How has PT PAL evolved over the years since it was established by the Indonesian government in 1980?
When
PT PAL Indonesia was established in 1980, our main line of business was shipbuilding with a focus on the repair and maintenance of vessels.
We also wanted to begin a new shipbuilding program, but at that time our technical knowledge was limited. Therefore, we decided to establish strategic partnerships with leading international companies in order to facilitate knowledge and technology transfer.
In 1985, we started collaborating with a German shipbuilding company called Lurssen Werft, to learn how to design and manufacture the 57m Fast Patrol Boats (FPB-57).
We sent our employees to Germany to get them trained in design, project management and production. As a result of this collaboration we have produced twelve FPB-57 ships and this vessel became one of PT PAL’s core military products.
Since we started manufacturing the FPB-57 on our own, we have continuously carried out research and worked to find the best design to meet the demands of the Indonesian Navy. At the same time we have been expanding our knowledge base and improving our capabilities.
Today we are proud to say that based on our past experience, we now have the ability to produce a 60m Fast Patrol Boat (KCR-60), which is 100% designed and made by PT PAL Indonesia.
In 2010, we presented the design of our first KCR-60 to the Ministry of Defense. At the end of 2011, the Indonesian Navy awarded us a contract to build three KCR-60 vessels, in line with the Government’s policy to procure military equipment made in Indonesia.
Following this, in December 2013 we officially launched our first KCR-60 vessel. There is a big difference between the production of military and commercial vessels, as the testing and commissioning of military vessels takes much longer. We are currently in the testing and commissioning stage and our first KCR-60 should be ready for delivery in April 2014.
Indonesia consists of more than 17,000 islands with a land area is very small (1,904,443 km2) compared to its sea area (3,116,163 km2). Due to the particular geographic characteristics of our archipelago there is a strong demand for high-speed small vessels.
In the future, the Indonesian Navy will need many more KCR-60, probably even up to 100 vessels. Depending on our financial capabilities, this will be a great opportunity for PT PAL Indonesia.
Now that we have the expertise and knowledge base to build these vessels, we have the ability to improve the ships further and undertake further development on our own.
Currently, PT PAL has two dry docks – the smaller one in the naval ship division, and a larger one in merchant ship division. There is also a floating dock. What are capacity does each of these facilities have?
The smaller dry dock has a capacity of 20,000 deadweight tons (DWT), while the bigger one has the capacity of 50,000 DWT. In addition to that, in conjunction with our military projects we have another facility called the “synchrolift”.
Warships, especially fast patrol boats, are mainly built from aluminum - a light metal. The production process of the aluminum boats has to take place in a covered facility, which is similar to a hangar. It is important to design the facility in accordance with its purpose.
PT PAL Indonesia is capable of producing the best vessels because we have a high quality covered facility, transfer area, and a specialized “ship-lift”, which we use to launch the ships into the water once they are finished.
In February 2012, the Government appointed a new Board of Directors and allocated 150 billion Rupiah to revitalize PT PAL’s production facilities and modernize its equipment. What are the implications of this transformation that the company is currently undergoing?
Up until 2012, before the new management was appointed, the financial performance of the company was negative. Our facilities were outdated and the majority of the equipment could not be used for production, as it has not been maintained for years.
To improve a situation like that was not easy, so we planned our strategy in three steps. The first step was the Survival Phase from 2012 to 2013. In 2013-2014 we entered then entered the Stability Phase. Starting from 2015, PT Pal will begin the Growth Phase. To implement this strategy, we needed financial support from the Government.
In 2012, we received 1.2 trillion Rupiah from the Government, out of which about 335 billion Rupiah were allocated for the upgrade of our facilities. We identified two main purposes for the investment of the Government’s funds.
The first objective was to renew and upgrade our existing facilities, and later on to ensure their adequate maintenance. The second purpose was to utilize the Government’s financial support as working capital.
The cash flow is very important in our business. In terms of business strategy, the best way to get the necessary fast cash flow is to focus on the repairing and maintenance activities by using our existing facilities. Unfortunately, in 2012 our facilities were not even ready for repair and maintenance activities.
It was a very difficult situation at that time. But even so, we tried to maximize our existing capacity and undertake some repair and maintenance work, while parallel to that we invested in improving and upgrading our production equipment.
Finally, very slowly, we started seeing the results. Things have been improving gradually since the implementation of the first phase. Now for example, our plasma cutting machine is in very good condition (almost 100%).
Other important facilities will be improved soon as well. Consequently we will be able to utilize these and implement more projects.
We are very happy as we are now able to finish the production of the first KCR-60 on time, which is a major achievement for PT PAL Indonesia.
PT PAL Indonesia manufactures both naval and merchant ships, however previously the company focused more on merchant ship construction. How is the company structured today now that PT PAL has been assigned the development and construction of naval vessels in line with the government led modernization of Indonesia’s military?
PT PAL Indonesia has 4 business lines: the first is the merchant ships division; the second is the warships division; the third is repair and maintenance; and the fourth is the general engineering division.
We continuously strive to develop the four divisions. However, up until February 2012, some projects in the merchant ships division were having difficulties. Many contracts could not be completed, which eventually affected the operations of the entire company and made things very difficult for us.
At the same time, the Government vowed to revitalize the country’s military industry and modernize the equipment of the Indonesian army.
As a result of this, military spending with a particular focus on the domestic strategic industries was made a priority. Under the 2012 Defense Law pushed by President Yudhoyono, it has been stated that the Indonesian military should buy all its weaponry locally, with some exceptions, from domestic state-owned and private contractors.
Even though PT PAL was having difficulties at that time, we were the only company with enough experience and capabilities in engineering, production and procurement to fulfill the Government’s need in the maritime industry.
That is why the Government gave us the order to support the Defense Ministry’s 2010-2014 Minimum Essential Force Strategy and focus on the construction of warships and submarines in order to ensure the independence and sovereignty of our country.
In addition to the three KCR-60 vessels, the Government awarded you another contract to build a 105m warship, the PKR. What are the specifics of this vessel and what does it signify for PT PAL?
PT PAL was assigned to construct the 105m Guided Missile Escort, called the PKR-Frigate Class. In order to be able to deliver this contract, we had to establish a joint cooperation with a strategic partner.
After long negotiations, we finally signed a contract with the Dutch company - Damen Schelde Naval Shipbuilding (DSNS). We are very happy with this partnership and the first steel cutting took place on January 15th, 2014.
The PKR is a very complex and sophisticated vessel, which consists of six modules. According to our agreement, two modules will be built in the DSNS shipyard in Netherlands, while the remaining four modules will be built in our shipyard in Surabaya. At the end, the six modules will be fully integrated and tested in Surabaya.
This is a very important strategic decision, as it will allow our employees to learn how to build a very complex and sophisticated vessel.
Even though the ship will not be entirely built in Indonesia, PT PAL will produce the majority of the modules and the final assembly will take place in our plant in Surabaya.
Our goal is to obtain the expertise and experience in the manufacturing of these first PKRs, so that we can then produce the next vessels entirely on our own in Indonesia.
Therefore, we dispatched 75 PT PAL engineers to DSNS in the Netherlands to learn about design, project management, production, procurement and the quality control process. In the meantime, another 100 technicians and experts are studying here in Surabaya to be prepared for the execution of the project here in Indonesia.
We want to complete the PKR-Frigate Class without any delay. We have the motto: ”One team, one goal”.
What other naval projects are you currently working on?
On 23rd January 2014, PT PAL signed a new contract with the Philippine Navy, to construct two warships called Strategic Sealift Vessels (SSV). In order to get this contract we used the same strategy as we did with the KCR-60. Back then, we received training and knowledge from our German partners for the construction of the FPB-57. We then we used that experience to manufacture the KCR-60 on our own.
Similarly to that, in 2010, the Indonesia’s Ministry of Defense signed a contract with South Korea to build four Landing Platform Dock ships (LPD). According to that contract, two out of the four vessels were mandated to be built in Indonesia by PT PAL. This gave our engineers the opportunity to learn about the production procedures and gain valuable experience through this project.
As a result, when the Philippine government opened an international tender to build warships similar to LPD, we already had the knowhow and we were able to win the tender. PT PAL won the tender because we offered the best proposal in terms of price and quality. Our experience will guarantee that we are successful in the delivery of this contract.
The SSV project is the biggest project contracted by the Philippine Navy. It is a strategic project between two nations and we have received strong support from the Chief of Staff of the Indonesian Navy, Admiral Marsetio, in obtaining this contract. At the moment we are preparing to start construction. Shortly we will receive the notification to proceed, meaning that we can start to work. The delivery of both vessels is planned for 34 months from the effective date of the contract.
In conclusion, PT PAL Indonesia today is a completely different company than the one it was three years ago. We have three very important contracts and we look forward to delivering them on time.
The Indonesian Navy currently has only two submarines, which were acquired from Germany. The Defense Ministry is negotiating the procurement of additional submarines from Russia and South Korea, while PT PAL has been appointed to build three U-209 submarines in collaboration with South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME). What are the main benefits of this strategic partnership and how is the manufacturing of submarines progressing?
Our experience with submarines started in 1995, when PT PAL completed an overhaul of two existing submarines purchased from Germany - KRI Cakra and KRI Nanggala.
The last overhaul was done in South Korea and PT PAL sent 200 engineers to DSME to facilitate knowledge transfer. In addition to that, a South Korean consultant and expert in submarine construction also supported us.
In 2012, the Indonesian Government ordered three new U-209 submarines from South Korea’s DSME, which had to be produced in cooperation with PT PAL Indonesia.
The government has indicated that we will receive $250 million in order to make this project a reality. Out of this $150 million will be spent on shipyard construction and $70 million will be dedicated to personnel related costs. Two of these submarines will be built completely in South Korea, while the third one will be manufactured entirely in Indonesia.
Once again, this was a strategic decision aimed to prepare Indonesia to build its own submarines domestically.
We are planning to gradually send 200 engineers to DSME, while another 250 engineers will be trained here in Surabaya. Depending on the schedule of the different stages of the project, different engineers will be traveling to DSME to learn about the design, production management, quality assurance and logistics.
In parallel to that, we have to prepare the facility in Surabaya with the capacity to build submarines. We are already in contact with a designer from South Korea for the submarine yard. We have signed the contract for the main equipment, while another contract is in the tender process.
In March 2014, we plan to launch a tender for the workshop facility. By the end of this year, the facility for the construction of the third submarine in Indonesia should be ready. In January 2015, we will start the first steel cutting for the third submarine.
The two submarines made in South Korea should be delivered in 2017, while the third one built in Indonesia is scheduled for 2018.
How important is the general engineering division for PT PAL Indonesia’s operations?
We have high expectations for this line of business, especially in the oil & gas industry. Ever since we started the general engineering division, we worked to master the technology needed to produce support components for power plants and offshore structures, like boilers and heat exchangers.
This division has been continuously striving to improve its capabilities and innovate.
As a result, we have developed the ability to construct on our own offshore structures for oil & gas exploration. This development goes in line with the Government’s program and growing demand in the oil & gas industry. In the past, when foreign investors were coming into our country, there was no support from the local industries until PT PAL got involved in the business.
Nowadays, we can take part in the construction of offshore structures for companies like Petronas (Malaysia), Santos (Australia), CNOOC (China), and Pertamina (Indonesia). We can also benefit from the opportunities in our oil and gas industry. The total value of these type of projects is high, usually over $100 million.
However, we still do not have the capability to do everything on our own.
We can construct the offshore structure, but when it comes to installation at sea, we have to cooperate with other companies. As a result we work as a joint partner in these projects. Nevertheless, we hope that in the future we will be able to undertake the entire project on our own, starting from engineering and production, up until the final installation at sea.
How did the transformation of the company affect PT PAL’s employment strategy and human resources development?
Currently we have 1,300 permanent employees. They are divided into four divisions: design, production, engineering, and the supporting divisions such as finance, HSE (Health-Safety-Environment) and human resources development. About 60% of our total workforce consists of direct employees, while the remaining 40% are subcontractors for specific projects.
In general our strategy is to do as much as possible on our own, in-house. However, we cannot cover all the activities ourselves, so we hire subcontractors and outsource third parties for the secondary activities, while PT PAL focuses on the main competencies. For example, the construction of the submarine is entirely done by PT PAL employees because it is a strategic project. However, when we do ship repair projects, subcontractors do almost all the work.
Up until 2012, the situation in PT PAL was very difficult. Our financial reports were negative for more than 5 years. Even banks lost trust in our company, because we were not able to run the business. But we were committed to maintain our people and be responsible to our workforce.
The first positive result started showing little by little in 2012. The strategy of the new Board of Directors proved to be good and PT PAL entered the Stability Phase in 2013. This positive trend is also noticeable in our financial reports. We hope to regain the trust of the banks soon and look forward to entering the Growth Phase in 2015.
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