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Indonesia Kerosene to LPG Conversion Program
The Story Behind
Pre-Conference Workshop Clean Cooking FuelIstanbul, 16 - 17 June 2008
Wahyudin Akbar –VP Fuel Marketing West Java [email protected]
p. 2
Agenda
1. Kerosene to LPG Conversion Program
2. Jakarta Success Story
3. Improvements to be Made
p. 3
INDONESIA KEROSENE TO LPG CONVERSION PROGRAMTHE 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
…. 2007 backwards
1,1
9,9
Kero LPG
• 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.
2007 - 2009
2,75,8
Kero LPG
• 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• 4 Million KL of Kerosene will be withdrawn.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.
2010 onwards …
• LPG will be the main cooking
fuel with estimated total volume 3.5 Ton/year.
• 6 Million KL of Kerosene will be withdrawn.
3,5
3,9
Kero LPG
Orange and part of Yellow area will be converted on 2009 with 18 million packages will be deliver
p. 4
THE JOURNEY HAS NOT BEEN SO EASYWE ARE FACING DIFFERENT CONCERNS
2007 - 2009
2,75,8
Kero LPG
• 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• 4 Million KL of Kerosene will be withdrawn.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.
…. 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 usage2. Cheap energy3. Always available
Retailer’s concerns…. 1. Margin2. Less investment
Opposite Party
Student
Movement
Local media senior editors
Local business
community & trade
associations
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 usage2. Cheap energy3. Always available
Retailer’s concerns…. 1. Margin2. Less investment
THE JOURNEY HAS NOT BEEN SO EASYTHE GAP POTENTIALLY MAKE THE PROGRAM GOES INTO FAILURE
The GapThe Gap
As single appointed public company to execute the program
Lack of resource & Infrastructure
capability
2nd 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
T
he Gap
The Gap
The Gap
The Gap
Various interest to keep kerosene
Household & Small Middle Enterprise (SME) concern….
p. 6
ACTION TAKEN TO MINIMIZE THE GAPTHE THREE MAIN VALUE CREATIONS
Distribution Process
2007 2008 2009
LPG Needed
64 1,144 2,706
Storage
10,000 MT (Eretan)
80,000 MT (Jabar & Jatim)
Pressurized:
30,000 MT
Refrigerated:
240,000 MT
(Jawa)
Filling
Station
- 29 121
Skid Tank
98 350 486
LPG Truck
355 1,491 2,034
Build our capabilities1 2
4 steps1. 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 Activities3
Free Initial Package 3 kg LPG
Govt. Leaders Endorsement
Socialization & Product Activation
Understanding stakeholdersEspecially end user through research and govt. through involvement.
Incentive and loan scheme for retailersIncrease margin, cylinder consignment, provide loan through CSR
p. 7
Agenda
1. Kerosene to LPG Conversion Program
2. Jakarta Success Story
3. Improvements to be Made
p. 8
JAKARTA AS LANDMARK OF INDONESIA
• Kerosene allocation for Jakarta was very high 3.200 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 2nd largest contribution to inflation during kerosene withdrawal period.
BEFORE CONVERSION POST CONVERSION
Distribution & Kerosene Withdrawal Process
Build our capabilities1
2
Marketing Activities3
• End of April 2008 Distribution is completed. 2nd week of May 2008 all the kerosene allocation in Jakarta have been withdrawn.
• LPG Refill up to 6% HH & SME/day at the 1st 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
p. 9
RECENT SURVEY* SHOWS LPG ADMITTED SIGNIFICANTLY AS BETTER FUEL
Post Conversion survey Household Mobile SME Fixed SME
99%
1%
0%
much more economical
more economical
Not sure
100%
0%
0%
muchcleaner
cleaner
Not sure
99%
1%
0%
much more practical
more practical
Not sure
95%
5%
0%
much faster
faster
Not sure
0,0%
0,0%
100%
4,1%
0,0%
96%
2,0%
0,0%
98%
2,0%
0,0%
98%
4,1%
0,0%
96%
0,0%
0,0%
100%
2,0%
0,0%
98%
2,0%
0,0%
98%
Fast
Easy to use
Cleanliness
Economical
Fast
Easy to use
Cleanliness
Economical
0% 5%
95%
Yes No I Doubt
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
p. 10
Agenda
1. Kerosene to LPG Conversion Program
2. Jakarta Success Story
3. Improvements to be Made
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.
Issues1
2
3
Financing scheme for
retailers– Make the cylinder as the warranty to be offset by their margin.– Financing could use CSR.
.
4
Details
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
Initiative1
3
4
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
p. 13
Thank you…