South Korea's SK sees a lot of potential in Indonesia

Ika Krismantari, The Jakarta Post, Jakarta

A high-ranking delegation of South Korea's third largest company SK led by chairman Tae Won Chey visited Indonesia recently to explore new business opportunities in the country.

Already engaged in 14 countries with its core business in energy and telecommunications, SK is committed to further strengthening its global presence.

With a workforce of about 25,000 employees, SK booked a total revenue of about 60 trillion won (about US$65.3 billion) at the end of 2005.

One of SK's subsidiaries, SK Corporation, which is the largest oil refiner in Korea, revealed recently a joint venture project with state oil and gas firm PT Pertamina to build a Lube Base Oil (LBO) facility in Pertamina's Dumai refinery in Riau at a cost of US$200 million. SK Corp. is also cooperating with Pertamina in a planned $1 billion expansion of the refinery.

At present, SK, in cooperation with Indonesian companies, is involved in chemical production and oil exploration activities in the country. The Jakarta Post talked with SK Corporation senior vice president Jeong Joon Yu recently to discuss about the company's expansion plans in Indonesia. Below are the excerpts of the interview.

Can you elaborate on your plans for the Dumai refinery plant?

Total investment will reach about $200 million by the time it is completed in 2008. The lubricants plant will produce 7,250 barrels of base oil per day.

We plan to export the lube products to other Asian countries, generating $200 million in foreign exchange revenue per year. (Pertamina later confirmed that lube oils from the Dumai refinery will be exported to the U.S. and Japan, where the demand for such products is high. 0f the total production, about 90 percent will be exported) How do you see your partnership with Pertamina?

Pertamina and SK are very complementary. We are making a high quality base oil with our own technology, while Pertamina has a lot of high quality conventional oil. So we can combine our strengths to penetrate the global market. In fact, I am optimistic that we can go global together. I know that Pertamina lacks global experience, but we can work on it together.

Pertamina is a great company, but we have a lot of things to do together for our common prosperity. Pertamina has changed a lot in terms of efficiency.

We have a parallel background. SK Corporation was like Pertamina 40 years ago. It was a government-owned company but now it has been privatized. In the process, we have made a lot of efforts for the past 20 years to make it more efficient. Pertamina might need to follow a similar path to make it a truly efficient company.

I think it's great that Pertamina is willing to improve its efficiency and is eager to make changes.

In our joint venture, SK will not only provide the technology, but we can both learn together in the process. Why did you decide to invest a country known for its notorious bureaucracy?

People might be surprised because despite all the difficulties, we managed to established the joint venture within a year. So there might be problems, but we see a future in this country which has a huge population and vast natural resources.

Actually the reason our chairman came to Indonesia this time is because he saw lot of opportunities in the country. He met a number of influential leaders during the visit. He is committed to investing not only in the energy sector but also in the telecommunications sector.

SK decided to invest more in Indonesia because the company sees that the Indonesia's energy sector and telecommunications, which have been developing enormously lately, are very much in line with the core business of SK. Are there any other business plans in addition to the Dumai refinery?

In this visit, we conducted a preliminary study to get fresh information on the business potential in Indonesia.

In the energy sector, we have already been involved in an active discussion on lubricant production and marketing, refinery efficiency optimization, bioenergy, oil exploration and production and trading.

With Pertamina, we have conducted a study about the refinery and petroleum sector. Depending on the result of the study, which is expected to come out early next March, we will decide if it is possible to add to our investment in the refinery operation.

We have already started a study on the telecommunications sector in the country. We are also doing some reviews in engineering construction and infrastructure development.

As you know, currently SK has two chemical plants in Indonesia, SK Keris and SK Fiber, which employ more than 1,000 local staff and have been operating successfully since the early 1990s. Beside that, SK Telecom, which is the largest telecommunication company in Korea, has supplied the telecommunication company Telkomsel, with ring-back tone application since 2004.

SK Engineering and Construction has also been awarded several projects to build plants, shopping malls and condominiums in Indonesia. SK will continue to seek strategic and mutually beneficial partnerships with other Indonesian companies as well as with the government.

I think we also have a very strong commitment to invest in the energy sector in Indonesia because once you make investment in that sector, there is no turning back. That is the nature of the industry and people are very cautious in making decisions because once you start, you have to be committed to a long-term plan.

We have two oil blocks in Indonesia, in Northeast Madura and in Bangko, Jambi. We hope to participate in other blocks in Indonesia.
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