Defence Industry
The origin of the Indonesian Defence Industry goes back to the beginning of the 19th century when the country was under the rule of the Dutch. It was 1808 when the Governor General Daendels ordered the establishment of workshops for material munitions and weaponry maintenance named “Constructiewinkel (CW)” in Surabaya. Later, in 1850 a naval material and explosives factory named “Pyrotechnische Werkplaats” was established. A hundred years later, the defence factories were transferred to the Indonesian National Armed Forces and in 1962 the defence industry was renamed into “Perindustrian TNI Angkatan Darat (Pindad)”.
From its establishment, the defence industry of Indonesia was and still is, strictly under the directive of the State, since it is an issue of national importance and it is considered too important to be left to private entities. Throughout its history, Indonesia and its governments had to deal with different threats. During the first years of the Indonesian Republic (President Sukarno) the threats were perceived originating from the Dutch and then from the U.K and the U.S and for this reason the Armed Forces of the country obtained soviet made military equipment. In the mid-1960, these perceptions changed when Indonesia entered the “New Order” policy of President Suharto and the new threats were originating from Communist forces both in domestic and international fronts.
With Suharto in power, Indonesia started becoming a technological state and with the assistance of the State Minister for Research and Technology B.J Habibie (returned from abroad in 1974) Indonesia started implementing a national grand plan to build modern technological infrastructure.
Among the initiatives taken during this period, was the establishment of the “Technology Application and Assessment Body - BPPT” (Badan Pengkaijan dan Penerapan Teknologi - BPPT). The mission of “BPPT” was to coordinate the national research and development process, to foster human resources that later could work in the technology sector and to manage the supply chain industry. The new scheme also included the development of the local defence industry with the establishment of new companies such as “IPTN”, the Indonesian Aircraft Industry now “PT Dirgantara Indonesia”.
According to B.J. Habibie, who was appointed in 1978 by Suharto as a State Minister of Research and Technology and Chairman of the Agency for the Assessment and Application of Technology (1978-1998), the defence industry of Indonesia was declared as a strategic sector of the economy and the country. In 1983 the President of Indonesia issued the Decree No. 59 for the establishment of the Board of Trustees and Strategic Industries Business and Defence Industry.
The next step was the designation of the 10 state owned industries, as strategic importance industries for the security of the country (Badan Usaha Milik Negara Strategis – BUMNIS),
- PT PINDAD (arms and ammunition), (Government ownership of assets 100%)
- PT IPTN (now PT Aerospace Indonesia - PT Dirgantara Indonesia, aerospace industry), (Government ownership of assets 100%)
- PT PAL (shipbuilding), (Government ownership of assets, 100%)
- PT DAHANA (explosives), (Government ownership of assets, at least 51%)
- PT INDUSTRI TELEKOMUNIKASI Indonesia (PT INTI) (telecommunications, Government ownership of assets, at least 51%)
- PT LEN INDUSTRI (PT LEN) (electronics), (Government ownership of assets, at least 51%)
- PT INDUSTRI KERETA API (PT INKA) (rolling stock manufacturer), (Government ownership of assets, at least 51%)
- PT KRAKATAU STEEL (steel for armored vehicles, Government ownership of assets, at least 51%)
- PT BOMA BISMA INDRA (container and equipment, Government ownership of assets, at least 51%)
- PT BARATA (diesel engines, Government ownership of assets, at least 51%)
Besides the industries mentioned above several more industries were established the following years. These are:
- PT INDUSTRI NUKLIR Indonesia (PT INUKI)
- PT INDUSTRI KAPAL Indonesia (Shipbuilding fast patrol boats)
- PT DOK PERKAPALAN KOJA BAHARI (LCT, LCU)
- PT DOK PERKAPALAN SURABAYA (LCT, LCU)
- PT BAHARATA Indonesia (Bomb baskets, Bombs)
Besides “BPPT”, the Suharto administration established in 1989 another government body, the “Strategic Industry Regulatory Body - BPIS” (Badan Pembina Industri Strategis – BPIS) which is a “one stop shop” for national strategic products. “BPIS” reflected Suharto’s “New Order” policy aspiration to develop a formal and comprehensive arrangement for Indonesia’s ten strategic importance state-owned industries. Finally, dozens of Indonesian companies are also part of the defence industry of the country, producing components to be integrated into defence systems, while many of them provide their services to the Armed Forces of Indonesia.
These are:
- PT Amartamedia Inter Nusakom
- PT Aro Abadi Utama (ARO)
- PT Asri Panca Teknik (APT)
- PT Bay Industrial Indonesia
- PT Bogar Arta Satria
- PT CMI Teknologi
- PT Daya Radar UTAMA
- PT Delimajaya Group
- PT Dumas Tanjung Perak Shipyard
- PT Gama Aero
- PT Garda Persada
- PT Hasuda Graha
- PT Hofz Indonesia
- PT Indoavis Nusantara Inc.
- PT Indonesia Defence Services (IDS)
- PT Indopacific Communication and Defence (IPCD)
- PT Indopelita Aircraft Services (IAS)
- PT Infoglobal
- PT Intisar Primula
- PT JAS Aero-Engineering Services (JAE)
- PT Jaya Tri Ismaya
- PT Kalimasada Pusaka
- PT Karunia Berca Indonesia
- PT Karya Tugas Anda
- PT Lundin Industry Invest / North Sea Boats Pte. Ltd.
- PT Mandiri Mitra Muhibbah
- PT Maxxima Innovative Engineering
- PT Merpati Wahana Raya
- PT Miratech International Tradindo
- PT Multiintegra
- PT Nusantara Turbin dan Propulsi (NTP)
- PT Pacific Technology Indoraya
- PT Palindo Marine Shipyard Batam (PMSB)
- PT Panorama Graha Teknologi
- PT Pasifik Satelite Nusantara (PSN)
- PT Persada Aman Sentosa
- PT Putra Mandira
- PT Saba Wijaya Persada
- PT Sentra Surya Ekajaya
- PT Shark Links
- PT Sog Indonesia
- PT SSE-Van Der Horst Indonesia (SSE-VDHI)
- PT Surya Putra Mesindo
- PT T&E Simulation
- PT Tesco Indomaritim
- PT Tunas Nusa Raya
- PT Transavia Utama (TU)
- PT Wira Jasa Angkasa – WJA
- Unitronic Jaya
The Asian economic crisis of 1997-1998, effected dramatically the Indonesian defence industry, since these companies have been relaying too much on state support for a long time. The industries had to struggle for their survival and in many cases for their existence.
The companies had to layoff many of their employees, as their debt was dramatically increased. The new President of the country, B.J. Habibie (1998-1999) who started the “Reformasi” period in the country, decided to change the status of “BPIS” from governmental institution to a holding company called “PT BPIS”. Furthermore, the new President established in 1999 a new governmental body, the “Council for Strategic Industries (DPIS)”.
“PT BPIS” was dissolved in 2002 and its responsibilities -the control of the defence industries- were transferred to the “Deputy of Mining Strategic Industry Energy and Telecommunication”, which belongs to the “Ministry of State-Owned Enterprises - BUMN” (Kementerian Badan Usaha Milik Negara, BUMN).
The two governments of Abdurrahman Wahid (1999-2001) and Megawati Sukarnoputri (2001-2004) that were elected after the end of the Suharto-era, did not try to revitalize the development of the local defence industry. This situation changed during the two terms of the President Susilo Bambang Yudhoyono (2004-2014) who tried hard to support the Indonesian defence industry. During the Presidency of Susilo Bambang Yudhoyono, in 2008 the Ministry of Defence of Indonesia adopted the “Minimum Essential Force (MEF)” policy. The new policy was articulated in the Presidential Decree No.7/2008 on the General Policy Guidelines on State Defence Policy, which came in effect on January 2008.
The “MEF” policy provided guidance to Indonesia’s Armed Forces long-term modernization plan in which the development of national production, import capacity, transfer of technology and joint production are the core policies of the local defence industry sector. Two year later in 2010 the administration of President Susilo Bambang Yudhoyono established the “Defence Industry Policy Committee -KKIP” (Komite Kebijakan Industri Pertahanan – KKIP) replacing the “Strategic Industry Regulatory Body - BPIS” (Badan Pembina Industri Strategis – BPIS) which was established by President Suharto in 1989.
“KKIP” is an inter-ministerial group and working committee, under the auspices of the President of Indonesia. “KKIP” has two interrelated objectives a) achieve MEF the Indonesian military’s major plan of defence modernization, b) reinvigorate, rebuild the national defence industry.
According to the “Presidential Regulation No.42 Year 2010 on Defence Industry Policy Committee” the main responsibilities of “KIPP” are:
- Conceptualize strategic national policy on national defence industry, which spans from research and development, engineering, financing, and marketing strategy, to human resource management and international cooperation
- Coordinate the implementation and monitoring of defence industry policy
- Manage international cooperation with foreign partners
- Monitoring and evaluation
Two years later in 2012 the President of the country announced the “Law on Defence Industry No.16”. The new law provided the legal basis for modern practice of defence acquisition and production. It also rules the game among the local defence industries. Furthermore, the new law stipulates a minimum budget allocation of 5% from the total profit of the industries for R&D.
According to the new law, KKIP obtains greater role and strength and its major responsibilities are:
- Formulate strategic national policy on defence industry sector, includes a long- and middle-term defence industry main plan
- Coordinate the implementation and monitoring of defence industry
- Manage international cooperation in order to enhance and develop national defence industry
- Synchronize the specification of weapon system needed by the user and the supplier's capacity
- Determine the standard of defence industry
- Formulate sustainable funding policy scheme for defence industry
- Regulate export and import policy of defence products
- Periodically monitor and evaluate the implementation of defence industry policy
According to the “Law on Defence Industry No.16” KKIP is a committee that represents the government in coordinating the national policy of defence industry planning implementation monitoring and synchronization. The new role of KKIP was further articulated in the “Presidential Regulation on Organization Procedure and Secretariat No.59”.
According to the new law the Managing Director of KKIP (who is the Minister of Defence of the country) will have to form two teams within the KKIP, the Experts Team and the Operational Team. The Expert Team is expected to give suggestions and recommendations to the Managing Director of KKIP about the policy that the organization should pursue and how it will be implemented. The Operational Team is responsible in managing the 6 Divisions of KKIP
Each Division has the following functions:
- Planning division is responsible in formulating the defence industry main plan and needs assessment
- Technology-transfer and offset division have to maximize the benefits Indonesia can obtain from export-import transactions
- Research and development, engineering and standardization division is established to coordinate and synchronize R&D and engineering activity in national level. Moreover, this division is responsible to assess the quality of weapon products
- Marketing and cooperation division is working on the conceptualization and coordination of marketing strategy on national defence products and opportunity for international cooperation
- Finance division is responsible in finding suitable financing mechanism for development of national defence products in long-term
- Legal division is concerned with the formulation and synchronization of KKIP program with existing national law and regulation
Besides the changes that the administration of President Susilo Bambang Yudhoyono implemented on management of the Indonesian defence industry, the government set specific targets and timeline to be followed by the KKIP. As part of the implementation of the MEF policy, the defence-military procurement program is going to develop in four phases which will last 19 years. The first phase developed during the period 2010-2014. During this period the KKIP established the infrastructure and the fundamentals needed for reviving the local defence industry managing the capital stimulus from the state to the defence industry and preparing the national regulation.
The second phase took place between 2015-2019. At that period the KKIP focused in supporting the fulfilment of MEF policy by increasing the national capability for joint production with foreign partners and the development of new weapon systems. During the third phase which started in 2020 and is going to last until 2024, KKIP has set the priority for the growth of national industries and international cooperation.
According to the MEF policy Indonesian Armed Forces should by 2024 have the deterrent capability against potential and emerging foreign threats. During the last phase of the implementation of the MEF policy, (2025-2029), KKIP will evaluate the accomplishments and the effectiveness of defence governance in Indonesia. According to the long-term planning at this point the local industry should have established proper infrastructure and acquire skills to increase its production and organization capabilities.