Interview / November 2018

Expanding to International Markets

Indonesia has been aggressively targeting nontraditional markets for its products, especially those produced by the country's strategic industries, including state-owned train producer PT Industri Kereta Api, or INKA.

In an interview with Globe Asia at the Indonesian Pavilion on the sidelines of the 2018 International Monetary Fund-World Bank Group Annual Meetings in Nusa Dua, Bali, last month, INKA president director Budi Noviantoro spoke about the firm's expansion into the global market and its plan to boost its production capacity.

The 57-year old engineer, who took over the reins at INKA in January this year, previously served as director of logistics and business development at state-owned railway company Kereta Api Indonesia (KAI).

Here is an excerpt from the interview:

You said INKA's products are in demand abroad. Which countries?

For Bangladesh, this is our third purchase agreement. We are currently working on an order from Bangladesh for 250 passenger railroad cars. For the Philippines, we are in the middle of the production phase for four diesel-electric locomotives and 15 railroad cars. This is our third contract. Our two previous contracts were for 50 and 100 passenger cars, respectively. For Sri Lanka, we are in the process of supplying about 200 passenger cars. Bank Exim ‎[Indonesian Export Financing Agency, or LPEI] will assist us.

Can you elaborate on the new deal with your American partner?

We have signed a heads of agreement. INKA does not have adequate production capacity at its factory in Madiun, so we have bought land in Banyuwangi, also in East Java, to build a new plant. We received state funding, but that would not be enough, so we were looking for investors. One of them is Progress Rail, a subsidiary of Caterpillar from the United States, and which is a large locomotive producer. Progress Rail wants to join us to develop a new type of train for the Asian market.

How much will the US company invest, and how much do you need?

It has not been finalized yet. It is estimated to start at around $20 million. Our budget is Rp 1.4 trillion [$92 million], including machinery and equipment. We have Rp 500 billion right now. So we will build the first phase of the Banyuwangi factory. The US investor will come in for the second phase. Hopefully, we can start in 2020.

What is INKA's current production capacity?

In Madiun, we can currently produce between one and one and a half railroad cars per day and our target is to produce up to four per day once the Banyuwangi plant is completed. At the Madiun plant, we have purchase orders from KAI for 438 railroad cars that must be delivered this year. We are also producing railroad cars for the Greater Jakarta LRT network. We must now finish 250 cars for Bangladesh. So, we need the new Banyuwangi factory. Preparations for the start of construction of the Banyuwangi plant are currently underway. We are now waiting for the appointment of a building contractor. We should have the contract by the end of this year.

Why are those countries interested in buying railroad cars from INKA?

Firstly, we participated in open bidding processes and won. Why did we win? Because our prices are competitive. Because we have our own engineers. Engineers account for 15 percent of the total production cost. We have about 180 engineers who specialize in designing trains.

Which of your products are most in demand? When will the cars for the MRT be ready?

Passenger and LRT railroad cars, such as those we have built for the Palembang LRT. We also produce executive cars [sleeping cars]. They have seats similar to those found in Qatar Airways's business class – if you are familiar with that. What we have now are 18-seaters. We will build 26-seaters. For the LRT in Jakarta, we will build high-tech cars. Why? Because those trains will operate on autopilot.

The cars for the new MRT will be ready by April 2019.

What about international markets?

Over the next three to five years, domestic demand from KAI will be saturated, therefore we reached out to Bangladesh and other markets. I have visited Senegal, Cameroon and the Philippines. It seems that Mexico is also interested; Costa Rica as well.

Will you make railcars for the Trans-Sulawesi and Trans-Papua railways? What will it cost?

Of course we will.

It costs about $1.1 million for one LRT car. A train consists of three cars, so one set will be more or less $3.3 million. But for the LRT in Jakarta, it is more expensive, because the cars are equipped with machinery. Those cost around $1.5 million each.

What is INKA's profit forecast for this year?

For a strategic industry, it is not earning a lot. This year, we expect to earn Rp 82 billion. Maybe we can reach three digits next year.