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Trade and Investment News, 4 June 2007





·        Senior US negotiator on North Korea, Christopher Hill, visits Indonesia


·        Deal with US pharmaceutical Baxter on clinical trials for bird flu vaccine

·        Airline operators call for true ‘open sky’ policy


·        Government projects budget deficit at 1.8% of GDP

·        SOEs minister calls for lower dividends from state-owned sector

Business briefs

·        Year-on-year inflation expected to fall further

·        Budget projections maintain growth figure at 6.3%


·        Interest in plantation sector continues

State concerns

·        Japan PM calls for early Economic Partnership Agreement

·        Tighter controls forecast on hypermarket expansion


·        PT Telkom may spend up to $2 billion to expand networks

·        PT Semen Gresik to commence new cement plant

Private sector

·        PT Unilever Indonesia to spend Rp500 million on capacity boost

·        PT Astra International sees first-half vehicle sales at 180,000 units


·        Bank Mandiri to lend to major cellular operators

·        OCBC expands stake in Bank NISP


·        Japan keen to build first nuclear power plant

·        New geothermal, coal-fired plants for remote areas

Oil & gas

·        Indonesia considers revoking stalled licenses

·        Tax incentives considered for refinery construction

·        Tangguh project on track for 2008 start-up


·        Government to renegotiate Inco royalties

·        PT Aneka Tambang to build aluminium, nickel smelters



Hill Briefs Political Leaders

Top US negotiator Christopher Hill briefed Indonesian leaders about the North Korean nuclear standoff on Tuesday (29/5/07), saying Indonesia has an important role in global affairs as a new, non-permanent member of the UN Security Council.

Hill, the US assistant secretary of state for East Asia and Pacific affairs, also suggested ways in which Indonesia can help ease spiralling tensions in the Middle East.

Indonesia and North Korea have historical ties, and Indonesian President Susilo Bambang Yudhoyono has expressed interest in playing a mediating role in the nuclear dispute.


"We discussed foreign policy issues because, as you know, Indonesia is on the Security Council," Hill said after meeting with lawmakers and government leaders. "I gave a little briefing on North Korea and what we're trying to do," said Hill, who is also the chief US negotiator at six-country talks aiming for nuclear disarmament on the Korean peninsula.


On Sunday, US Defense Secretary Robert Gates met with his Indonesian counterpart Juwono Sudarsono in Singapore to discuss ways of deepening military relations between the two countries with an emphasis on reform.

Gates and Sudarsono both "stressed the importance of encouraging ongoing reforms undertaken by Indonesia's military, a crucial and inseparable part of democratic reforms," they said in a joint statement issued by the US Department of Defense.

Military relations between the two countries have been improving in recent years after a long period in which they were suspended because of the Indonesian military's human rights record.

Their meeting on the sidelines of an international conference on Asian security saw agreement that "the two countries' security and military-to-military ties need to be continuously monitored, managed and nurtured within the framework of Indonesia's ongoing democratic transformation."

"They also discussed ways and means to deepen the strategic partnership between Indonesia and the USA," it said. "They underlined the importance of strengthening existing bilateral cooperation to address various strategic challenges."


Jakarta Criticizes Myanmar

Indonesia expressed concern on Monday (28/5/07) over Myanmar's decision to extend the house arrest of pro-democracy leader Aung San Suu Kyi, saying it undermined claims the junta was serious about human rights and democracy.


Myanmar also was tarnishing the reputation of the 10-member Association of Southeast Asian Nations, foreign ministry spokesman Kristiarto Legowo said in a statement.

Suu Kyi has been held continuously since May 30, 2003, when her motorcade was attacked by a pro-junta mob during a political tour of northern Myanmar, and the junta last week extended her house arrest by another year.

Many nations have condemned her confinement, including Myanmar's fellow members in ASEAN. Although bound by an edict not to interfere in each other's affairs, some have become blunter in their criticism of the junta.

Indonesia is "deeply concerned" by Myanmar's decision, Legowo said, adding that it "ignored appeals made by ASEAN member countries as well as the international community" to release the 1991 Nobel Peace Prize laureate.



Deal on Bird Flu Vaccine Tests

Health Minister Siti Fadilah Supari told the Associated Press on Tuesday (29/5/07) that US drug manufacturer Baxter Healthcare Corp. will carry out clinical trials of a bird flu vaccine in Indonesia in July and that the country will initially stockpile 2 million doses.


"But when we are getting closer to a pandemic, we will move to stockpile at least 20 million," said the minister, adding that she "hopes that will never happen."


Under a tentative deal reached in February, Indonesia agreed to provide Baxter with samples of its H5N1 virus in exchange for the drug manufacturer's expertise in vaccine production. Supari said Baxter's "clinical trial involving hundreds of participants will start in July" and should be concluded by October.


Baxter is now able to produce 3 million doses of the vaccine per week, she said, declining to say whether Indonesia has a ready stockpile at present.


The government has set aside 98 million doses of bird flu vaccine this year to protect small-scale chicken raisers.


Musny Suatmodjo, the director of animal health at the Ministry of Agriculture, said the government had bought 60 million doses of vaccine and received a grant of 33 million doses from China and another 5 million from the World Bank.


Meanwhile a girl from Central Java died of bird flu, a health ministry official said on Friday (1/6/07), in a week which saw another confirmed death from the disease at Solo in the same province.

Open Skies for All: Indonesian Airlines

Domestic airline operators have demanded that the House of Representatives press the government to renegotiate with neighboring countries over the "open sky" policy, The Jakarta Post reported.


Indonesian carriers are concerned that foreign airlines will have an unfair advantage when the policy comes into force in 2008 because of their existing networks in Indonesia, and are seeking to ensure that domestic airlines have reciprocal access to foreign airspace.


The open sky policy was created to liberalize, or open up, airspace between the countries involved in the agreement. The policy will take effect in 2008 for ASEAN countries and 2010 for
the rest of the world.


Four Southeast Asian nations -- Brunei, Indonesia, Malaysia and the Philippines -- have already agreed to permit unlimited flights between their countries.


President director of Lion Air, Rusdi Kirana, said airline operators grouped in the Indonesian National Air Carriers Association (INACA) are seeking reciprocal rights to foreign
airspace prior to the open sky policy kicking in.


"We want the open sky policy to be reciprocal. If a foreign airline can fly into Indonesia, then we want to be able to fly into their territory too," Rusdi said after a hearing on the aviation bill currently under deliberation at the House of Representatives on Thursday (31/5/07).


Rusdi, who chairs INACA, said foreign airlines should not be given a head start in the race for airspace supremacy.



Budget Deficit to Widen

The budget deficit for this year will expand from original projections of 1.1% of GDP to up to 1.8% on lower government revenues, according to new budget projections presented to the House of Representatives by Finance Minister Sri Mulyani Indrawati.

She told a parliamentary hearing on Tuesday (29/5/07) that the government was maintaining the growth target of 6.3% and lowering the projection for end-year inflation from 6.5% to 6.7%.

The minister said the government may substantially increase its bond sales to finance the bigger budget shortfall, Reuters reported.

The revisions, which have to be approved by the House, set budget revenues at Rp689 trillion, down 5% from the existing forecast, and expenditure at Rp757 trillion, about 1% lower than in the original budget plan.

The government had said earlier that the deficit would be likely to be higher than the 1.1% figure because of spending on a series of natural disasters.

Indrawati said the revisions reflected changes in key economic indicators in the first quarter of 2007. An economist cited by Reuters said the lower budget revenue forecast could in part reflect the impact of the strong rupiah on royalties and other non-tax revenues from natural resources, which account for about a fifth of total revenue. The rupiah has gained more than 2% so far this year.

Coordinating Minister for the Economy Boediono told an investor forum in Jakarta that the government will soon issue a new economic policy package to help accelerate economic growth. "The package will be primarily aimed at boosting investment and invigorating the sluggish real sector," he said.

The package would complement the packages on financial sector reform, infrastructure development and investment, and small and medium enterprises issued last year, he added 

New minister for state-owned enterprises Sofyan Djalil was continuing his campaign for new independence for companies under his control, calling on the government to reduce the level of dividends it demanded. 

"We should not take large dividends from profitable and fast-growing SOEs, as it will hinder them from growing faster," he said Monday on the sidelines of a hearing at the House of Representatives, The Jakarta Post reported.

The government has set a target of Rp21 trillion ($2.3 billion) in dividends from SOEs next year to help finance the 2008 state budget.

The ministry, however, has proposed a target of Rp19 trillion, ministry secretary Said Didu said.

For next year, the government estimates state expenditure will reach Rp824 trillion next year, with the deficit projected at between 1.6% and 1.8% of GDP, Finance Minister Indrawati said.

In the last three years, SOEs have exceeded the government's dividend target. Last year, state firms paid out Rp21.4 trillion, while the government targeted Rp20.8 trillion.

In the real sector, Unilever, following an increase in net profit of 10% last year to Rp1.72 trillion ($194.68 million), said it would invest a further $500 million this year to boost production capacity.

There was strong continuing interest in the plantations sector, with India’s Ruchi Soya Industries and Malaysia’s Glenealy Plantations (Malaya) Bhd looking to purchase land or an existing operation, and Singapore-listed Indofood Agri Resources saying it would buy PT PP London Sumatra.

In the resources sector, the government said it was considering revoking oil and gas licenses for blocks that had not been developed after 10 years, although it said it would take into consideration difficulties that contractors may have faced.

And in another sign of a more demanding position in the sector, it said it was negotiating with Inco to adjust the royalty payment system to better reflect price movements.

State-owned PT Aneka Tambang (Antam) stated that it was planning to spend a total of $2.9 billion on five alumina and nickel smelters. The company plans to build an alumina smelter in Tayan, West Kalimantan, and one in Bintan, with installed capacities of 300,000 tons per year and 600,000 tons a year, respectively.



Inflation Seen Lower in May – BI

Year-on-year inflation in May is expected to be lower than in April, Bank Indonesia's (BI) senior deputy governor, Miranda Goeltom, said on Thursday (31/5/07). Consumer price inflation in April was 6.29%.

"From January to March, there was an increase in prices of basic commodities.  In April, we felt the impact of higher cooking oil prices although overall prices of other commodities did not go up, so the inflation number was good," Goeltom was quoted as saying by Reuters.  "In May, on a year-on year basis, we believe it will be lower."

Lower inflation in May should give the central bank more room to cut its benchmark interest rate, known as the BI rate.

The Central Bureau of Statistics is scheduled to announce official inflation data on June 4, and the central bank will hold its monthly policy meeting on June 7.

Goeltom also told a parliamentary hearing on Tuesday (29/5/07) that the central bank expects the consumer inflation rate next year to come in at 6.4%, up slightly from the government forecast of 6%, as inflationary pressure from the prices of food and price-controlled goods is expected to remain high, Dow Jones Newswires reported.

Meanwhile, Coordinating Minister for the Economy Boediono said Monday (28/5/07) he expects the country's economy to expand faster than it did in the first quarter while the inflation rate will be stable.

"We are confident it (economic growth) will be better... because fiscal spending will be speeded up," Boediono told reporters in Kuala Lumpur on the sidelines of a meeting of the World Islamic Economic Forum.  The economy expanded 6% in the first quarter from a year earlier.

Govt. Plans Lower Rate Forecast in Budget Review

The government on Tuesday (29/5/07) lowered its interest rate expectations but raised its inflation forecasts in proposed revisions to the current year's budget, Dow Jones Newswires reported.

Although it revised down spending and revenue targets, the government is sticking to its economic growth forecast for the year at 6.3%, reflecting the government's hope that the main source of growth will come from the business sector.

"Given an improvement in the macroeconomic situation, the government has decided to change its targets for the 2007 budget," Finance Minister Sri Mulyani Indrawati told legislators in a hearing with the House of Representative's economic committee.

Indrawati said the government altered its expectations for interest rates this year, estimating the three-month Bank Indonesia (BI) Certificate rate to fall to 8% by the end of 2007, compared with its previous estimate of 8.5%.  Some government bond coupons are tied to this rate, which has been sliding in line with BI's move to cut the one-month key rate since May 2006.

The expected decline in interest rates comes despite an increase in the year-end inflation target to 6.7% from 6.5% previously, bringing it closer to most analysts' expectations.

Indrawati also changed the expected average rupiah exchange rate against the US dollar over the year to Rp9,100 from Rp9,300, although the average exchange rate forecast remains higher than the current dollar level at Rp8,767.

It changed its estimate for oil prices to a $60 average for the year, compared with $63 per barrel previously, and the budget deficit to 1.8% compared with 1.1% previously.

The government also revised down its spending target to Rp756.9 trillion from the original plan of Rp763 trillion, and revenues to Rp688.9 trillion from Rp723 trillion.  Indrawati did not provide reasons for the lower projections.

The proposed estimate revisions still require parliamentary approval.

Finance Dept. Sells First T-Bills

The Finance Department sold Rp2 trillion ($227.5 million) worth of treasury bills as targeted in an auction on Tuesday (29/5/07) at an average yield of 8.496%, the department’s treasury director general Rahmat Waluyanto said.

The department expects to use the proceeds from its first T-bills issue, which carry a maturity of 12 months, to help fund the budget deficit and improve liquidity on the short-end of the yield curve.

"The treasury bills issue will give a boost to the money market.  It is also very crucial to help maintain stability and liquidity in the bond market," Waluyanto was quoted as saying by Reuters.

The treasury bills were originally planned to be issued in April but the department delayed the issue twice due to technical reasons, including tax.  "All the issues regarding tax have already been resolved," he said, without giving further details.

The department had initially planned to issue between Rp3 trillion and Rp4 trillion of treasury bills, but scaled down the target size to Rp2 trillion.


India's Ruchi Eyes Palm Plantations

Ruchi Soya Industries Ltd, India's leading palm refiner and soymeal exporter, is planning to either lease or buy palm plantations in Indonesia to ensure stable supplies of the raw material, the firm's managing director said.

With palm oil up more than 75% since January 2006, Dinesh Shahra said it is important to secure supplies of the commodity, which could increasingly be diverted into biodiesel production, pushing prices up further.

"Palm oil is a very important raw material for us and we need to have some safeguard," he told Reuters on the sidelines of a traders' summit in Singapore.

"We are seriously looking at palm oil plantations in Indonesia.  We will take land on lease in Indonesia and plant oil palm.  Also, we could look at buying plantations there if they are offered at a good price."

Shahra, whose firm refines about 800,000 tons of palm oil annually, said Ruchi is also open to the idea of setting up a joint venture with an Indonesian palm oil firm.

"We are looking at any kind of partnership which can add value for them and for us," he added.

Meanwhile Malaysia’s Glenealy Plantations (Malaya) Bhd is venturing into Indonesia with a goal of tripling its land bank to 75,000 hectares by 2010, the New Straits Times reported, citing managing director Yaw Chee Ming.

It is finalizing applications for land in Kalimantan for some 50,000 hectares within three years.

"Right now, our 25,000-hectare land bank is spread across Sabah and Sarawak and we've already planted 80%.  We need to build on size to stay competitive," he said, adding that as of March, the oil palm company had cash reserves of about RM100 million.

Foreign Investors Eye Low-Cost Apartments

Several foreign investors have shown interest in investing in low-cost apartments for rent, to be built in various regions in Indonesia, Housing Minister Yusuf Asyari said, according to Antara.

"Several foreign investors have already come to Indonesia, including from Malaysia and the Middle East, while others are still in the process," he said at the completion of the "Elnusa" integrated village restoration program.

He hoped the investors would cooperate with local companies who know much better about the regulations governing such project.

He said several apartment buildings have already been built in some cities for students to rent, such as those in Medan, Batam, Padang and in cities in Java.

He said the land for the construction of apartments for rent may belong to local administrations or state-owned companies.


Japan Hopes EPA Signed Soon - VP

Japanese Prime Minister Shinzo Abe, during a meeting with Indonesian Vice President Jusuf Kalla in Tokyo on May 25, expressed hope that the two countries would sign an Economic Partnership Agreement (EPA) as soon as possible.

According to a Japanese embassy press release made available to Antara, Abe said that President Susilo Bambang Yudhoyono’s visit to Japan in November last year and that by Kalla have become a cohesive force in the relations between Indonesia and Japan.

Kalla said the EPA would strengthen economic relations between the two countries, and should thus be signed in the near future.

Abe said that last year, he and Yudhoyono discussed the stability of liquefied natural gas (LNG) supply from Indonesia to Japan.  During the meeting with Kalla, the Japanese prime minister expressed hope that Indonesia would continue to export gas to Japan.  Kalla however made it clear to the Japanese side that Indonesia also needs gas for domestic consumption.

Govt. to Restrict Expansion of Hypermarkets

Trade Minister Mari Pangestu said the government will issue a regulation restricting the expansion of hypermarkets to protect small retail traders, Antara reported on Tuesday (29/5/07).


Pangestu said her department will issue the regulation.  She added that hypermarkets will need to secure approval from the Public Works Department to be able to open new outlets.

The country has three hypermarket operators -- Carrefour with 29 outlets, Hypermart with 27 outlets and Giant with 17 outlets.

Small retailers have urged the government to ban hypermarkets from operating in the city center.


Govt. May Reduce Dividend from SOEs

State Minister for State Enterprises Sofyan Djalil said he hopes that beginning next year, the government would reduce the dividend target from state-owned enterprises (SOEs), to help boost the companies' performance and profitability.

"We should not take large dividends from profitable and fast-growing SOEs, as it will hinder them from growing faster," he said Monday (28/5/07) on the sidelines of a hearing with the House of Representatives' commission on SOEs.

The government has set a target of Rp21 trillion ($2.3 billion) in dividends from SOEs next year to help finance the 2008 state budget, which is being discussed by the House's budget committee.  The Office of the State Minister for State Enterprises however proposed a target of Rp19 trillion, said Said Didu, secretary at the office.

"Of course, we need to talk about the proposal with the Finance Department, the Office of the Coordinating Minister for the Economy and the budget committee.  This is basically a trade-off between the growth of the SOEs and the need to finance the state budget," Djalil was quoted as saying by The Jakarta Post.

Earlier this month, Didu said the government had set its privatization proceeds target for next year at Rp1 trillion, well below this year's target of Rp3.3 trillion.

In the last three years, SOEs have exceeded the government's dividend target.  In 2005, they paid out Rp12.8 trillion in dividends to the government, beating the target of Rp8.9 trillion.  Last year, state firms paid out Rp21.4 trillion, while the government targeted Rp20.8 trillion.

To boost the performance of SOEs, Djalil said he would also speed up the privatization program.  He said 10 SOEs could be privatized next year.

“Hopefully, the good ones will be privatized by way of an Initial Public Offering (IPO)," he said, according to Antara.

Telkom May Spend $2b on Expansion

PT Telkom may spend as much as $2 billion this year to expand its networks and fend off competition, its president commissioner Tanri Abeng said.

The state company expects sales to rise more than 20% in 2007 with the addition of millions of users to its mobile network, Abeng said Monday (28/5/07) in an interview with Bloomberg on the sidelines of an Islamic conference in Kuala Lumpur.  The company is also focusing on expanding its pay television, broadband and satellite businesses, he said.

"We are not in a hurry to expand regionally because of the tremendous opportunities for domestic growth," Abeng said.  "We have to make sure all the domestic segments are captured by us.  We are the leader and we have to maintain the leadership position."

"Everybody is pushing their capital expenditures," said Chandra Pasaribu, an analyst at PT Danareksa Sekuritas.  "Competition is driving spending."

One rival, Mobile-8 Telecom, a cellular phone operator partly owned by Qualcomm, will start a low-cost service in the third quarter and expects its subscribers to increase to 4 million this year from 1.8 million in 2006.  Excelcomindo Pratama, the country's third biggest mobile phone operator, plans to expand its cellular network.

Telkom’s first-quarter profit dropped 12% because of increased costs to access rivals' networks and a foreign exchange loss, it said last month.  Net income at the state-owned telecommunications company fell to Rp3.04 trillion ($347 million) in the three months that ended on March 31, from Rp3.46 trillion a year earlier.

The phone operator expects full-year earnings to increase by "double digits," even as profit gains may be limited by narrower margins, Abeng said, declining to give specific projections.

Meanwhile, Telkom’s mobile phone unit, PT Telkomsel, said on Wednesday (30/5/07) its first-quarter net profit increased by 8% to Rp2.997 trillion ($340.2 million) from a year ago, Reuters reported.

Telkom also said on Thursday (31/5/07) that it plans to allocate up to Rp3.2 trillion ($362.2 million) to buy back a maximum of 1.58% of its shares.

Semen Gresik to Build New Plant

PT Semen Gresik said Thursday (31/5/07) it plans to start building a new cement plant costing up to $580 million next year as it moves to raise capacity by about 40% by 2013.

President director Dwi Soetjipto also confirmed plans for a stock split, but declined to elaborate or give the share ratio.

"In 2008, we will start the construction of a new plant with a total capacity of 4.4 million tons per year," he said, according to Reuters.  He said the investment would cost the company between $470 million and $580 million.

The state-owned firm has a long-term plan to boost capacity to 22.9 million tons by 2013 from about 16 million last year, by building new plants and improving efficiency, director Rudiantara said.

"To strengthen our position we are evaluating plans to expand capacity to meet domestic and export demand. The plants are targeted to come on line by 2011," Rudiantara told an investor forum.

On the share split, a source familiar with the plan told Reuters on
Tuesday (29/5/07) that the firm was planning a 10-for-1 stock split to improve the liquidity of its shares in the market. 

Merpati to Use Chinese-Made Aircraft

State-owned PT Merpati Nusantara Airways said it will start operating two Chinese-made MA-60 aircraft in August, Antara reported on Monday (28/5/07).

Merpati president Hotasi Nababan said preparations for the operation of the 50-seater passenger aircraft are in the final stage.  He said the aircraft will be ready for operation in one or two months.

Company secretary Irvan Harijanto said the new aircraft will serve the Bali, West Nusa Tenggara and East Java routes.

Merpati serves mainly domestic flights, especially to isolated areas in the eastern part of the country.


Unilever to Boost Capacity

After a year in which it put on 19% improved net profit, PT Unilever Indonesia will spend around Rp500 million this year on increasing production capacity, The Jakarta Post reported.

Unilever Indonesia booked a net profit of Rp1.72 trillion ($194.68 million) in 2006, up from Rp1.44
trillion in 2005.

This increase was attributed in part to a 13% growth in hygiene and personal care products, with laundry detergents Rinso and Surf and Ponds skin lotion the largest contributors. Foods and ice cream products grew 17%, with Bango sweet soy sauce and Taro Snacks leading the growth.

President director Maurits Lalisang told a press conference after the annual shareholder meeting Thursday (31/5/07) that the company as focusing on strengthening production capacity to support growth in skin, soy sauce and ice cream products.

Unilever Indonesia was open to the possibility of acquiring other companies that could support Unilever’s core business of food and home and personal care.

Astra Sees H1 Vehicle Sales at 180,000 Units

PT Astra International sees total domestic vehicle sales at 180,000 units in the first half of 2007, company director Johnny Darmawan said on Tuesday (29/5/07).

The company had said that total domestic vehicle sales may top 400,000 units this year, recovering from a slowdown in 2006 when the market was hit by high interest rates and weak purchasing power.

"Sales in the next few months are seen reaching 35,000 units a month.  So in the first half, I think it can reach 180,000 units," Darmawan was quoted as saying by Reuters.

Vehicle sales in the country plunged by about 40% last year after the government more than doubled domestic fuel prices in October 2005.

Sales reached a record-high 533,910 units in 2005 before dropping to 318,883 units last year.  Analysts and industry experts predict volumes may reach 350,000-400,000 units this year.


Bank Mandiri Plans Telecom Loans

Bank Mandiri plans to lend up to Rp2 trillion ($228.8 million) each to the country's top two mobile phone operators, president director Agus Martowardojo said on Tuesday (29/5/07).

"We are interested in the cellular communication sector, so we are planning to lend between Rp1 trillion and Rp2 trillion each to PT Telkomsel and PT Indosat," Martowardojo was quoted as saying by Reuters.

The state bank has been providing loans to infrastructure sectors, such as toll roads and mining firms, as the economy seeks to speed up such projects to boost growth.

Separately, Telkomsel finance director Sudiro Asno said the company is seeking to raise financing of between Rp4 trillion and Rp5 trillion this year.  "We would like to raise between 4-5 trillion rupiah from bank loans and by issuing bonds," Asno said.

OCBC Singapore Ups Stake in Bank NISP

OCBC Singapore has increased its stake in Bank NISP to 72.4% from 72.35% after a rights issue launched recently by the bank.

Bank NISP raised Rp702.88 billion ($78.1 million) from the rights issue, Antara reported on Tuesday (29/5/07).

The bank’s management said the fund raised from the sale of new shares will be used to strengthen its capital to meet the minimum condition set by the central bank for the category of national bank in 2010.

The rights issue did not change the position of the International Finance Corp (IFC) as a shareholder of the bank, with 7.17%.


Japan Repeats Nuclear Plant Offer

Japan has repeated its offer to build Indonesia's first nuclear power plant in compensation for continued supply of liquefied natural gas (LNG), Antara reported on Monday (28/5/07).

Trade Minister Mari Pangestu, on a visit to Japan, said the nuclear power plant will guarantee domestic energy requirement, and Japan claims to have the best nuclear technology in the world.

Indonesia has said it will reduce supply of LNG to Japan to meet its growing domestic requirement. Vice President Jusuf Kalla has told Japan to increase its investment in the oil and gas sector if it wants major LNG supplies from Indonesia.

Earlier, investors from Japan, France and South Korea offered to finance and build the nuclear power plant estimated to cost $6 billion.

The government hopes to open tenders next year for the construction of a nuclear power plant with a capacity of 4x1,000 MW to be built in the Muria peninsula of Central Java. Construction is expected to start in 2010 and be completed in 2025.

PLN 2006 Loss Down 60.8%

State electricity company PT PLN suffered a net loss of Rp1.928 trillion in 2006, down 60.8% from a year earlier, Antara reported.

The decline in net loss was the result of the company's efforts to adjust to the market condition following the government's decision to double fuel oil prices two years ago, PLN’s president director Edi Widiono said on Monday (28/5/07).

According to PLN's financial report, the company booked Rp104.742 trillion in operational income in 2006, up 36.8% from 2005.

Revenue from customers rose 11.84% to Rp70.735 trillion in 2006 from Rp63.246 trillion a year earlier.

Meanwhile, PLN commercial and customer service director Sunggu Anwar Aritonang said the 60.8% drop in net loss was due in part to windfall profit. "In 2006 we earned windfall profit totaling Rp1.7 trillion from fluctuations in exchange rates," he said.

More Geothermal Plants Planned

To help ease the threats of power shortages in remote areas, state electricity firm PT PLN plans to build 30 power plants which will be powered by coal or geothermal. The plants are planned for outside Java with an estimated total capacity to reach 1,852 MW by 2010.

PLN power generation director Ali Herman Ibrahim told The Jakarta Post Monday (28/5/07) that the geothermal power plants would be built at Ulubelu in Lampung, Ulumbu in Flores, East Nusa Tenggara, Lumutbalai in South Sumatra and Lahendong in North Sulawesi.

State-owned oil and gas company Pertamina has set aside a budget of $24 million to develop geothermal plants in Lahendong, Ulubelu and Lumutbalai and PT Medco Energi Internasional recently announced a plan to build a geothermal plant in North Sumatra.

Herman said the capacity of each plant would range between 20 MW to 110 MW, with an estimated total capacity of around 1,000 MW.

Indonesia is believed to have nearly one-third of the world's geothermal resources so the government is stepping up efforts to develop its estimated 27,000 MW of potential geothermal power capacity. These efforts are expected to help reduce the country's dependence on oil and gas.

Investors however are hard to come by -- and their issues with the projects include a lack of necessary regulations or incentives. Pertamina and Chevron both have geothermal operations in Indonesia.

The archipelago has a total installed capacity of 807 MW of geothermal-created energy, which is around 3% of its potential. The government expects to complete a new regulation on tender procedures and licenses to explore and develop geothermal plants by the end of this year, said Energy and Mineral Resources Minister Purnomo Yusgiantoro,

Herman said PLN also plans to build coal-fired plants outside Java and Bali. 

These projects are not part of the 10,000 MW program initiated by the government to deliver an additional power supply of 10,000 MW by 2009.


Indonesia Considers Revoking Exploration Licenses

Indonesia is considering revoking licenses of oil companies that fail to start developing oil and gas fields within 10 years, a senior government official said on Monday (28/5/07).

Indonesia, OPEC's second-smallest producer, has been offering new exploration rights and financial incentives for oilfields in a bid to stem a steady decline in production as the country has failed to tap new oilfields fast enough to meet domestic demand.

"We will see the contracts. If the companies do not meet their commitments on exploration after the 10-year period, we will revoke their licenses," Oil and Gas Director General Luluk Sumiarso told Reuters.

He said the government would consider problems facing oil firms before taking a decision. "We understand that there are some problems faced by companies such as land clearing and difficulties to find rigs for exploration. For these reasons, we may extend their licenses," he said.

"If they have the contracts but are doing nothing then we will terminate them."

The country gives oil companies a 10-year period for exploration and drilling for oil and gas, but mines and energy ministry documents show that several oil firms are still exploring after the 10-year deadline.

Indonesia oil watchdog BP Migas said the companies should develop the fields within 10 years if they find oil. "Some companies have already drilled the wells and found oil. But some of them need more time to develop," Achmad Luthfi, BP Migas deputy chief, said.


Tax Incentives for New Refineries

The government will provide tax incentives for new oil refinery projects in an effort to boost the country's oil product output, the head of the investment coordination board told reporters on Wednesday (30/5/07).

Indonesian state oil and gas company PT Pertamina has nine refineries scattered around the archipelago with a combined capacity of around 1 million barrels per day (bpd). But it only supplies 70% of domestic oil product consumption and 30% comes from imports.

Muhammad Lutfi told reporters the country needs around $4 billion worth of investment to develop 300,000 bpd of processing capacity. His remarks came after the plan to develop a number of refineries in the country was stalled as construction costs doubled.

"Refinery projects are a capital-intensive investment. To make it economical, we have to provide tax incentives or tax breaks," Reuters quoted Lutfi as saying.

"Currently, we are in talks with a Kuwaiti investor to develop a refinery in Selayar island."

Lutfi had said the government has been trying to develop a 220,000-barrels-per day refinery in Selayar island, south of Sulawesi.

Tangguh LNG Plant on Track

The Tangguh liquefied natural gas (LNG) plant, located in a Papua gas field with proven reserves of more than 14 trillion cubic feet of LNG, is entering the final phase of construction and remains on track for its operations to commence in late 2008, The Jakarta Post reported on Monday (28/5/07).


At the end of the first quarter of this year, the construction of the plant, to be operated by a consortium led by BP Indonesia, was over 70% complete and all major equipment to build the train one and train two LNG processing facilities had been delivered, a statement said.


It also said drilling operations were scheduled to commence in late May.


BP Indonesia president director John C. Minge said the company would start drilling the first of 15 planned wells to be completed within the next 18 months in early June.


He also said the company was in discussions with a group of investors to build the third and final train in the complex. However, he refused to give further details, including the names of the investors.


Earlier this month, the world's largest LNG importer, Korea Gas (Kogas), told the Post it was interested in taking part in the development of a third train at the LNG plant.


BP is currently in the process of setting up a new consortium made up of global and domestic lenders to provide an additional $880 million to complete the construction of the plant.


Two major state-owned banks, Bank Mandiri and Bank Negara Indonesia (BNI), may join the loan syndicate to finance the construction of the plant.


The extra money will come on top of the $2.6 billion disbursed in August for the project by an international consortium of foreign banks.


BP is the largest single investor in the Tangguh plant, and holds a 37.16% stake. CNOOC, China's largest offshore oil producer, is the second biggest investor with 16.96%.


Other investors include Mitsubishi Ltd. and Inpex Corp., which hold a combined 16.3% interest in Tangguh. A Nippon Oil Corporation-led grouping has a 12.23% stake and LNG Japan, owned by Sumitomo Corp. and Sojitz Holdings Corp., holds 7.2%.


Japan Oil, Gas & Metals National Corp., Kanematsu Corp. and Mitsui & Co.'s Overseas Petroleum Corp. hold a combined 10% stake.

UAE's Aabar Completes Appraisal Well

Aabar Petroleum Investments Co., a UAE-based oil and gas investment firm, said Monday it completed drilling and testing at an appraisal well at the Sebuku gas prospect in Indonesia, Dow Jones reported on Monday (28/5/07).

The Makassar Strait-3 well located offshore east Kalimantan was drilled to a depth of 5,000 feet and flowed at a rate of 39.2 million cubic feet a day of gas, Aabar said in an emailed statement.

The well was drilled under Aabar's Sebuku production sharing contract, which covers a 5,920 sq km area onshore Sumatra, the company said in the statement.

"We will spend the next few weeks analyzing the results of the two latest appraisal wells along with the two earlier wells with a view to submitting a plan of development to the Indonesian authorities during the third quarter," Chris Gibson-Robinson, Aabar's vice president for operations and new business development in Southeast Asia, said in the statement.

Aabar, through its subsidiary PearlOil (Sebuku) Ltd., is the operator of the Sebuku concession and presently holds a 50% participating interest in it, the company said.

Aabar has acquired the remaining 50% in the concession but is still awaiting approval of the transaction from the Indonesian government and the oil and gas regulator, according to the statement.

INA Optimistic on Pangkah Block Tender

PT Ina International Co. said it will be ready with $411 million in its bid to acquire and develop the Pangkah Block in East Java, Antara reported on Tuesday (29/5/07).

Ina Director Minadi Pujaya said his company will acquire a 25% stake in the oil and gas block owned by ConocoPhillips at a price of $211 million.

After the acquisition, Ina will need to spend around $200 million to develop the oil and gas field, Minadi said.


Govt. to Renegotiate Inco Deal

The government intends to renegotiate the royalties payable by PT International Nickel Indonesia (Inco) for the term of its extended contract of work (CoW) from 2008 to 2025, a senior official told The Jakarta Post.

Simon Sembiring, Director General of Geology and Mineral Resources at the Energy and Mineral Resources Ministry, said Tuesday (29/5/07) that the royalties payable by Inco were based on a fixed sum of $78 per ton.

With the sharp increase in nickel prices since the extended contract was signed in 1978, the royalty formula was no longer appropriate, he said.

"Royalties of $78 per ton under the contract were based on the nickel price at that time, which stood at $2 per pound (about $4,000 per ton). Now the price of the metal has reached $20 per pound, or the equivalent of $40,000 per ton," Simon said.

He said that the state could suffer losses of between $4 million and $5 million a year if no revision was made to the royalty formula. Sembiring said the government would propose a floating rate in line with nickel prices on the global market.

Inco president director Arif S. Siregar said the company had not received any formal request from the government regarding a renegotiation of the royalty formula.

He said Inco had, in fact, proposed that the government employ a floating rate to calculate royalties during the negotiations prior to the signing of the 30-year extended contract. However, the proposal was turned down by the government as it did not expect the nickel price to reach the current level.

"As soon as we get a notification, we will discuss the issue with the shareholders to determine our stance," Siregar said.

Indonesia's largest nickel producer said it expected to produce between 155 and 165 million pounds of nickel in matte this year and to boost its annual production to 200 million pounds by 2010.

Antam to Build Five Smelters

State-owned miner PT Aneka Tambang (Antam) on Tuesday (29/5/07) revealed that it will build five alumina and nickel smelters at a total cost of $2.9 billion in a bid to add value to its mining operations.

President director Dedi Aditya Sumanagara said that the company planned to build an alumina smelter in Tayan, West Kalimantan, and one in Bintan, with installed capacities of 300,000 tons a year and 600,000 tons a year, respectively.

He said that a consortium involving Japanese company Marubeni and Singaporean company Swadenco had been formed in February to provide financial support for the $220-million Tayan project, while the company was in talks with a number of Chinese companies on financing of the $500-million Bintan project. The two projects are expected come onstream by 2010.

The company also plans to build a nickel smelter worth $50 million, a ferronickel plant worth $650 million and $1.5-billion nickel refinery producing nickel and cobalt. The projects will be built at the company's mines in Maluku.

Sumannagara said the projects would increase the company's nickel production to more than 50,000 tons per year from the current 20,000 tons.

Tin Output Seen Down 28%

Indonesia, the world's second-largest tin producer after China, expects to produce 90,000 tons of the metal this year with fewer small smelters operating, a senior energy and mines official told Reuters on Tuesday (29/5/07).

Indonesia has allowed 12 smelters in the tin-producing Bangka-Belitung islands to resume exports after a crackdown in October forced dozens of small smelters to close, sending the tin price on the London Metal Exchange to contract highs.

With domestic consumption of around 1,440 tons this year, the country will export around 88,560 tons of tin, said Simon Sembiring, Director General of Mineral Resources and Geothermal Energy. The government's figure is in line with market expectations.

Tin industry association ITRI in March forecast Indonesia would produce 90,000 tons of tin this year, down 28% from 125,000 tons in 2006.

Traders have been closely watching Indonesia, where smuggling of tin from Bangka had been blamed for causing a glut on global markets and sending prices tumbling in 2002.

Jakarta has issued tough rules for exports after the crackdown. Smelters must now produce refined tin with a minimum purity of 99.85%, own mining sites to source raw materials and provide proof of royalty payments.

Expectations of improving supplies from Indonesia have helped pull down tin prices on the LME from a contract high of $15,100 a tone on April 18.

United Tractors Pursues Coal Licenses

United Tractors, which owns Indonesia's biggest mining contractor, has said it is in talks to buy four coal concessions in the country after clients set up competing businesses, Bloomber reported on Friday (1/6/07).

The company may spend as much as $100 million on each acquisition, Gidion Hasan, finance director at United Tractors, said Wednesday. The Jakarta-based company's mining unit, Pamapersada Nusantara, this year spent $85 million to buy several coal licenses in one area with a total capacity of 3 million metric tons a year.

United Tractors, which earns half its revenue from extracting coal for companies, is seeking to buy coal mines after some of the company's 10 clients, including Bumi Resources, set up their own contracting businesses.

The mining contractor expects its new strategy and rising commodity prices to help it double sales to $3 billion in three years. "Many small coal concessions have been looking for mining
contractors, as they lack the expertise" to extract the fuel,” Ferry Wong, head of Indonesian research at BNP Paribas Securities Indonesia, said. "United Tractors will be a suitable partner for them."

United Tractors, formed in 1972, is more than half-owned by Astra International, Indonesia's biggest car retailer, and had $117 million of cash at the end of the first quarter, according to data compiled by Bloomberg.


Yunnan Tin Approves Bangka Project

The board of Yunnan Tin Co (YTC) has approved a plan to set up a 10,000 tons per year (tpy) crude tin smelter and a mining company in Indonesia, Metal Bulletin reported.

The $17 million smelter on Bangka island will be 51% owned by YTC, China's biggest tin producer. It will be constructed by Singapore's KJP Investments (KJPI) and PT Bangka Global Mandiri International (BGM), an affiliate of refiner Singapore Tin Industries (STI).

KJPI will own 48.4% of the smelter with BGM holding the remaining 0.6%.

YTC's board also approved a plan to set up a mining company to explore and mine tin, copper, lead, nickel and other metals in Indonesia. The company requires an initial investment of $2 million and will be 51% owned by YTC, 24% by KJPI, 20% by PT Karya Abadi Selars and 5% by PT Bangun Prima International.

KJPI is owned by Ku Siew Kuan and Petrus Tjandra, both investors in STI via KJP International. The projects still require the approval of relevant authorities in China, YTC said.

YTC's parent company Yunnan Tin Group and STI announced plans to build a 36,000 tpy integrated tin plant in Bangka island in April.

The joint venture, PT Indo Yunnan Mineral Utama, will invest in mining, dressing, smelting, refining and production of tin ingots, chemicals, powders and solders, with the ingots expected to be sent to STI's Tuas works in Singapore as raw material for its production of 99.99% purity tin.



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