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Indonesia Kerosene to LPG Conversion Program The Story Behind Pre-Conference Workshop Clean Cooking Fuel Istanbul, 16 - 17 June 2008 Wahyudin Akbar –VP.

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Presentation on theme: "Indonesia Kerosene to LPG Conversion Program The Story Behind Pre-Conference Workshop Clean Cooking Fuel Istanbul, 16 - 17 June 2008 Wahyudin Akbar –VP."— Presentation transcript:

1 Indonesia Kerosene to LPG Conversion Program The Story Behind Pre-Conference Workshop Clean Cooking Fuel Istanbul, June 2008 Wahyudin Akbar –VP Fuel Marketing West Java Area

2 p. 2 Agenda 1.Kerosene to LPG Conversion Program 2.Jakarta Success Story 3.Improvements to be Made

3 p. 3 INDONESIA KEROSENE TO LPG CONVERSION PROGRAM THE SHIFTING JOURNEY Green area are targeted to finish on 2008, for about 20 million packages On 2007, 4 million packages have delivered to Java Island … backwards Kerosene is widely used by Indonesian Household (9.9 Million KL) and heavily subsidized by Govt. ( 4 billion USD/year). LPG only 10%, much expensive than subsidized kero at retail price Govt. Program: 42 Million LPG Conversion Packages will be distributed to eligible households. 4 Million KL of Kerosene will be withdrawn. Currently(June’08) 8 Million packages already distributed onwards … LPG will be the main cooking fuel with estimated total volume 3.5 Ton/year. 6 Million KL of Kerosene will be withdrawn. Orange and part of Yellow area will be converted on 2009 with 18 million packages will be deliver

4 p. 4 THE JOURNEY HAS NOT BEEN SO EASY WE ARE FACING DIFFERENT CONCERNS Million LPG Conversion Packages will be distributed to eligible households. 4 Million KL of Kerosene will be withdrawn. Currently(June’08) 8 Million packages already distributed. …. Govt. concerns : 1.Reduce Subsidy by 33 % : IDR 20 trillion (~ 2.2 billion USD) annually after program completion 2. Reallocating Kerosene to better/more profitable use such as jet fuel 3. Cleaner energy Household & Small Middle Enterprise (SME) concern…. 1. Comfortable usage 2. Cheap energy 3. Always available Retailer’s concerns…. 1. Margin 2. Less investment Opposite Party Student Movement Local media senior editors Local business community & trade associations

5 p. 5 …. Govt. concerns : 1.Reduce Subsidy by 33 % : IDR 20 trillion (~ 2.2 billion USD) annually after program completion 2. Reallocating Kerosene to better/more profitable use such as jet fuel 3. Cleaner energy 1. Comfortable usage 2. Cheap energy 3. Always available Retailer’s concerns…. 1. Margin 2. Less investment THE JOURNEY HAS NOT BEEN SO EASY THE GAP POTENTIALLY MAKE THE PROGRAM GOES INTO FAILURE The Gap As single appointed public company to execute the program Lack of resource & Infrastructure capability 2 nd largest contribution to inflation One of the biggest stake Already feel comfortable Many psychological barrier : Fear of explosion, lack of experience, expensive Less Margin and Financial Capability Unstable condition during transition period Maintain the margin Opposite Party Student Movement Local media senior editors Local business community & trade associations Various interest to support or against the Program The Gap Various interest to keep kerosene Household & Small Middle Enterprise (SME) concern….

6 p. 6 ACTION TAKEN TO MINIMIZE THE GAP THE THREE MAIN VALUE CREATIONS Distribution Process LPG Needed 641,1442,706 Storage 10,00 0 MT (Eret an) 80,000 MT (Jabar & Jatim) Pressuri zed: 30,000 MT Refriger ated: 240,000 MT (Jawa) Filling Station Skid Tank LPG Truck 3551,4912,034 Build our capabilities 12 4 steps 1.Survey : Determine area and eligible household. 2.Early Education: educate people, agents and retailers. 3.Distribution : Give one packages for free including first initial gas 4.Kerosene withdrawal : withdraw kerosene gradually start 50 % allocation and will increase later. Marketing Activities 3 Free Initial Package 3 kg LPG Govt. Leaders Endorsement Socialization & Product Activation Understanding stakeholders Especially end user through research and govt. through involvement. Incentive and loan scheme for retailers Increase margin, cylinder consignment, provide loan through CSR

7 p. 7 Agenda 1.Kerosene to LPG Conversion Program 2.Jakarta Success Story 3.Improvements to be Made

8 p. 8 JAKARTA AS LANDMARK OF INDONESIA Kerosene allocation for Jakarta was very high KL/day (Top 5). Targeted 2.1 million HH and SME. On May 2007, the program started with many refusal actions. Demonstrations arose everywhere due to asymmetry information. While the distribution of the initial packages were running, the kerosene price hike up to 150 % as 2 nd largest contribution to inflation during kerosene withdrawal period. BEFORE CONVERSION POST CONVERSION Distribution & Kerosene Withdrawal Process Build our capabilities 1 2 Marketing Activities 3 End of April 2008 Distribution is completed. 2 nd week of May 2008 all the kerosene allocation in Jakarta have been withdrawn. LPG Refill up to 6% HH & SME/day at the 1 st week of June 2008 and getting increase. For about 200 kerosene outlet are converted to LPG outlet. Pertamina sell non-subsidized Kerosene on 2 and 5 liters bottle at Pertamina Gas Station. The situation in Jakarta are very conducive, and the people are pleased to use LPG. What we do

9 p. 9 RECENT SURVEY* SHOWS LPG ADMITTED SIGNIFICANTLY AS BETTER FUEL Agree / Support to the Program We also gain more support to accomplish this program * Survey is conducted in Jakarta, June 1-2, 2008 involving 200 respondents, 100 HH, 50 Mobile SME, 50 Fixed SME two weeks after all kerosene withdrawn in Jakarta

10 p. 10 Agenda 1.Kerosene to LPG Conversion Program 2.Jakarta Success Story 3.Improvements to be Made

11 p. 11 KEY LEARNING & RECOMMENDATIONS… Institutional Environment Issues in Market Creation Inflation stabilization –Starting this program, Indonesia Govt. appoint directly capable public company/institutions who have capability to execute the program and avoid too much bureaucracy. They will perform as intermediary between Govt. and related target. –Understand your stakeholder e.g. involve related govt. both central and local to support the program. –If you are Regulator, support the executor with clear regulation. –If you are an executor, build your own capability first to raise your confidence. –Create your landmark by choosing narrow area but give the most significant impact for quick win. –Understanding your target. Overcome their obstacles such as give them initial package for free to end user. – Communicate the program effectively using early education and an integrated Marketing Communication. –Withdraw current fuel (e.g. kerosene) gradually but faster to make the pain only in short period. –Still provide current fuel available but unsubsidized. Issues Financing scheme for retailers –Make the cylinder as the warranty to be offset by their margin. –Financing could use CSR.. 4 Details

12 p. 12 NEXT STEP… Roll Out Plan Educate traditional kerosene stove Understanding SME –We will roll out this model of value creation in another area that has significant impact. –We intermediate high tech stove producer to educate traditional kerosene stove and give them new machine (through CSR) to produce gas stove. –We provide different stove for different kind of SME in upscale production Initiative Understanding the lowest level income household –Build community kitchen, Yogyakarta as the pilot project –Build mobile filling station to serve lower volume purchasing e.g. 0.5 kg.. 2 Details Regular stove High pressure Bigger Stove

13 p. 13 Thank you…


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