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Indonesia Infrastructure Summit: Building Successful Infrastructure Projects

   
Yeoh (left) sits down to dinner with Bakrie (centre) and Yudhoyono (right).

Jakarta, 18 January 2005

YTL group managing director, Tan Sri (Dr) Francis Yeoh was given the honour to deliver the Keynote Address at the Official Dinner Reception of the Indonesia Infrastructure Summit last night. This important summit attracted top global infrastructure titans eager to get a slice of the US$23 billion worth of projects on offer. H.E. President Susilo Bambang Yudhoyono was the guest of honour at the dinner hosted by Coordinating Minister for Economic Affairs, Aburizal Bakrie, the man who produced the brainchild to hold the Summit.

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Yeoh presented a paper on YTL’s experience on “Building Successful Infrastructure Projects”. As it is his wont, Yeoh decided to present his paper ‘off the cuff’ with the help of graphic and informative slides instead of the written text prepared. Yeoh said,” I could sound cerebral and intelligent by reading the text written for me by my wordsmiths, but I owe my old friend Pak Bakrie to a bit more. I want to share with you with an open heart our humble experiences in building world class infrastructure at ‘third world’ prices.”

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Yeoh stunned the audience with his powerful presentation and offered comprehensive solutions to build Indonesian infrastructure that attracted a huge applause. Both the President and the Minister were so impressed they wanted Yeoh’s presentation material for further reference.

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YTL Power International owns Jawa Power, the second-largest power plant in Indonesia.


   
Yeoh at a meeting with Bakrie.

Full text of the speech delivered by Tan Sri (Dr) Francis Yeoh:

 

FOR Mercy, Courage, Kindness, Mirth,

 

There is no measure upon earth.

 

Nay, they wither, root and stem,

 

If an end be set to them.

 

 

 

Overbrim and overflow,

 

If you own heart you would know;

 

For the spirit born to bless

 

Lives but in its own excess.

 

 

                                    Laurence Binyon, A Song, 1869.

 

Binyon, the British bard penned this song just fourteen years before the island of Krakatoa in the nearby Sunda Strait exploded in a world-changing cataclysm, and slid beneath the surface of the Indian Ocean.

 

Less than a month ago, all of our lives were changed by the tragic movements of the self-same tectonic plates that gave life to that mountain of fire that consumed many lives.

 

President Yudhoyono, Minister Bakrie, Mr. Wilson, Your Excellencies, Ladies and Gentlemen, may I say that it is an honour to be among you this evening – among you with the courage and determination to rebuild and persevere.

 

My family visited Aceh to understand what has happened to our brothers in northern Sumatra, and the vision is an awful one. But I am heartened to see you all here tonight. You are here to move forward with the vision of President Yudhoyono and his dedicated team, committed to move forward in building Indonesia – and to providing relief and hope to the victims of the horrible tsunamis that rent our lives apart just more than a fortnight ago.

 

YTL has stepped forward to join the tremendous outpouring of support for those hit by the tsunami. Our contributions to date have gone toward providing immediate relief. The Government of Indonesia deserves enormous credit for its work in this regard. And now, we turn our eyes toward the longer-term vision – building for the future of Indonesia.

 

Let me congratulate Minister Aburizal Bakrie and John Prasetio who conceptualised and organised this important Summit. We owe it to both of you, and to you, Mr. President, to understand what Indonesia’s infrastructure needs are, and to help you build the life lines of this great country.

 

I was asked to talk briefly tonight about the formula for building successful infrastructure projects. I am happy to fulfil that assignment and to try to craft these remarks in the context of Indonesia today. I promise to be brief.

 

Commitment

 

The key ingredient to success in doing business in Asia is commitment. YTL is committed to Indonesia. We have made a significant investment in Jawa Power, and we plan to extend our investments here.

 

I am bullish on Indonesia. This economy is poised for growth. Its macro economy has been stabilised. Its financial sector is rebounding and reforming. The Rupiah has established at a level that looks sustainable, inflation has been reduced to single digits, and foreign investment is poised to expand to move from its current position at less than 20 per cent of gross domestic product to return to its pre-crisis levels nearer to 40 per cent of GDP. Finally, Indonesia has outstanding leadership that will bring a high degree of political stability in the next several years, and beyond.

 

But to be honest, while those factors I listed below are necessary conditions, the real reason I am bullish on Indonesia is that my family and I have developed strong personal relationships here. We see that Indonesians are re-investing in their own country, and we are confident in the upward trajectory of the economy here.

 

Strategies for Success

 

When I speak about doing business in Asia to groups in Europe or the United States, I remind my friends that too often, companies rush into Asia to close a deal with a potential partner without connecting with the individuals who have built that organisation.

 

This model cannot work. In Asia, we put a premium on relationships, and we like to find commonalities with our business partners. This means respect – mutual respect and understanding at the local level. I like to say that we want to see your face before we see your contract.

 

My company will be building in Indonesia for decades to come, and we look forward to that opportunity to contribute, to become part of Indonesian society, and to put in our share. We are here for the long haul.

 

Moreover, we are pleased with the experience in our investment in Jawa Power. We are interested to invest more in infrastructure in Indonesia. During discussions today, we learned that Indonesia requires over US$150 billion in order to build the roads, ports, airports, water supply and power plants and other facilities it needs to prosper over the next 10 years.

 

Those are large numbers of required investment, and we know that over 60 per cent of that investment needs to come from the private sector. The good news is that you can demand and get quality performance at every level of your development here in Indonesia. Furthermore, you can do so at costs that make securing a profit achievable and sustainable.

 

The YTL Formula

 

For years, YTL has employed a development strategy that has worked very well in Asia. It has worked successfully whether we applied it to hotel and resort industries, transportation businesses or electric power generation.

 

Our first secret at YTL is: “Keep products affordable to your customer.” If people can afford to buy from you, then you will sell more products. Simple, right? The reverse is also important to understand. If your costs are so high that your product is too expensive, then your customers cannot afford you. This is a lesson that those of us who want to build infrastructure in Indonesia need to understand well.

 

In fact, as we studied the electric power market here, we saw that the pricing of the “product” in this case a kilowatt used by business and citizens was high due to the high-cost of deals structured to build the power plants that provided the output.

 

So, making your customers happy is a lesson that is especially true in the electric power sector. In a free enterprise, unregulated market, you will be hard-pressed to build a profitable private power plan in a developing nation by using strategies that work in developed countries. So my message is simple, adapt if you want to win and be profitable here in Indonesia.

 

Our recipe for success has been to find new and innovative ways to sharply reduce capital costs without sacrificing quality. And that is why our customers in Indonesia and Asia can afford our products, and it is a case of enlightened self interests.

 

We employ two key strategies to keep products affordable – and to keep ourselves profitable.

 

Think Global and Act Local

 

The first approach is developing creative financing using local lending institutions and borrowing in local currencies. Rather than working in dollars to finance our Malaysian projects, we financed our projects in ringgit. We did this to beat world-lending markets where conventional thinking (and lending!) is based on the foundational belief that developing world economies are inherently risky. They see government and economies rising and falling, and believe corruption is rampant.

 

So the conventional lenders come with a built in bias – perceived risk – and they price their money accordingly. Their money tends to be nervous. So to accelerate repayment of their capital, they build in a hedge or margin. This comes in the form or more costly money, or loans with a higher interest rate in Asian countries like Indonesia. This drives up costs, and reduces profitability – even puts into question the very viability – of infrastructure projects in Asia.

 

We at YTL beat this cycle of cost escalation by understanding local risk – again through strong commitment and close relationships with local colleagues and organisations – and financing with locally minded lenders and local currencies. We created the first long term Ringgit bond in Malaysia. We also invented the IPC Listing Category in the Kuala Lumpur Stock Exchange to fast track our seeking of funds from global investors and we succeeded! We raised US$800 million and retired our floating debt and that improved our profits tremendously.

 

Our second approach is another simple dictum: “Build for less so you can borrow less”.

 

When we sought capital funding to build our first two power plants in Malaysia in the 1990’s, we started by designing a plant that was 40 per cent less to build. Our people know construction, they know the market, and they sustain relationships with reliable subcontractors. We borrowed from Malaysian banks in Malaysian currency. The Malaysian central bank, Bank Negara was particularly supportive of this innovative approach. We were the first IPP to be funded in this manner in Asia. We ended up by putting a tremendously successful project into operation.

 

Indonesia is ready for this type of development in its infrastructure sector. That is why I am so confident about the country and about the opportunities we are here reviewing in the next couple days.

 

Let me close by saying again what a privilege it is for me to be here with you tonight. May we all have the courage and vision to support President Yudhoyono and his countrymen in their quest to bring growth and prosperity to all Indonesians. We here tonight, we builders, know that a strong infrastructure is the key to sustained and vibrant growth for Indonesia.

 

Finally, I would like to thank our Good Lord for blessing our investment in this country and I thank you Mr President and all the Indonesian Authorities for welcoming our investment. I will continue to pray that God will bless this beautiful country, your leaders and all Indonesians.

 

Remarks delivered by

Tan Sri (Dr) Francis Yeoh

Managing Director, YTL Corporation Berhad

Presented to the

Indonesian Infrastructure Summit 2005

on January 17, 2005

at The Shangri-La Hotel, Jakarta


Correction:
Tan Sri (Dr) Francis Yeoh is the Managing Director at YTL Corporation Berhad.
We a
pologise for any inconvenience caused by the error.



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