Economic Affairs
 

 

 

 

 

 

 

 

 

News  
   
   
   
   
 

Economic Affairs : (312) 595-1777 Ext : 119, 107, 103
email : economy@indonesiachicago.org

NEWS AND VIEWS ON INDONESIA

6 December 2004

ECONOMY

Policies Emerge, Confidence Up

A series of statements on the fringes of the Association of Southeast Asian Nations (ASEAN) summit and a commitment to cut fuel subsidies are producing a clear picture of the government’s intended economic course, while consumer confidence is at a high.

 

Coordinating Minister for Economics Affairs Aburizal Bakrie said Indonesia will cut its corporate tax rate by a percentage point in 2005 and reduce it by another point each year over four years to spur investment and jobs and accelerate economic growth, Bloomberg News reported.

 

The move will bring the tax rate down to 29% in 2005. “This has been put on the tax reform draft to be presented to parliament,'' Bakrie said in Vientiane, Laos.

 

He said the government is also reviewing labor rules that stipulate minimum wages for workers and require employers to pay severance even to those fired for misconduct. Laws allowing administrations in districts and provinces to impose levies on companies, which have been criticized as increasing business costs and discouraging new investments, would also be reviewed.

 

Bakrie said the government would fund as much as 40% of the $72 billion to $75 billion needed to build roads, ports, power projects and telecommunications infrastructure in the next five years, with the rest to come from local and overseas investors.

 

Investors wishing to bid for infrastructure projects such as toll roads and power plants may be allowed do so as early as January, which will coincide with an investment seminar in Jakarta. Projects such as roads in rural areas will be carried out by the government, Bakrie said.

 

The government planned to fund its contribution to the infrastructure bill by borrowing from domestic banks and by the use of savings in government-run pension funds.

 

The government is counting on increased investments to help accelerate economic growth to 7.2% by 2009, from an estimated 4.8% this year, he said. “If you cut the red tape, the private sector will move,'' he said.

 

Fuel prices

Vice President Jusuf Kalla settled the debate over what the government would do over the ballooning fuel subsidy on Tuesday (30/11/04) when he said fuel prices would go up by 40%.

 

Comments by other senior government figures later suggested that the move would come during the major harvest period from March to April, when farm incomes are high, to reduce the impact on the economy.

 

Minister of National Development Planning Sri Mulyani Indrawati confirmed that a fuel price hike of between 10-40% was imminent, and that a government team was studying a modified, pro-poor subsidy scheme to replace the existing one.

 

Kalla said at the current cost of fuel the government was having to commit Rp10 trillion a month to subsidies, a price the country could not afford.

 

"It is high time for the government to move away from populist measures that come at the expense of most people," said Kalla.

 

The fuel subsidy is estimated to reach Rp59.2 trillion this year, against an initial projection of Rp14.5 billion.

 

Most analysts say the impact on the poor will be limited, since the majority of subsidies are enjoyed by rich car owners and smugglers, and government promises to push more funds into areas such as health and education are likely to minimize the social impact of fuel rises. Socially sensitive fuels like kerosene will continue to be subsidized.

 

Bond issue succeeds

Indonesia’s final bond issue for the year received strong support, with the offer attracting a total of Rp7.3 trillion in bids, well over the Rp1.8 trillion the government needed to meet its legislated target.

 

The issue Tuesday completed the full-year target of Rp32.3 trillion, including the $1 billion sovereign bond in March. The latest bond carries a 10% coupon rate priced to yield 10.27%.

 

The World Bank and the Asian Development Bank (ADB) also prepared to push more money into the system with the disbursement of $400 million in loans to meet a request from the government to help it with the 2004 state budget. The World Bank will provide a loan of $300 million and the ADB $100 million.

 

"This is a not new loan (deal) ... it was agreed to some time ago and the disbursement was planned for December," said World Bank spokesman Mohamad Al-Arief.

 

The government also raised Rp585.8 billion ($65 million) from the sale of a 16.8% stake in publicly listed Bank Niaga on Tuesday.

 

The Niaga sale follows the recent divestment of the government's 51% stake in Bank Permata and a 10% stake in Bank Danamon. Proceeds from the two sales total Rp4.51 trillion ($495 million).

 

The government is now planning to sell another 20% in Permata and minority shares in other listed banks such as Bank Central Asia (BCA), and Bank International Indonesia.

 

There was good news from the real sector. Exports were strongly up and imports continued to grow, indicating greater activity in the economy as manufacturers imported raw materials and capital goods. Inflation remained well within the government’s full-year target.

 

A survey showed that the retail sector will see sales growth of between 25-30% next year. Indonesian Retail Merchants Association (Aprindo) chairman Handaka Santosa said the confidence was based on the belief that the new government would create more jobs and boost incomes.

 

Consumer confidence was at a 37-month high, Danareksa Research Institute announced, up 6.2% in October following the success of the election process.

 

POLITICS

House Delays Legislation Process

The House of Represantives legislation body (BALEG) agreed on Monday (29/11/04) to delay consideration of all legislation until the outcome of discussions between the government and Parliament on what bills should be dealt with first.


BALEG chairman Muhammad AS Hikam said the deliberations would not begin until January and could take weeks to reach a conclusion.

 

It had been hoped that Parliament would improve on the lack-luster performance of the previous House and speed up consideration of at least 61 backlogged bills.


According to Law No. 10/2004, legislative processes should follow the priorities set out in a national legislative program jointly agreed on by the House and the government.

 

Ba’asyir ‘in Terror Camp’

The alleged former spiritual leader of the Jemaah Islamiyah (JI) terror network, Abu Bakar Ba’asyir, addressed recruits at a training camp in the southern Philippines four years ago where Muslim militants learned bomb-making skills, a radical told an Indonesian district court on Thursday (2/12/04).


Ba’asyir is accused of heading the organization and of inciting his followers to take part in the 2002
Bali bombing and last year’s attack on Jakarta’s J.W. Marriott Hotel that together claimed 214 lives.


The 66-year-old cleric denies visiting the
Philippines in 2000, but prosecution witness Yudi Lukito, a militant serving a prison term for illegal weapons possession, told the court he had seen a white-robed Ba’asyir at the camp that year.


"I saw him directly for about five to 10 minutes," Lukito said during Ba’asyir's continuing trial in
Jakarta. Earlier in the week, three other Islamic militants serving jail time failed to directly implicate Ba’asyir in any crimes.


A
Jakarta court last year acquitted the Central Java cleric of heading JI, which has been blamed for the Bali, Marriott and the more recent Australian Embassy bombings.

 

Saleh Promises Corruption Review

Attorney General Abdul Rahman Saleh has promised to complete hundreds of corruption cases throughout the country within the next three months, including a review of five major graft cases that have been dropped by the so-called "order to stop investigation," known as SP3.


"We want to see if the law has been applied correctly," the former Supreme Court justice told a hearing with the House of Representatives' Commission III on law, human rights and security.


Abdul Rahman, refused to name the five big corruption cases, but said they all related to the alleged misuse of Bank Indonesia Liquidity Assistance (BLBI) credits disbursed to bail-out ailing banks in the wake of the 1998 financial crisis.


Deputy Attorney General for Special Crime Soedono Iswahyudi says prosecutors across the country will bring 62 corruption cases to trial in the next two months and begin investigations into 86 more – many the result of increased scrutiny by civil society groups of local government affairs.


Businessman Gets 15 Years’ Jail

The South Jakarta District Court has sentenced businessman Rudy Sutopo to 15 years’ imprisonment and fined him Rp1 billion for his involvement in the Rp1.7 trillion ($185 million) Bank Negara Indonesia (BNI) scandal.

 

Both Sutopo and prosecutor Syaiful Tahir, who had sought a 20-year jail term for the defendant, said they would decide later whether to appeal.

 

The defendant is a commissioner of PT Mahesa Karya Mandiri, which allegedly received about $5 million as a result of the scam.

 

Officers from BNI’s Kebayoran Baru branch approved export loans to eight subsidiaries of the Gramarindo and Petindo Groups with fake letters of credit.


The courts are prosecuting 17 people, including former customer relations head Edi Santoso, who has been given a life sentence, former branch manager Koesdiyuwono, who received 15 years in jail, and five Gramarindo directors who are serving between eight and 15 years behind bars.

  

REGIONS

Nine Years for Ambon Separatist

The Ambon District Court Monday (29/11/04) sentenced Moses Tuanakotta, secretary-general of the Maluku Sovereignty Front (FKM), to nine years in prison for subversion, The Jakarta Post reported. Prosecutors had demanded a 15-year term.

 

Tuanakotta was found guilty of violating articles 106 and 110 of the Criminal Code for leading a South Maluku Republic (RMS) flag-raising ceremony on April 25, 2004.

 

The ceremony, which marked the 54th anniversary of the self-declared South Maluku Republic, sparked days of rioting.

  

BUSINESS BRIEFS

MACROECONOMY

Good Response for Bond

The government auctioned its last bond issue of the year, receiving Rp1.8 trillion ($199 million) on Tuesday, the Ministry of Finance said. The latest bond carried a 10% coupon rate and was priced to yield 10.27%. 

 

Director General for Treasury Mulia Nasution said the auction drew Rp7.3 trillion in bids but the offer was restricted in line with the budget target of issuing Rp32.5 trillion this year.

 

The issue Tuesday (30/11/04) completed the full-year bond issue target of Rp32.3 trillion. This included a $1 billion sovereign bond that was sold in March.

 

Exports Keep Rising

Exports continued to rise in October, moving up 1.62% to $7.27 billion from a month earlier, bringing to $58.5 billion the value of exports in the first 10 months of the year, Antara reported.

 

Non-oil and gas exports rose 3.13% to $5.86 billion from $5.69 billion, while oil and gas exports fell 4.27% to $1.4 billion from $1.47 billion, chief of the Central Bureau of Statistics (BPS), Choiril Maksum, said Wednesday (1/12/04).

 

Oil and gas exports declined due to a 12.84% drop in crude oil exports to $530.8 million and a 13.05% decline in oil products exports to $161.9 million. Gas exports rose 5.95% to $712.1 million.

 

Machinery and electrical appliances topped the list of non-oil and gas exports from January to October this year, contributing $5.55 billion to the total export value.

 

Animal fat and oil came in second with $3.35 billion, followed by rubber and rubber products at $2.47 billion, and unknitted garments at $2.43 billion.

 

Japan was the biggest market for Indonesian products in the first 10 months of 2004, buying $6.94 billion worth of commodities.

 

Imports increased by around half to $4.32 billion, bringing the trade surplus to $2.95 billion in October from $2.19 billion in October last year.

 

Inflation Stays Low

The annual inflation rate slowed in November on lower-than-expected rises in food prices during a major religious holiday season due to ample supplies, which should help the central bank keep interest rates low, Reuters reported.

 

The announcement on Wednesday (1/12/04) by the Central Statistics Bureau (BPS) of 6.18% inflation in the year through November came as hopes in recent weeks of sustained low interest rates helped boost share prices to record highs and attracted strong demand for government bonds.

 

Inflation edged up 0.89% month-on-month in November, pushing the cumulative figure to 5.31% in the first 11 months of this year, BPS head Choiril Maksum said. Year-on-year, inflation rose 6.18% in November.

 

Bank Indonesia does not expect the year-end inflation rate to exceed 6.3%, below the official estimate for the year of 7.0%, deputy governor Hartadi said.

 

"Assuming that the December inflation rate will not be too far away from November levels, 2004 inflation will not be higher than 6.3%," Hartadi told reporters.

 

The bank also projects inflation will remain within its 2005 target of 6.5% despite the government's plan to raise fuel prices next year, he said.

  

STATE CONCERNS

Caution on Provincial Bonds

Bank Indonesia (BI) called Monday (29/11/04) for provincial governments to exercise caution in issuing bonds, saying they will have an impact on the country's economy, Antara reported.

 

"Even though the law allows provincial governments to issue bonds, they must exercise caution in issuing them," BI deputy governor Aslim Tadjuddin said during a meeting with Regional Representatives Council (DPD) leaders.

 

Once such bonds are issued, the provincial governments will find it difficult to restrict the number of buyers, either domestic or foreign, he said.

 

"If foreign buyers buy the bonds, there will be conversion risks that will have a comprehensive impact on our country in case of problem," he said.

 

He said the government must study carefully any plan to issue provincial government bonds and provincial governments could issue such bonds only after they pass a tight selection process.

 

‘Niche’ Growth Needed: Pangestu

Minister of Trade Mari E. Pangestu has repeated earlier comments that Indonesia must develop expertise in specific niche markets to become a strong partner in East Asian growth.

 

In an interview with The Jakarta Post, Pangestu repeated a theme she first presented in an address to the Jakarta Foreign Correspondents Club.

 

She said Indonesia would face continuing problems in competing with China and other nations on low-cost consumer items, especially with a new free trade agreement with China. The FTA represented a good opportunity for Indonesia, with evidence of Chinese willingness to improve entry conditions for Indonesian agricultural commodities. 

 

“We will fight to get into the China market,” she said.  “In order to do that … we have to identify which products have the potential to win in competition against Chinese products.”

 

Pangestu said Indonesia could benefit from greater stress on exports of manufacturing products such as electronics, automotive goods and textiles, with tariffs to be lowered gradually starting next year until fully liberalized by 2010.

 

“We can and must take full advantage of the increasing tendency of East Asia to become a regional production center where China is the core. China becomes the center due to its big exports and big domestic market,” she said.

 

Indonesia could become an alternative supply source or a complement to China, she said. “The bottom line is we must take part in the production network.”

 

“For example, we know that we have potential in electronics. Electronics export growth is the highest among the country's non-oil and gas exports. It is our future industry.”

 

Japan to Focus on ASEAN

Japan will favor ASEAN over China as an investment destination in the coming years as China has been saturated, a Japanese business leader said, according to Antara.

Hirota Nakanishi, Japanese chief delegate to the ASEAN-Japan Center, said in Semarang, Central Java, on Wednesday that flows of Japanese investment to China will be reduced in favor of ASEAN.

 

He said Japan will soon invest in various sectors in Indonesia and other ASEAN countries, with investment in Indonesia to concentrate on the manufacturing, automotive, furniture and mining sectors and agribusiness, he said at a meeting with Central Java Governor Mardiyanto.

 

Double Railway Project Planned

The government hopes to start the construction of a double railway track between Cikarang in West Java and Manggarai in Jakarta in 2006, Antara reported.

 

The 35 km track will be built with a loan fund of 41 billion yen from the Japan Bank for International Cooperation (JBIC).

 

Final land clearance will take place next year`before construction starts in 2006 to be completed in 2009, a spokesman for the Communications Ministry said Tuesday (30/11/04).

 

The government will provide Rp281 billion ($31.2 million) for land clearance as the JBIC loan will be used only for the construction of railway, railway stations, flyovers and electricity installations.

 

Boost for Manufacturing

The government is to encourage development of manufacturing industry to stimulate growth equal to pre-crisis rates, National Development Planning Minister Sri Mulyani Indrawati said Wednesday (1/12/04), Antara reported.

 

She said the sector had created significant employment during the period when it was growing at 10-11%, she told a working meeting with the House of Representatives' commission on finance and national development planning.

 

"Since the crisis, the manufacturing industry has been growing at only 5% a year. The decline in this sector was marked by capital outflow and industry relocations," she added.

 

"We have set the target for the growth of the manufacturing industry but it will need private investment as well as public support. Our growth target in this sector is 8%," she said.

 

Sri Mulyani said the government would also increase investment growth from 17.2% in 2004 to its pre-crisis level of 24.4%.

 

In agriculture, she said, growth was now 2.9%, below its optimum level. This was caused by problems including urbanization and inadequate irrigation systems, among others.

 

"The government will make various efforts to enable agriculture to reach a growth rate of 3.3% in the next few years," she said.

 

Growth in the manufacturing and agricultural sectors was expected to encourage the country's economic growth to reach 6.6% in the next five years.

 

Imports of Shrimp Banned

The Maritime and Fisheries Ministry banned imports of shrimp starting Thursday (2/12/04) from six countries accused by the United States of dumping, Antara reported. The six countries are Thailand, China, India, Vietnam, Brazil and Ecuador.

 

The United States has accused Indonesia of importing shrimp from China and Thailand to be re-exported, and threatened to impose the anti-dumping duty on shrimp from the country as a result.

  

PRIVATE SECTOR

S&P Raises Indosat, Telkomsel Ratings

Standard & Poor's raised its long-term local currency rating on PT Indonesian Satellite Corp. (Indosat) on Wednesday to 'BB' from 'B+'. The outlook is stable.

 

At the same time, Standard & Poor's affirmed its long-term foreign currency rating on the company at 'B+'. The outlook on the foreign currency rating is positive.

 

"The upgrade in the local currency rating on Indosat reflects the company's improving financial profile, as well as the better economic environment in Indonesia," said S&P’s credit analyst Yasmin Wirjawan.

 

The ratings reflect Indosat's position as one of the leading telecom operators in Indonesia and its moderate leverage, robust domestic wireless growth prospects, and a degree of insulation from sovereign debt risks.

 

The agency said these strengths are offset by growing competition in the wireless and international markets, and the risk of further rupiah depreciation.

 

S&P also raised its long-term local currency rating on PT Telekomunikasi Selular (Telkomsel) to 'BB' from 'B+'. The outlook is stable.

 

Standard & Poor's also affirmed its long-term foreign currency rating on the company at 'B+'. The outlook is positive.

 

A statement said the upgrade recognized the company's improving financial profile, as well as the improved economic environment in Indonesia.

 

Cement Sales Up 8.3%

Cement sales including exports are predicted to reach 35 million tons this year, an increase of 8.3% from last year, Antara reported.

 

Agung Wiharo, president of state-owned PT Semen Gresik, said sales in November and December are expected to decline because of the long holidays.

 

In the first 10 months of this year sales on the domestic market reached 25.25 million tons or an increase of 8.6% from the same period last year. Exports totaled 6.46 million tons or an increase of 3.5% from the same period last year.

  

SOEs

Indonesian Aircraft Maker Delivers CN-235 to Pakistan Air Force
Indonesia's state aircraft manufacturer PT Dirgantara Indonesia (PTDI) delivered a CN-235 aircraft to the Pakistan Air Force (PAF).


The 40-seater airplane is the third of four airplanes ordered by the PAF, PTDI president Edwin Sudarmo said after delivering the airplane to the PAF in a ceremony here on
Friday, Dec. 3 2004 as reported by Antara.


Also present at the function were PAF technical representative, Sajid Mehmood, and Pakistani Ambassador to Indonesia Sayed Mustafa Anwar Husain.


Under the US$54 million contract signed in 2004, the company delivered the first of the four airplanes to PAF in February this year and the second last September.


"Three of the four airplanes will be used to carry troops and the other will be used as a presidential or a VVIP airplane," he said.

 

Tanker Order for PT PAL

State-owned shipbuilder PT PAL has won an order from an Italian firm for a chemical tanker, Antara reported. No details of the size of the vessel were released.

 

A director of PT PAL, Adwin H Suryohadiprojo, said the company had also signed contracts with Italy's Cube SpA Lines for the supply of a 18,500 DWT Dry Cargo Vessel, with Turkey's Geden Lines for the supply of 50,000 DWT Double Skin Bulk Carrier (DSBC) and with Germany for the supply of a 50,000 DWT tanker.

 

PT PAL Indonesia recently delivered a 45,000 DWT Double Skin Bulk Carrier (DSBC) to PT Meranti Maritime Ltd, a joint venture company owned by PT Bahana Wahana Sejati Indonesia and Fairmont Shipping Ltd, Hong Kong.

  

BANKS

Bank Niaga Stake Sold

The government raised $65 million Tuesday (30/11/04) from the sale of a 16% stake in Bank Niaga, the country's seventh largest lender, sources familiar with the transaction said, Dow Jones Newswires reported.

 

The sale is the latest effort by the government to raise funds to help finance the state budget, and follows the government sale of a 10% stake in PT Bank Danamon Indonesia for $188 million earlier in November.

 

The Niaga stake was sold to domestic and institutional investors at a price of Rp460 a share, equivalent to 1.5 times book value as of end-June 2004, and the same price at which the shares closed Monday.

 

The block of shares was 15 times subscribed at the Rp460 price level, which was priced cheaper than its local counterparts, the source said. Other Indonesian banks are roughly trading around two times their book value currently. The Bank Danamon stake sale was priced about 2.1 times its book value.

 

The sale underscores growing investor optimism toward Indonesia following the recent presidential elections in September, Dow Jones said.

 

The government will own about 5% in Niaga after the deal. It also plans to sell its minority ownership in PT Bank Central Asia, PT Bank Internasional Indonesia and PT Bank Permata later this year.

 

OCBC to Raise NISP Stake

Oversea-Chinese Banking Corp., Singapore's third largest bank, said Thursday (2/12/04) it has entered into a conditional sale and purchase agreement to buy an additional 28.5% stake in Indonesia's PT Bank NISP, raising its stake to 51%, Dow Jones Newswires reported.

 

OCBC also said it will make a tender offer for the remaining shares in Bank NISP it doesn't own, in accordance with Indonesian law.

 

"Assuming relevant approvals for the proposed investment are obtained, OCBC Bank expects the tender offer for Bank NISP to be launched and completed within three to six months from the date of this announcement," the Singapore bank said.

 

OCBC said it will buy the additional Bank NISP shares from several existing shareholders, including members of the Surjaudaja family, the previous controlling shareholder.

 

OCBC spokesman Koh Ching Ching said a price for the shares hasn't been fixed, but the amount will be 2.5 times the net tangible asset of Bank NISP.

 

In April, OCBC bought an initial 28.5% stake in Bank NISP for around S$119 million - or around 2.5 times the audited NTA as of December 31, 2003.

 

"With majority control of Bank NISP, OCBC Bank will be well positioned to achieve its objective of having a significant presence in Indonesia, the bank's third major market," OCBC said in a statement.

 

The Singapore bank added it plans to keep Bank NISP as a separately managed entity and to retain the Indonesian bank's name and management.

 

Bank NISP is Indonesia's 12th largest bank with total assets of Rp16.6 trillion as of September 30, 2004. It has a distribution network of more than 150 branches and offices and more than 7,000 shared automated teller machines across the country.

 

 INVESTMENT

Proton Assembly to Start

PT Proton Tracoma Motors, a Malaysian joint venture between Proton Holdings Bhd. and Tracoma Holdings Bhd., will start assembling Proton cars in Indonesia from February, the Edge Financial Daily said.

 

Proton will start trial production of its Wira and Gen.2 cars at the Indonesian plant, the paper quoted Tracoma managing director Mohamed Shah Abu Bakar as saying. Tracoma, another Malaysian firm, makes auto parts.

 

The Indonesian plant will initially assemble 8,000 cars a year from knocked-down parts made by Proton in Malaysia, the paper said. The plant has a maximum capacity of 50,000 cars a year.

 

"For the first six months, we will focus on assembling the Wira models for the Indonesian market. We expect (the commencement of the operations) to be on schedule as we have been working very hard for the past three months to prepare the factory," Mohamed Shah said.

 

China Automotive Move

Indonesian firm PT Amazon is negotiating with the Chang'an Automobile Group, a mini-car maker in southwest China's Chongqing Municipality, on the import of completely knocked-down vehicles or technology from the Chinese group, Xinhua news agency reported.

 

The two sides recently reached agreement on the purchase of 5,000 sets of mini-car knock-downs.

 

Amazon has just undertaken an inspection of Chang'an Auto, and is hoping to secure long-term cooperation in complete vehicle manufacturing and technology imports. Amazon currently has engine, die and assembly factories. 

  

OIL & GAS

Govt. Posits $35 Oil Price

The government is likely to set an average oil price of $35 in its budget for 2005, a move that would dramatically boost expenditure on fuel subsidies at their present level.

 

Minister of Energy and Mineral Resources Purnomo Yusgiantoro told members of the House of Representatives Thursday (2/12/04) the figure better reflected the movement of global oil prices, The Jakarta Post reported.

 

The government uses the estimate to set the budget for the fuel subsidy each year. The current budget estimates for 2005 put the average price of oil at $24.

 

"The revision would, of course, increase the fuel subsidy, should we intend to maintain the existing policy. That's why we're here, to discuss options to gradually lift subsidies on fuel," Purnomo said.

 

Based on the new price, fuel subsidies would reach Rp53.4 trillion, compared with the initial estimate of Rp19 trillion, he said.

 

"We want to air alternative schemes with legislators so that we can reduce this subsidy and cause as little impact as possible," Purnomo said.

 

On Tuesday, Vice President Jusuf Kalla said a reduction in the subsidy would result in a hike of up to 40% in domestic fuel prices. Government officials say they expect a cut in subsidies early next year, but Parliament has said it would be better to wait until at least April. 

 

The fuel subsidy for this year is estimated to reach Rp59.2 trillion on the back of record high global oil prices, against an initial projection of Rp14.5 trillion.

 

Purnomo said one option was to lift subsidies on industrial diesel oil, premium gasoline and bunker oil but retain them on kerosene and automotive diesel oil, which would result in a subsidy reduction of up to Rp25 trillion.

 

Chief Economics Minister Aburizal Bakrie said the government will raise the prices of oil fuels to coincide with rice grand harvest between March and May when farm incomes will be more resilient to price rises.

 

Bank Indonesia said the government should carefully consider the timing of its plan to raise domestic fuel prices next year, so as to keep its effect on the country's inflation rate within manageable limits.

 

"I agree with recent suggestions that the hike be done during harvest time," deputy governor Hartadi Sarwono said on Friday.

 

"The government should also properly channel fuel subsidy funds it will save from the hike for health, educational, and infrastructure development purposes," he added.

 

BP Asked to Boost Tangguh Plans

The government has asked British energy giant BP Plc to increase investment in the Tangguh liquefied natural gas (LNG) project in Papua to build another production unit, Antara reported.

 

BP originally planned to build only two production units to meet supply under contracts already signed with Chinese and American buyers, Energy and Mineral Resources Minister Purnomo Yusgiantoro said.

 

Purnomo said the government has asked BP to build more production units at Tanggul LNG project to meet growing demand for LNG

 

He said the LNG market is expanding. Chile is the latest country to express interest in importing LNG from Indonesia.

 

Purnomo added Monday (29/11/04) that BP is negotiating to extend contracts for natural gas blocks that will supply Tangguh LNG plants, Reuters reported.

 

Purnomo said the Indonesian side was seeking better terms for an extension. "BP wants the contracts extended because their gas block contracts will expire before their LNG contracts to supply buyers finish. The government and BP is still negotiating the conditions," he said.

 

The planned LNG plants at Tangguh will get natural gas feedstock from the Wiriagar, Muturi and Berau blocks, which together have combined reserves of 14.4 trillion cubic feet (tcf).

 

An official at the Mines and Energy Ministry said the contract for Wiriagar would expire in 2023, Muturi in 2022 and Berau in 2017.

 

E. Timor May Go to UN

The East Timor government says it may take its dispute over maritime boundaries with Australia that is blocking a major oil and gas deal to the United Nations.

 

Australia, in response, says such a move would be unwise, the Associated Press reported.

 

Negotiations between Canberra and Dili on sharing some $30 billion in royalties and drawing a maritime boundary broke down in October.

 

East Timorese Foreign Minister Jose Ramos Horta said unless Prime Minister John Howard intervened in the talks, his country would request that the UN General Assembly ask the International Court of Justice to provide an opinion on where the boundary should be drawn.

 

Foreign Minister Alexander Downer said Wednesday (1/12/04) East Timor was free to go to the United Nations. "Can they do it? Of course they can," Downer told reporters. "Would it be wise for them to do it? Well, that's a judgment they'll have to make themselves."

 

Horta accused Australia of blackmailing his impoverished country by making a final offer of $3 billion compensation over 30 years for East Timor agreeing to the boundary that Australia wanted. Australia had previously offered $4.3 billion compensation, he said.

 

Downer said Horta's figures were incorrect but declined to make public Australia's version of the negotiations.

 

Australia has in any case withdrawn from the International Court of Justice's jurisdiction so that a ruling would not be binding. Australia argues the boundary should lie close to the East Timorese coast off Australia's large underwater continental shelf.

 

Pertamina in Islamic Deal

State oil company Pertamina signed a deal Monday (29/11/04) that bankers said was the country's first global Islamic finance facility, the Financial Times reported.

 

Indonesia, home to the world's biggest Muslim population, is often mentioned as a major potential growth market for Islamic banks and the Pertamina deal is seen as the precursor of more finance deals, including a sovereign bond issue.

 

Brokered by the local unit of HSBC Amanah, HSBC's Islamic banking subsidiary, the state oil company is expected to secure up to $250m in Islamic trade financing to fund the purchase of crude oil from the Middle East.

 

The facility involves large Islamic financing institutions such as the Kuwait Finance House, Dubai Islamic Bank, and Egypt's Faisal Islamic Bank, which have never done substantial business with Indonesian companies, according to bankers.

 

The deal is seen as a vote of confidence in Indonesia by Middle Eastern investors, many of which have been looking for places other than the United States to invest their funds because of Washington's deteriorating image in the Islamic world.

 

MINING

Ban on Silver Exports Scrapped

A ban on the export of silver designed to encourage the local jewelry industry is to be lifted, only six months after it was imposed, Antara reported.

 

Yuwellis Yunis, a senior official of the Ministry of Trade, said the ministry has agreed to revoke its previous decision because producers had complained that demand in the local market was inadequate to absorb production.

 

Earlier, the Ministry of Energy and Mineral resource asked the Trade Ministry to review the ban, saying it would cause potential losses to producers.

 

In 2003, the country exported 215.53 tons of its production of 285.2 tons of silver with sales in the domestic market totaling only 30.3 tons.

 

Bukit Asam Plans Rail Line

State-owned coal mining firm PT Tambang Batubara Bukit Asam plans a major investment next year to improve rail transport facilities for its coal products, The Jakarta Post reported.

 

President Ismet Harmaini said the company, along with power firm PT Indonesia Power and state railway firm PT KAI, had planned to invest some Rp1.8 trillion ($200 million) to enhance railway facilities in South Sumatra and Lampung.

 

Ismet said improvement in the railway would help PTBA expand its production output and prevent disturbance in distribution chains due to the poor condition of the railway system and associated facilities.

 

"Transporting coal by train has always constituted an obstacle for the company in increasing production and meeting market demand," Ismet told a hearing of Commission IX for energy and mining on Monday (29/11/04).

 

The investment will cover costs for constructing new railway lines, replacing and repairing old railway lines, and providing new locomotives and coaches.

Jakarta, 9 December 2004

source : Dept.of Foreign Affairs,Jakarta

 

Home | Back

 

Copyright © 2003 Indonesian Consulate, Chicago, IL USA
This site is designed and maintained by Adm Dept