Can New Regime Be Able to Tackle Any IPC Burdensome Bottlenecks?

By: Harijanto, Executive Director of Himpunan Masyarakat Peduli Maritim

It has been one week the PT Pelabuhan Indonesia II/IPC led by new direction board, following the decision of IPC shareholder, the Ministry of State-Owned Enterprises (SOEs Ministry) on March 2. Through its decision letter SK-69/MBU/03/2020 dated March 2, 2020, SOEs Ministry appointed Arif Suhartono to chair this Indonesia’s leading port operator, the President Director of Pelindo II/IPC. Congratulations! Hopefully, he can lead IPC toward a World Class Port operator!

It is surely not easy. The new direction boards will face complicated problems. They are burdened with some unfinished programs of its earlier regime and some tasks to support the government programs relating the country’s maritime potencies development plus high requests from its shareholder SOEs Ministry.

A strong leadership is needed. It requires a strong leader that can bring IPC to be a top company in port business, a leader that can create higher profit, and a leader that can achieve any targets. How success of a company is, depends on its leader.

Challenges, Problems Requiring Fast Solutions

New IPC direction board will face several burdensome tasks. It has to immediately compete the project of New Priok’s area 57-meter terminal, the unfinished area for NPCT1. This is to prevent IPC from penalty of Quarterly Site Rent (QSR).  IPC will get penalty of cutting 11% of USD14 million of QSR from NPCT1. In 2019, for example, IPC lost Rp72 billion, which was accounted from 11% rental fee cut. IPC lost USD 1.54 quarterly (of USD 14 million/QSR).

In 2019, total IPC loss from the penalty reached USD 6.16 million. Assuming that IPC will start the work soon and it needs 20 months for the project completion, there will be more potential loss of USD 10.27 million. The longer IPC will start the project, the higher loss it will get from the penalty. Let say the project will start in Q3 (July 2020). IPC will get additional loss of USD 3.08 million/2QSR, causing a total of USD 19.51 million (accounted from 2019) or more than Rp 273 billion ($1=Rp14,000).

In addition, the IPC new direction boards have to complete some strategic projects getting delayed, including completion of New Priok CT2 and CT3, and finalization of Kijing Terminal in West Kalimantan as well. Further, the new regime has to accelerate implementation of smart port concept since our ports are left behind compared to neighbor ports in ASEAN  and to realize the agenda Sustainable Development Goals (SDGs) 2015-2030.

In line with the country’s vision to be ‘a world maritime axis’, developing the ports and encouraging more investment in maritime sector are suggested. The vision and the SDGs agenda require that the maritime development is not only meant to create fluent flow of goods, but further to create a future sustainable economy and environment protection (ecology).

Some countries have actually adopted the concept for their port development, the smart port. The smart port combines economic and ecological aspects. In view of economy aspects, the adoption of information technology is expected to make the port is more innovative, more efficient, more transparent, and more expansive in its service coverage (total supply chain).   And relating the ecological aspects, a port should support the use of renewal energy and the energy which is environmentally friendly.

Facing those issues, new IPC direction boards should take fast response, otherwise, the ports will be left far behind the neighbor’s, especially the ones of Malaysia, Singapore, Thailand, China, and India.

In addition, some crucial issues of mapping Patimban port market penetration and prolong problem of dwelling time call for immediate actions. The others are how to follow up the recommendation of JICA’s (Japan International Cooperation Agency) study on Priok facilities and service. JICA study concludes that Tanjung Priok still lacks of berthing facilities and container yard (CY), high potential damage of cargoes during loading/unloading process, cargo theft, flood, and congestion inside the port area.

Beside those issues above, demand for organization restructuring has become a corridor talk following the policy of SOEs Ministry to simplify the organization of SOEs and human resources development.

Relating the human resources, the Ministry has clearly declared: definitely on the principle of ‘the right man on the right place’ (hard skill, soft skill, personality and experience). This will be applied to any level of the corporate. “My task is to make sure the principles of GCG (Good Corporate Governance) is running well,” SOEs Minister Erick Thohir said at the President Palace on Wednesday (January 15, 2020).

Erick also underlined that punishment and reward will be run. “If they (SOEs Directions) performed well, we give reward, if not, we appoint others to replace,” he said. Such a loud warning to force all SOEs direction board to cope with GCG.

The SOEs Minister Decision SK-315/MBU/12/2019 on restructuring the SOE’s subsidiary companies dated December 12, 2019, is also another new task for new IPC direction boards. “If a subsidiary does not give benefit while its business is not directly relating to its parent core business, just let it go. The SOE should take focus on its core business,” said SOEs Minister advisory staff Arya Sinulingga (December 13, 2019).

Those challenges, problems, and tasks above are arduous homework for new IPC direction board. Can the new IPC regime (direction boards) led by Arif Suhartono be able tackle them?

Portfolio Seems Promising

Arif Suhartono is not a new comer for IPC group. He has spent all his career for this group. In the level of direction board, his debut started with being the operation director for IPC’s subsidiary PT. MTI (Multi Terminal Indonesia), now being well-known as IPC Logistics after it was encouraged to focus on logistics business rather than terminal operator.

Arif once proposed to cut cost of container relocation (known as overbrengen or OB) from terminal to TPS (temporary station), in a bid to cut logistics cost. Though getting massive protest from OB players, but IPC management agreed and the government approved it. The OB tariff was down from Rp 4.8 million to 900 thousand/TEUs (twenty feet equivalent unit).

His capability in lobbying helped MTI to get more market. Even, the world’s leading container shipping Maersk once moved from JICT to MTI Terminal (Berth 009). This triggered a fantastic increase of MTI income, from usually Rp300-400 billion/year to Rp700 billion. Though it did not meet the target of Rp1 trillion, but it was a new income record for MTI.

Then, Arif was appointed to be the President Director of PT. PTP (IPC Multipurpose Terminal), an IPC subsidiary focusing on handling dry bulk, liquid bulk, multipurpose, bunkering, earlier handled by Tanjung Priok.

Tanjung Priok Port is a national barometer, handling over 50% of national cargoes and over 30% of non-oil gas cargoes. On his first year of operation PTP created income of Rp 464 billion and net income of Rp 96 billion.

After PTP, Arif moved to dredging company PT Pengerukan Indonesia (Rukindo). Arif was tasked to do restructuring of Rukindo management, preventing this company from further loss, event bankrupt.

Rukindo had long been running in loss, mostly due to unproductive (over aged) dredgers. Then, Rukindo replaced with new fleets, financed under scheme of Subsidiary Loan Agreement (SLA) from foreign funding sources, no more capital injection (PMP) from government.

Capital injection scheme, in line with the Government Regulation (PP) No 1/2008, is a government direct investment in supporting the infrastructure development and to create more opportunities in investment cooperation.

But, Rukindo preferred to choose SLA scheme in restructuring Rukindo. SLA scheme prerequisites Rukindo to prepare 30% of capital for procuring production facilities, while the remaining of 70% from loan. To meet 30% of the capital, Rukindo then sold out some of its dredgers. It also took another step, to run facilities under a joint business operation (KSU). The operation of its facilities, including its graving dock and workshop.

Under such management, Rukindo faced a more serious situation. Its liquidity was low with debt to vendors and dockyards reaching Rp 123 billion plus debt of payment to SLA, both loan capital and its interest.

To prevent this company from bankrupt, Ministry of state-owned enterprises (SOEs) tasked IPC to take over Rukindo. Rukindo then became a subsidiary of IPC through government regulation PP No 44/2013. IPC then took program of capital and operation restructuring.

For this restructuring program, Arif started it with organization restructuring and human resources rationalization. Some of Rukindo workforces were suggested to take early pension (silver shake hand), ‘in kind injection’ of capital from parent company IPC, optimizing asset, and building partnership with other dredging companies.

Rukindo was made to focus on dredging / reclamation, and ship repair (dockyard) as well. Of those effort, in 2016, Rukindo created a net profit of Rp15 billion.

The fourth key position Arif chaired in the IPC group was being President Director of IPC Port Developer (PT. PPI). He proved himself as a top negotiator. Arif also did restructuring for PPI in supporting this company to take focus on  port development, development of access to the port, and on property. In 2017 PPI created net profit of Rp70 billion, and then increased to Rp 110 billion  in 2018, thanks to such appropriate strategies.

The fifth debut of Arif was being Commercial Director of IPC. For this department, he did some breakthrough, collecting all key customers of IPC Group through IPC Marketing Outlook 2019. Over 100 key customers of IPC 12 branch ports and 17 subsidiaries took part in the event.

Some key customers joining the event included shipping lines of MSC, Evergreen, TMS Glory, Tanto Intim Line, SPIL, Maersk, RCL, Samudera Indonesia, PIL, KMTC, BEN Line, CK Line, dan Wan Hai and some from industries (Bogasari) and global port operators. Rianti Ang, CEO at Hutchison Ports Indonesia, Dhany Novianto, GM MSC Indonesia, and Budi Hikmat, Director of PT Bahana TCW Invesment Manajemen were some key players who specially shared their business views during the event.

In view of those track records and portfolios, shareholders, stakeholders, business players, and internal management are responding positively with the new IPC chairman and his direction boards. His extensive experience in port business is expectedly making IPC to be competitive in global market, more profitable, and able to realize the vision of smart port and world class port.

Harijanto, Executive Director of Himpunan Masyarakat Peduli Maritim

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