PT Karsavicta Satya used the text and charts compiled in this report in a presentation; they do
not represent a complete documentation of the presentation.

15
Appendix

16
QuantityQuantity
MarketMarket Grades / main users
• Indonesia local distilleries produces • ENA
156.000 KL in 2012
• Cosmetics
• Ranging from ENA and to Fuel grade
• Liquor
• Molasses based (most distilleries)
• Pharmaceutical
• Cassava based (only 1 distilleries)
• Extraction/Essence/Flavoring
• Coal based (future, 2015-2016
production in Kalimantan) • Tobacco
• Hospital
• Toys
• Technical
• Printing Ink
• Sanitation
• To produce other chemicals
• Biofuel

17
Pertamina’s Bio Fuel Production

Bio Premium (E5) Bio Pertamax (E5)

2006 Total 1.624 KL/year 16 KL/year

2007 Total 3.776 KL/year 9.958 KL/year

2008 Total 44.016 KL/year 16.234 KL/year

2009 Total 105.816 KL/year 20.232 KL/year

2010 Total - -

2011 Total - -
2012 Total - -

• There has been a shortage in supply for Unhydrous Ethanol to Pertamina because export prices
are higher than local so the manufactures prefer exporting
• Since 2010, Pertamina has stopped distributing Bio Premium and Bio Pertamax
• Until now we do not know when will Pertamina is going to start producing biofuel again

18
Indonesia Fuel Subsidy
■ Diesel IDR4500 (Motorcycles, cars, and buses)
• Compared to unsubsidized IDR 12000
■ Premium (Unleaded 88) IDR4500
• Compared to unsubsidized IDR 9000 – 10.000
■ For Bio Fuel, government has to subsidized the difference in ethanol price and crude oil
• Depending on the crude oil price, the government will have to spend more money on
subsidy (ethanol and crude oil)

19
Ethanol Regulation
■ Ethanol will not be a subject for excise if its used as a raw material to produce goods that
is subject to excise (tobacco and liquor), this is to avoid double excise. Companies must
submit supporting documents to be evaluated and approved
■ Manufactures that use ethanol for raw material such as cosmetics, pharmaceuticals,
perfume, etc, can apply for excise exemption to the government. Companies must also
submit supporting documents that needs to be evaluated and approved
■ Other users that is not in these groups, must pay excise of (IDR20.000/liter)
■ Ethanol factories, ethanol bonded warehouse, and ethanol retailers must get a license
from the customs to operate.
■ Each month, factories, bonded warehouse, retailers, and ethanol users that get excise
exemption and free of excise must submit reporting documents to the customs.
■ These are all subject to audit by the customs official

20
Ethanol Distribution
■ Denatured Ethanol:
• As a raw material to producers that produce goods that is not subject to excise (Non
edible)
– Cosmetics
– Printing ink
– Textile raw material
• Ethanol must be denatured in the factory or ethanol bonded warehouse. During
denaturing process, the custom officer must supervise and approve the process
• Distributing denatured ethanol should be covered by excise documents
■ Undenatured Ethanol:
• As a raw material to producers that produce goods that is subject to excise
– Retail
– Others
• As a raw material to producers that gets excise exemption
– Tobacco (excise free)
– Liquor (excise free)
– Pharmaceutical (exemption)
– Mouthwash (exemption)
• Distributing undenatured ethanol must be covered by excise documents

21
Indonesia is an archipelago of over 13,000 islands and ranks
fourth in population size with about 250 million
General Information of Indonesia
Key facts
Sumatera
BRUNEI

• ~35% Land density(1)

MALAYSIA
Sulawesi • Budget deficit: ~2% of GDP
Kalimantan
• Religion:
Papua
‒ Muslim: 85.1%
‒ Christian Protestant: 9.2%
‒ Catholic: 3.5%
INDONESIA ‒ Hindu: 1.8%
‒ Buddha: 0.4%
‒ Konghucu: <0.1%
Total population, Million people
19.3%
17.2%
• Language: Bahasa Indonesia
• Male/Female ratio: 1.01x (range from
0.94-1.12)
1,337 1,189 • Population density: 124 people/km2
4.5% 3.5% 2.9%
• Mean year of schooling: 13-18 years
2.7% 2.3% 2.2% 2.0% 1.8%
313 246 203 187 159 155
(2009)
139 126
• Literacy rate: 92.37% of total
Brazil
China

India

Indonesia

Russia

Japan
Bangladesh
Pakistan

Nigeria
United States

population (2010)
• Poverty level: 13.33% (2010)
• Ranked 124th in Human Development
index 2011 (increase 1 point from
CAGR 0.5% 1.7% 1% 1.3% 1.2% 2.2% 1.6% 2.1% -0.3% 0%
(2000-2010) 2010)

1. Land density is the area of land/ (area of land+ area of sea), US Census Bureau, CIA World Factbook, EIU, UNDP Human Development
report
Source: BPS 2010 22
Greater Jakarta (known as ‘Jabodetabek’) alone contributes to
~35% of the ‘Urban Center’ population
Urban population and top cities high income segmentation

2015 top 20 cities population, million 2010 Top 20 cities population, million(2)

Greater Jakarta Total population for top 20 cities, million

Top 20 cities/urban population, %
50.3
10.4
Top 20 cities: ~40 million
75% of "Urban Center(1)" population 100 98 35%
3.2
31%
2.7
2.5 30%
2.4 80 25% 73
25%
1.8 1.8 25% 21%
1.6 1.6 60
1.4 17% 20%
1.1 1.1 1.1
1.0 0.9 42
0.9 40 38 15%
0.7 0.7 0.7 0.7 32
10%
20
5%
Bogor

Padang
Surabaya

Semarang

Palembang

Denpasar
Bandung

Makassar

Malang
Bandar Lampung

Urban Center4
Jakarta

Tangerang
Medan

Pekanbaru

Samarinda

Banjarmasin

Tasikmalaya
Depok
Bekasi

Batam

0 0%
Indonesia Russia Brazil India China

Top 20 cities in Indonesia contribute to approximately equivalent to Russia and Brazil

1. Urban centers is top 66 cities based on population and GDP/capita as defined by retail market
2. Indonesia top cities population is in 2015
Sources: EIU, BPS, A.T. Kearney Indonesian Market Model, A.T. Kearney analysis 23
Indonesia has become one of the world’s most successful
transitions to democracy and will remain stable
Political progression

1968-1998 1998-1999 1999-2001 2001-2004 2004-2014 2014 onward

Centralized Limited Put in place 1st directly

Introduction Expected to
and military- progress in 1st direct elected
of political remain
dominated addressing presidential president by
reforms democratic
government problems election public

Focus of current government

 Elected president: Soesilo Bambang Yudhoyono
 Rebuilt international image of Indonesia, put in place reformist policy with a
balanced open market, enhance competitiveness in the global market
 Indonesian Vision 2030:
Becoming #5 economy in the world, with GDP per capita of USD 18,000
Optimize natural resources
Shared distribution of wealth
30 companies in Fortune 500

Source: Secondary research 24

High diversity of ethnic groups with a vast majority of Muslims
but where minority ethnically Chinese ~30% of total wealth

Ethnic profile
Population by Ethnicity1 Key Highlights
(% of Total)
 More than 300 ethnic groups, most are
~240 million native Indonesian ethnicity
Others  Groups concentrated in certain regions ,
29%
majority groups are Muslim
Javanese  Limited communal hostility
42%
 Some dis-harmony between native
Indonesians and small minority of Ethnic
Batak Chinese population
3%
Madurese  Chinese-Indonesians have significantly
3% higher per capita income than other
Chinese
4% groups; estimated to control between
Malay
Sundanese 20 – 30% of total wealth
4%
15%

1. Reported in 2009
Source: Secondary research 25
 Large youth and productive segment which will fuel rapid
economic growth (the ‘demographic dividend’)
Population and demographic profile
Indonesia China India
Population Population growth
(Mn) faster than China,
expected to be 285 0.6% 1.5%
+1.1% million by 2030 1,292
1,297 1,312 1,328 1,342 1,349 1,148 1,184 1,220 1,256
238 243 248 253 258

2008 2010 2012 2014 2016 2008 2010 2012 2014 2016 2008 2010 2012 2014 2016
Age Pyramid
Age 2010 % of Total 2010 % of Total 2010 % of Total
Groups Population = 243 Mn Population Population = 1.3 Bn Population Population = 1.2 Bn Population

95+ 0.0% 0.0% 0.0%

85-94
83mn 0.3% 0.5% 0.2%
75-84 youth, 1.7% 2.5% 1.5%
65-74 similar % 4.1% 5.2% 3.8%
55-64 as India 6.6% 10.0% 6.4%
45-54 11.1% 13.3% 9.7%
35-44 14.4% 17.7% 13.4%
25-34 16.7% 14.4% 16.0%
15-24 17.4% 16.8% 18.3%
0-14 27.7% 19.6% 30.7%
Source: Economist Intelligence Unit 26
Compared to BRIC countries, Indonesia’s FDI is relatively
small, but there is ample indication of further growth
Total Foreign Direct Investments across Indonesia and BRIC
Total Inward Foreign Direct Investment Key Insights
€ Bn CAGR  Robust growth in Indonesia
140 China
’00-’10 inward FDI in recent years
120 Brazil
62%
due to increasing
Russia attractiveness as a foreign
100 India investment destination
Indonesia
80  Compared to developing
60 country peers, Indonesia’s
87% FDI to GDP ratio remains
40 relatively low
17%
20 -31%  FDI is expected to play an
0 173% even bigger role in
Indonesia’s future, making
-202000 2002 2004 2006 2008 2010
up a greater % of GDP

Total Inward FDI as % of GDP

3.1% 2.9% 2.3% 1.9% 1.4% 1.3%
0.5%

China Russia Brazil Indonesia India France Italy

Sources: EIU 27
Singapore and Japan are leading the investment inflows into
Indonesia while European inflows have reduced
FDI Inflows by Country
Key Insights
€ Bn
 Singapore and Japan are Indonesia’s biggest investors
 Singapore
6.0 9.5 • Multinationals choosing to invest in Indonesia through
6% Singapore
19% Other
• Region/ Country common service arrangements
19% Europe
2% 3% China  Japan
4% 3% Korea • Japan Credit Rating Agency, Ltd. (JCR) raised Indonesia’s
3% 4%
US rating to investment grade in January 2010
• Investment has recently focused on infrastructure (mass
28% Japan rapid transportation: USD20Bn until 2020), geothermal
41% power plants and smelters
 Europe
• Typically invest in petroleum, textile, footwear and
pharmaceuticals
41% Singapore • 2010 drop in investment attributed to the slowdown in
19%
Europe, perceived to be a blip in trade
• Indonesia remains EU’s “strategic partner” with
9% “enormous” potential and future growth prospects
• In 2011 to date, EU is one of Indonesia’s top 3
2005 2010 investors with ~16% of inflows

Source: Bank Indonesia, World Bank, Jakarta Post, 28

GDP growth is healthy at ~6.5% raising GDP per capita (PPP
terms) to € 3,500 by 2015
GDP Per Capita for BRIC and Selected Europe Countries
GDP of Indonesia, PPP € Bn at 2005 prices
6.5%
5.2%
802 854 910
665 708 753
531 565 599 627
400 415 433 454 476 504

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP/capita of Indonesia, PPP € at 2005 prices

5.4%
3.9%
3,196 3,373 3,557
2,608 2,736 2,883 3,032
2,034 2,108 2,200 2,292 2,408 2,522
1,871 1,911 1,969

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2010 Real GDP, PPP € Bn at 2005 prices 2010 Real GDP/capita, PPP € at 2005 prices
CAGR
3.6% 10.5% 1.1% 7.7% 5.2% 0.2% 4.9% 4.8%
00-10
6.591 21.809 19.075
2.701 7.350 10.138
1.402 1.373 665 1.155 1.436 5.024 2.281 2.736 3.029
98

Brazil China France India Indonesia Italy Morocco Russia Brazil China France India Indonesia Italy Morocco Russia
Source: EIU 29
Growth driven by high private consumption and fixed
investments amidst more conducive economic environment
GDP drivers Economic environment
Private Consumption Inflation
(% of GDP1) Consumer Price Inflation China
China
(%)
58 61 India India
56 56
35 Indonesia Indonesia
34 15
11
10 6
2008 2011
5
Net Exports 5
0
(% of GDP1) China -5
8 India 2005 2006 2007 2008 2009 2010 2011
1 3 3
Indonesia
Credit
-5 -4
Domestic Credit2 China
2008 2011 (% of GDP) India
Fixed Investments Indonesia
150
(% of GDP1) China
49 India 100
41
32 32 32 Indonesia
28
50

0
2008 2011 2005 2006 2007 2008 2009 2010

1. Based on Nominal expenditure on GDP; (2) Domestic credit to private sector 30

Source: Economic Intelligence Unit, IMF, The World Bank
Indonesia is rich in natural resources and exports commodities
like palm oil, rubber and coal
Natural resources and commodities
Indonesia’s Standing in Natural Resources Indonesia Major Exports
Coal production1 (MT) Major exports
3,240 (in USD BN)

13.5
985 11.7
570 424 317 306

China US India Australia Russia Indonesia 7.4

Palm Oil1 Rubber production1

(% of world output) (in ‘000 MT)
21% 3,072
18% 2,843
Palm Oil Coal2 Rubber

970  Natural resources contribute ~45% of Indonesia’s

845 total exports3
 In comparison, they contribute ~20% to India’s
Indonesia Malaysia Thailand Indonesia Malaysia India and ~2% to China’s exports
1. Data for 2010; (2) Coal exports for 2009; (3) Includes ‘Natural rubber & similar gums, in primary forms’, ‘Metalliferous ores and metal
scrap’, ‘Mineral fuels, lubricants and related materials’ and ‘Gas, natural and manufactured’ UNCTAD categories, data for 2010
Source: EIU, Country analyst reports, US Dept. of State report 31