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Upstream Operation
1. The Company provides FSO Floating, Storage and Offloading type vessels to store oil production output from offshore and onshore oil fields.
2. The Company’s vessels transport crude oil from Oil Fields or FSO vessels to the refineries. 3. The outputs from oil refineries are transported by the Company’s vessel to the next refineries to be
processed into fuels.
Downstream Operation
4. Fuel from the refineries is transported by the Company’s smaller vessels to oil depots which will be distributed to end consumers.
5. The by-products of oil refineries in the form of liquid gases are transported by the Company’s gas carrier vessels to LPG depot.
6. The by-products of oil refineries in the form of chemicals are transported by the Company’s chemical tankers to the customers.
7. The Company’s vessels also transport imported oil from outside Indonesia to refineries located in Indonesia.
In conclusion, the shipping operations carried out by the Company play a critical role in maintaining supply and ensuring the availability of oil and gas supply from production operational centres to the more advanced
production facilities such as refineries; and connecting the oil and gas distribution network to the end consumers who use the energy sources in daily life.
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The Company‟s Fleet As previously mentioned, the Company is currently operating 33 vessels of various types to support the vessel
chartering business. The various types of vessels owned and operated by the Company are explained below: Oil Tanker
The Company owns 18 tankers, 2 of which are VLCCs with large capacities up to 300,000 DWT. There are 2
types of oil tankers owned by the Company, i.e., crude tanker and product tanker. The capacities of oil tankers
owned by the Company range from 1,500 DWT – 300,000 DWT.
Several functions of oil tankers are as follows: - Transport unprocessed crude oil from processing
facilities to refineries. - Transport processed oil from refineries to the market.
Chemical Tanker Chemical tankers the Company owns 12 vessels are
vessels built to transport liquid chemicals. In average, this type of vessel has a dead weight tonnage between
4,000 metric tons up to 40,000 metric tons. These vessels generally transport chemical substances such
as sulphur, phosphor, CPO and others.
Gas Carrier The Company currently owns 1 gas carrier that is
normally used to transport LPG, LNG and chemical gas with a total capacity of 4,199 DWT.
FSO Carrier Floating, Storage, and Offloading Carrier are vessels;
used to oil and gas industries and offshore for processing hydrocarbon also for fuel storage. The
Company owns 2 FSO with capacity between 96.183 DWT and 47.100 DWT.
Each vessel operated by the Company has obtained several certifications and has undergone technical reviews in accordance with the international shipping industry standard, which are, among others, as follows:
1. Implementation of international shipping standard or International Safety Management ISM issued by
IMO International Maritime Organisation. The ISM has been audited on a periodical basis by the national shipping administration and has undergone review process by international classification bureau. The
classification process includes inspection of office environment for DOC Document of Compliance Certificate as well as on board of ships for SMC Certificate Safety Management Certificate.
2. The Company’s management has implemented Stage 2 OCIMF Oil Companies International Marine
Forum Standards regarding TMSA Tanker Management Self Assessment, which are acknowledged and
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accepted as a benchmark by the majority of oil companies in the world, such as, Shell, BP, Exxon Mobil and others. Several of the vessel charter agreements include clauses requiring the Company to undergo
audit and verification processes by the vessel user, i.e. the oil company in question. These processes have been carried out by ConocoPhillips.
3. Review process on management’s reliability on board of ships and the condition of the ships itself is
carried out by all oil companies in Ship Inspection Report Programme SIRE. 4.
All of the Company’s vessels have met the International classification requirements such as Lloyd Register LR, American Bureau of Shipping ABS, Det Norske Veritas DNV, Germanischer Lloyd GL, Nippon
Kaiji Kyokai NK, Biro Klasifikasi Indonesia BKI or others. In addition, all of the Company’s vessels have obtained the following certifications: International Load Line
Certificate, Cargo Ship Safety Construction Certificate, Certificate of Classification for Hull, International Tonnage Certificate, Certificate of Classification Machinery, Cargo Ship Safety Equipment Certificate and
other certificates.
5. The Company implements ISO 9001:2008 and ISO 14000 standards issued by International Organisation
for Standardisation for shipping quality and environment management system and OHSAS18001 issued by Occupational Health Safety Advisory Services for health and safety friendly work processes.
Vessel Chartering Activities In general, the process of vessel chartering is carried out through direct offering and negotiation or through
tenderbidding system. Vessel charter transactions are generally entered into using one of the charter methods, i.e., voyage charter or time charter.
The Company currently provides vessel chartering services to several world class oil companies, with PT Pertamina Persero as the largest contributor, since Pertamina is the company appointed by the Government of
Indonesia to process all oil and gas produced in Indonesia. All of the government share generally between 65 - 85, depending on the agreement with contractors of natural oil and gas are controlled by Pertamina. Therefore,
the majority of domestic oil and gas transportation market is dominated by Pertamina. Regardless of the above, the Company continues to diversify by taking the following steps:
1. Downstream: offering services to Pertamina’s stakeholdersoff takers, e.g., petrochemical factories such as
Chandra Asri, Indorama, Mitsubishi and others.
2. Upstream: offering oil and gas production support services such as FSO to government contractors such as
Conoco Pillips and others.
3. Import : providing services for imported crude oil and other products from overseas. 4. Palm Oil: providing services to palm oil industry players such as Wilmar, Golden Agri, Asian Agri and others.
Indonesia is currently the largest palm oil exporter in the world. Charter methods generally implemented by The Company to its customers are described below:
a. Cargo Transportation Voyage Charter
The Company transports cargoes that are specific in amount and nature from one place to another in accordance with the customer’s charterer’s requests. The calculation of charter fee is based on the amount and nature of the
cargoes being transported and the vessel’s travel distance. The customer then sets the vessel arrival date at the loading port, the estimated time required for cargo loading and unloading and the travel time. Under the scheme,
the charterer pays the Company a compensation for the charter fee and the Company bears all costs including the voyage costs, fuel costs, port costs, crew costs and other operating expenses. The Company’s total revenue
from the Spot Charter business model for the years 2011, 2012, 2013 and for the six months period ended 30 June 2014 were USD 20,353,255, USD 18,172,124, USD 40,801,995 and USD 12,493,191, respectively.
b. Vessel Charter Time Charter The Company provides vessel charter services to customers for an agreed period of time in return for a fee as
negotiated by both parties. During the charter period, the charterer is fully responsible for paying all the voyage costs, including fuels and port costs and agency fee. On the other hand, as the vessel owner, the Company is
responsible for the crew cost including daily needs, vessel maintenance cost, spare parts and other operating expenses, whereby all of the aforementioned costs have been taken into account in the charter fee agreed upon
by both parties. In certain contracts, such costs are charged to the charterers. In general, within a time charter scheme, the customer charters the vessel and crews and has full control for a certain period of time and has the
authority to direct the destination of the vessel and the type of cargoes to be transported. The calculation of vessel charter under this method is based on time. The Company’s total revenue from the time charter business
model for the years 2011, 2012, 2013 and for the 6 months period ended 30 June 2014 were USD 44,778,512, USD 52,783,473, USD 61,696,073 and USD 37,223,934, respectively.
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130 In general, there is no significant difference between the activities carried out by the Company’s employees in the
vessel charter transactions, both using the spot charter or time charter. As defined in the following flowchart, the Company will check the vessel availability and conduct physical inspection at the time a charter contract for
certain period is obtained. The vessel availability will also determine the Company’s management action, whether to purchase new vessels or allocate the available units.
In most cases, shipping companies will only invest in a new vessel when it is known for certain that the said company has won a tender for new vessel chartering services, considering the investment required to purchase a
vessel is generally very high, depending on the specification required. Certain agreements allow for a window period, which provides flexibility to the shipping companies, including the Company, to search for or purchase the
vessel to be chartered. The invoicing process of vessel charter fees depends on the charter method used for each contract. Vessel
charter fees for spotvoyage charter shall be settled by the charterer when the goodscargoes transported has arrived at the destination. However, charter fee for contracts under the time charter method will be billed
periodically in accordance with the contracts. The same applies for fuel, maintenance, repairs and overhaul costs. For spotvoyage charter the cost
components referred to above are borne by the Company, whereas under the time charter method such costs are charged to the charterer.
Vessel Chartering Process Flow
Source: The Company The Company currently provides vessel chartering services to several world class oil companies, with PT
Pertamina Persero as the largest contributor. However, the Company constantly strives to diversify its customers along with the increasing number of vessels in the future. The duration of vessel charter provided by
the Company starts from short term calculated per trip up to 10 years. The comparison of revenue composition between voyage charter and time charter has been discussed in Chapter V, Management’s Discussion and
Analysis.
The Company’s main operational area for vessel chartering activities include the Indonesian waters and several international routes such as South East Asia, India and Middle East.
a. Shipyard
In 2009, the Company established a Subsidiary, which focuses on the shipyard business, namely PT Multi Ocean Shipyard MOS in Tanjung Balai, Karimum, Riau Islands, providing Ship Maintenance, Repair and Overhauling
MRO and new shipbuilding in order to support integrated shipping business activities.
Geographically, the location of the Subsidiary in Tanjung Balai, Karimun, Riau Islands provides the
following advantages for the shipyard operational purposes:
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Source: The Company 1. Located in Malaka Strait, the busiest International
shipping lanes in the world, therefore provides convenience for ships requiring maintenance in the
shipyard, as they will not require significant amount of funds for mobilization and demobilization.
Therefore, it is more efficient in terms of time and cost;
2. The location of the shipyard is in close proximity to Singapore approximately 1.5 hours by ferry from
harbour front center, which has an advanced maritime industry, therefore the shipyard has
access to experienced contractors, from ship drawing designer contractors to sophisticated
repair works contractors such as various automation boiler contractors and others in
Singapore.
3. Located in the Free Trade Zone, thereby providing more incentive relating to custom and excise process to import goods and services of expert workers from other countries;
4. Total area of 219 hectares, with total coast line under control of the Company’s shipyard reaching 1.3 km, therefore providing access convenience for ships to moor; and
5. Depth of water draft of 12 meters, providing better ability to carry out MRO and New Building works for large-size vessels and easy entry to the shipyard. In comparison, the average draft of most shipyards in
Batam is between 5-6 meters. Although considerably new in operating a shipyard, the Company has the capabilities to carry out this line of
business professionally. It is demonstrated by the range of shipyard services offered to vessel owners, that is not limited to mere docking works, but also includes orders for shipbuilding or manufacturing of platforms used in
offshore oil and gas mining. An overview of the types and capacities of shipyard facilities owned by the Company up to the date of issuance of
this Prospectus is presented below:
Source: the Company
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International
132 Up to the date of issuance of this Prospectus, the Company’s shipyard has possessed the experience to build
new ships up to medium tanker with a capacity of 50,000 DWT. In addition, up to June 2014, the total Ground Crew employed by the Company to assist in the Shipyard business consisted of 125 employees.
The duration of MRO Works or new shipbuilding will be highly dependent on the specification of shipyard works to be carried out or the maintenance required. Presented below is the flow chart describing the process of new
shipbuilding:
Process Flow New Shipbuilding Works
Source: the Company
In general, the building works of a mid-size tanker up to a capacity of 17,500 DWT may take two years from the receipt of the order up to the delivery to the ship owner. To obtain new shipbuilding orders, shipyard owners
generally participate in the tender process held by the customer, for example Pertamina Persero. In this tender, the customer will evaluate various points concerning the expected technical capabilities, experience and the offer
price. The shipyard owner appointed as partner is selected solely based on the customer’s decision. The shipbuilding process is continued with ship designdrawingclass approval works and technical specification,
followed by selection of makerlistmachineryspecificationequipment, vendor for expert service provider and ship components provider. After the procurement process is complete, the construction process of fabrication,
assembling, and painting stages steel cutting, keel laying, launching and delivery will begin. Each stage of construction will be monitored inspected for conformity with the result of the predetermined specification. After
the construction is completed, the sea trial and commissioning will be prepared. If all the processes are successful, the completed ship will be handed over to the customer.
The construction stages of new shipbuilding new building are closely monitored by international classification agencies acclaimed worldwide, such as LR, GL, DNV, NK, BV and ABS in accordance with the world ship safety
regulationsstandards agreed by all classification agencies that are incorporated in the International Association of Classification Society IACS. Class monitoring starts from the design stage, which has to be approved by the
classification agencies and the implementation, starting from welding, raw materials such as steel, cable, machineries and others shall be certified by classification agencies the same applies for erection, construction
and others. Accounting wise, revenue arising from shipbuilding and realization of payment from customers are recognized
using the percentage of completion method as follows:
- 20 on Contract Signing
- 20 on Steel Cutting
- 20 on Keel Laying
- 20 on Launching
- 20 on Delivery
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MRO Repair Based on IACS regulation, every ship shall go through underwater maintenance every 2.5 years intermediate
survey and every 5 years special survey. Within the scope of this survey, the examination of the ship for inspection, repair and maintenance of the ships bottom below the water line is to be carried out in drydock.
All repairs and maintenance carried out while the ship is in drydock is closely monitored by IACS class, in particular, prior approval from the class is required before any major work is carried out.
The work flow for MRO works is not significantly different than new shipbuilding work flow. The work shall commence once the order for maintenance is received from the ship owner. MRO works for regular maintenance
requires shorter time.
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Work Flow of Maintenance, Repair and Overhauling in Shipyard
Source: the Company The operational activities of the shipyard are constantly monitored by quality control. In addition of the ISO
implemented to the shipping operational activities in general, all works carried out in the shipyard has to comply with the requirements from the international classification agency, i.e., International Association of Classification
Societies IACS. IACS monitors the processes including drawing, designing, fabrication, welding, painting and sea trial. In addition, compliance with HSEQ Health, Safety, Environment Quality aspects also needed to be
properly carried out. 3.
Competitive Advantages
The Company is believed to have several competitive advantages that may improve its competitiveness and sales value in carrying out shipping business of vessel chartering and shipyard. The competitive advantages are
described below:
3.1 Competitive Advantages in Shipping Business: 1. Integrated shipping services
The Company is able to provide integrated transportation services to meet the transportation needs of oil and gas and other commodities such as crude palm oil and chemicals, starting from the upstream operation oil fields to
refineries to downstream operation refineries to regional depots. The Company’s ability to provide a wide range of services is supported by the size of its fleet, consisting of 33 tankers of various types, including 2 FSOs and 2
VLCCs Very Large Crude Carrier. In addition, the Company owns tankers of various sizes from the smallest of 1,100 DWT up to the largest of 300,000 DWT, allowing for the use of ships with size suitable for various
capacities of portsSPMs in Indonesia.
With total overall capacity of approximately 1,200,000 DWT, the Company has the capability to service a greater share of the sea transportation of oil and gas. Global Business Guide research data March 2014 stated that the
Company’s current market share in oil gas transportation reached approximately 15 of the entire oil gas cargo transported domestically. The Company’s market share may continue to grow along with the growing
number of the Company’s fleet in the future.
2. Positive growth opportunities arising from the implementation of Cabotage principle
The implementation of cabotage principle based on Law No. 17 Year 2008, which in essence stipulates the mandatory use of Indonesian-flagged vessels for domestic sea freight transportation, has created significant
growth opportunities for domestic players in the shipping industry. With the implementation of the cabotage principle, competition among shipping companies is limited to domestic ship owners Indonesian-flagged vessels.
Foreign-flagged vessels cannot participate in the competition.
Floating On Dock
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The cabotage principle plays an important role in maintaining the balance between ship tonnage supply and the cargo transportation demand, since in practice, shipping companies will only invest in Indonesian-flagged vessels
when long-term contractscommitments from cargo owners has been secured. The use of Indonesian-flagged vessels for all transportation modes in Indonesian waters will increase the
utilization rate of domestic vessels and in turn will create more economic return for domestic industry players. The direct impact of the implementation of cabotage principle on the Company is reflected in the relatively high
vessel utilization rate and the fact that nearly all of the vessels currently owned have been delegated to definitive charter contract, whether in the form of time charter or simultaneous spot charters. In terms of competition, the
implementation of the cabotage principle has filtered the number of industry players with the restriction of foreign players from participating in vessel charter tender when domestic players have demonstrated the ability to provide
vessels with certain specification. In the future, the implementation of cabotage principle will follow the footsteps of the United States Government,
which implemented the US Jones Act stipulating that all US domestic shipments shall be carried out by US- flagged vessels, and such vessels shall be built in American shipyards and owned by American citizens, with a
minimum ownership limit of 75. Therefore, in the future, the Company’s shipyard will receive significant number of new buildingrepairdocking orders from Indonesian-flagged vessels. The same applies for the vessel
chartering segment, which will grow in line with the growth in domestic oil and gas demandneeds. 3. The Company‟s competent operational management
The Company’s operational management system has accommodated various terms and conditions issued by various international shipping operational standard agencies as previously discussed, that is certificate of
International Safety Management from International Maritime Organisation, Tanker Management Self Assessment from OCIMF Oil Companies International Marine Forum and ISO 9001:2008 and ISO 14000 for
shipping companies quality control management. The numerous certifications obtained in addition to the ship classification issued by national and international classification bureau allows the Company to be accepted as
partner in ship procurement process for international oil companies.
In addition, the Company’s group is led by a group of people in the managerial line with various experience and competencies in their fields, with more than 30 years experience in the national and international shipping
industry and good relationships with various parties in the domestic shipping system, such as the Government and maritime authorities, oil and gas companies in Indonesia, shipping industry association such as the
Indonesian National Ship Owners Association INSA and Indonesian Shipbuilding and Offshore Association Ikatan Perusahaan Industri Kapal dan Lepas Pantai Indonesia IPERINDO.
4. Long-term contracts with customers
The majority of the Company’s fleet are allocated to time charter contracts with cargo owner, with a charter period ranging from 1 – 10 years. The contracts guarantee the Company’s vessel utilisation rateusage efficiency be
maintained at a high level. As previously discussed in Chapter Management’s Discussion and Analysis, the comparison between vessel
charter revenue using the time charter method and spot charter method is 74.87 : 25.13. 5. Good reputation and more than 30 years experience in the shipping industry
The Company’s Business Group is widely known in the national and regional shipping industry. The Company’s operational history started in 1970s, when the Company started to provide oil and gas construction services for
Pertamina. Customer satisfaction and good quality service from the Company since the earliest day of its establishment has created good reputation for the Company. Various compliance to ship technical specification
as previously stated demonstrates the relation between the Company’s quality control and the reputation it gained.
6. Good relationship with main customers
Since the early days of the Company’s Business Group’s establishment, management has committed to maintaining good relationship with various parties, in particular, the Government and maritime authorities, vessel
chartering business circle, and ship components and equipment providers, as well as good relationship with customers.
7. Economies of scale for cost efficiency
With the continuously growing size of its fleet, the Company is able to improve its operational cost efficiency economies of scale. Each year, in accordance with its capital expenditure budget, the Company increases the
number of ships as the amount of investment increases. The increase in number of ships will spread the overheadfixed cost, therefore resulting in lower vessel chartering overhead cost per ship owned.
