We see great potential, Executive Vice President for Asia-Pacific Michel Behar told Lube Report by telephone from his Paris office yesterday. Indonesia is a huge country with a growing population and growing lubricant demand. We are pleased to be there and pleased to be there so early.

Fuchs is the worlds largest independent lubricant company and has been doing business in Indonesia for a number of years. Until two years ago, however, it was only allowed to import specialty lubes, defined as having synthetic content of at least 70 percent. In 2001, the government deregulated the lubricant industry, ending the monopoly of state-owned oil company Pertamina on in-country blending.

Fuchs quickly applied for a license to manufacture and was the first foreign company to obtain approval. The plant actually began operating in October but Fuchs put off an announcement until last week. Behar said officials wanted to avoid drawing attention in light of recent bombings blamed on fundamentalist Islamic terrorists.

The plant is now producing automotive and industrial lubricants, and Fuchs expects sales to take off. Behar said the market is ripe for new sellers.

We have seen in many countries where a national oil company has a monopoly, that when the market is deregulated, the company loses market share quickly because of the competition, Behar said. When the monopoly exists, the company benefiting from it has no incentive to serve the customer, so service suffers. This creates great opportunities for companies that are then able to come in with high standards of service and advanced technology.

Indonesia has the worlds fourth-largest population – 230 million in 2002, according to the U.S. Census Bureau. Fuchs estimates the nations lubricant market at 600,000 metric tons annually. For comparison, Behar noted that Germany has annual demand of 1.1 million tons. Fuchs currently claims 1 percent of the Indonesia lube market and expects its share to grow to 5 percent within five years.

The automotive segment, the largest part of Indonesias market, has been dominated by products of relatively low quality, Behar said, but Fuchs sees demand for higher quality products increasing with the continuing influx of cars with modern engines. The quality of industrial lubricants is already reasonably high, Behar said. Industrial activity has been hampered the past few years by economic crises and terrorist activity, but Fuchs believes the country has the resources to sustain long-term growth.

According to Behar, Indonesians show a high level of acceptance for foreign brands. The prospect of penetrating the entire country is daunting, he said, given that it stretches more than 4,000 kilometers (2,500 miles) across the Indian Ocean. Fortunately, the population and most business activity are concentrated on the island of Java. There is also a significant mining industry on Borneo that Fuchs has already begun serving, Behar said.

Behar said other foreign lubricant producers, including international oil majors, will probably open operations in Indonesia before long.

I think the large oil companies move a little more slowly because they are not only interested in lubricants, but also oil refining and fuels, Behar said, noting that Indonesias opening of its lubricants market was just the first step in deregulation of its oil industry. Their plans are much broader and require more coordination and planning.

Fuchs boasts a record of being the first Western lubes company to enter liberalizing East Asian markets. In 1986, for example, it was the first foreign company to begin producing lubricants in China.

Behar said the company is glad to enter Indonesia at this time, despite the fact that foreigners in Indonesia were targets of terrorist activity following the Sept. 11 attacks in the United States.

Of course, we are concerned for the safety of our expatriates, he said. We operate more quietly during difficult times. But we do believe that this country offers great opportunities in the long run. Also, there has not been much foreign investment in Indonesia for the past three or four years. So we believe there will be some appreciation for our operations.