Articles

Investment Analysis of LNG Storage Facility Development in Indonesia

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The gas industry has had remarkable growth in recent years due to cleaner combustion, and LNG stands at the top of the gas industry as its flexibility and transportability made it an attractive option. Indonesia that has geographical advantage provides natural advantage to become a central player in the global LNG market. However, investment decisions related to new LNG storage facilities are faced with uncertainties and challenges including volatile energy markets, fluctuating LNG prices, geopolitical risks, evolving environmental regulations, and technological changes. This study assesses the feasibility of developing an LNG storage facility in Indonesia. Commercially, it is feasible due to growing LNG demand and Indonesia’s strategic advantages. An LNG storage facility with 180.000 m³ capacity is feasible, showing an NPV of $33.7 million, an IRR of 10.96%, a payback period of 14.61 years, and a Profitability Index (PI) of 1.26. Increasing the tank capacity to 200.000 m³ improves feasibility with an NPV of $44.3 million, an IRR of 11.61%, a payback period of 13.67 years, and a PI of 1.32. Integrating with existing infrastructure further enhances feasibility, yielding an NPV of $77.7 million, an IRR of 14.10%, a payback period of 11.04 years, and a PI of 1.56.

A Financial Feasibility Study to Determine the Best Funding Structure for a Total Renovation Project of the Karebosi Field in Makassar

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The objective of this study is to determine the best debt-equity combination to fund the Public-Private Partnership (PPP) project applying the Build-Operate-Transfer (B-O-T) scheme for the total renovation of Karebosi Field in Makassar City, Indonesia. To assess the feasibility of the project, the financial feasibility study methodology is conducted. The study covers an analysis of both external and internal analysis. The external analysis covers the analysis of macroeconomic factors and microeconomic factors utilizing the PESTEL and Porter’s Five Forces framework. The internal analysis is focused on the resources of the project. The SWOT analysis presents the outcomes of both external and internal factors. In addition, the author presents three funding structure scenarios as potential alternatives to fund the project. The funding scenarios consist of three alternatives: scenario 1 of full equity funding, scenario 2 of hybrid funding with a proportion of 50% debt and 50% equity, lastly, scenario 3 of hybrid funding with a proportion of 70% debt and 30% equity. Along with that, the author also considers the operational occupancy scenarios that include worst-case, base-case, and best-case scenarios. The percentages of each of the three scenarios are 40%, 60%, and 80%. Following that, the financial projections are calculated for each scenario, resulting in investment measurements such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. Finally, a risk analysis is performed to assess the sensitivity of the best funding structure and to identify potential risks. Additionally, the evaluation of risk mitigation is added to enhance the overall effectiveness of the best funding structure.

The findings indicate that the project is feasible, and scenario 3 of hybrid funding with the combination of 70% debt and 30% equity is the best funding structure for the project. In addition, the author performs a sensitivity analysis on the best funding scenario, considering ten input variables. Furthermore, the sensitivity analysis indicates that five variables, namely WACC, assumption of operational occupancy per day, interest rate, soccer field rental rate, and the ratio of operating expenses to revenue, significantly impact the net present value (NPV). Strategies to reduce potential risks are effective marketing and operations, managing occupancy rate volatility using backup strategies, developing new revenue streams, and negotiating long-term rate fixes with lenders.

Therefore, future research can explore the dynamic nature of the external factors that influence the Internal Rate of Return (IRR), Net Present Value (NPV), Payback Period, and Weighted Average Cost of Capital (WACC). Determining the best funding may require ongoing research to assess the effects of market conditions, interest rate fluctuations, and industry-specific factors. Furthermore, explore how input variables like WACC, operational occupancy per day, interest rate, soccer field rental rate, and operating expense ratio to revenue affect NPV.

Feasibility Study for Tugboat Expansion Project Using Capital Budgeting And Sensitivity Analysis (Case Study: PT. ABC)

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The Covid-19 pandemic and the unstable geopolitical environment has highly disrupted the global economy. The turn of events affected businesses sectors differently, due the disruption of the supply chain many industries have to suffer. However, there are sectors that performed well in a very uncertain economic condition. One of the business sectors that flourish during this turbulent time is in the mining sector. The soar in demand for natural resources such as coal, nickel, and construction stones have increased the sector’s operational activity drastically. Being a part of the mining industry supply chain, PT. ABC is a marine transport company that provide delivery services for the minerals by utilizing tugboats and barges. The surge of activity in the mining sector has positively impacted the company. A mining companies has queued up to acquire marine transport services, however it is quite difficult to meet the rapidly demand due to the limited number of tugboats and barges available in the market. To keep up with the market demand, PT. ABC is planning to add and additional set of tugboat and barge to its fleet.

The management’s decision to acquire a new set of tugboat and barge is a sizeable investment for the company. Financial calculations such as the capital budgeting method is needed to support the management’s decision for to invest in the expansion project. Therefore, the objective of this research is to utilize the crucial financial calculations to analyze whether if the expansion plan is worth pursuing.

The research results shows that the expansion project is feasible, by examining the base assumptions by the company’s management. The assumptions consist of the initial investment of Rp 40.500.000.000, an annual growth rate of 8,18%, the assumption of 30 working days for the charter duration, and 10 years useful life of the asset. The project will begin in the year 2023. Furthermore, the sensitivity analysis suggests that the most influential factor for the project’s NPV is the charter rate. Based on the analysis, the minimum charter rate that should be charge to the customer is Rp 834.480.000 per month.

Investment Analysis on the Development of Polymer Modified Bitumen (PMB) Production Plant to support the building of Indonesia Infrastructures

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Indonesia is one of the countries that focuses on infrastructure development to support the areas of connectivity and accelerate economic growth while maintaining the global commitment to GHG emission reduction. In order to support the above objectives, competitive bitumen prices with less GHG emissions are foreseen for the infrastructure’s development. Polymer Modified Bitumen (PMB) is one of the materials that is used for the pavement application that could provide 16.99% less GHG emissions compared to the unmodified bitumen due to their capability to provide similar performance with the thinner pavement layer requirement. There are 3 common PMB production processes recognized in the industry, such as Low Shear Mill Technology, High Shear Mill Technology, and Mobile PMB Plant. The Capital Budgeting technique (NPV, IRR, Profitability Index, Payback Period), internal and external analysis such as PESTEL and Porter’s five forces analysis are used to support the decision making for the right technology selection for the PMB processing plant in order to stay competitive in the Bitumen market. The economic analysis has shown that the low shear technology generates an NPV of IDR 186.573.816.286 with an IRR of 75,90%, the high shear technology generates an NPV of IDR 179.179.736.676 with an IRR of 62,39% and the mobile PMB plant generates an NPV of IDR 243.276.282.784, with an IRR of 68,37%. In addition to the highest NPV, the mobile PMB plant has the full flexibility to be mobilized to any project location, especially in remote areas where other production technologies are not available. Based on the above analysis, the mobile PMB plant is the right technology to be selected for the PMB provision to support the infrastructure development in Indonesia.