THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS

REPUBLIC OF INDONESIA

Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4 Jakarta Pusat

Tel: (021) 380-8384    Fax: (021) 344-0394    Website: http://www.ekon.go.id

Trade and Investment News, 15 January 2007

 Highlights

Politics

•  Indonesia introduces UNSC resolution on Mideast

•  Concern expressed over US reinforcements for Iraq

Regions

• Debris from ill-fated Adam Air plane reaches shore

•  President endorses former rebel as next Aceh governor

• Bali sites may get World Heritage listing

Economy

• MoUs signed on major investments in bio-fuels

• Russian company to team up on telecommunications

Business briefs

Macro economy

• No inflationary pressure ahead, says coordinating minister

•  Job growth eases unemployment problems

Investment

•  Share market set for more gains

State concerns

• Regions to be encouraged to outlay budgets

SOEs

• State pension fund Jamsostek posts solid profit

Private sector

• PT Astra International sees 10% automotive sales growth

Banks

•  New policy package relaxes lending rules to boost growth

• Commonwealth Bank, Rabobank, complete acquisitions

Power

• State power utility PLN aims for profit

Oil & gas

• Indonesia emerges as world bio-fuels leader

• East Java mudflow disaster natural event, says geologists

Mining

• Papua moves to acquire stake in Freeport

POLITICS

Indonesia Introduces UNSC Resolution

Indonesia introduced a draft UN statement on Tuesday (9/1/07) to promote the momentum of the recent meeting between the Israeli and Palestinian leaders, the Associated Press reported from New York.

Indonesia's UN Ambassador Rezlan Jenie, a new member of the Security Council, said his aim in presenting the draft was "to try to build up a positive momentum towards the future" following the recent meeting between Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas, and between Olmert and Egyptian President Hosni Mubarak.

Jenie said council experts would be discussing the draft statement, though no date has been set for a meeting. "Let's see how we can work together and try to narrow differences" and have something that could be adopted by consensus, he added.

Concern Over Iraq Troop Surge

Indonesia is uneasy about the possibility of more US troops in Iraq and would like to see
a Muslim peacekeeping force established, Foreign Minister Hassan Wirayuda said on Monday (8/1/07).

US President George W. Bush outlined a shift in policy on Iraq last week, with a short-term increase of up to 20,000 US troops to try to restore stability.

When Bush visited Jakarta in November, Indonesia suggested a set of resolutions on Iraq, including reconciliation of sectarian groups and involving Muslim troops.

"Entering the fourth year of the war in Iraq, Indonesia views that the role of international society is absolutely needed in its resolution," Wirayuda said in a speech to mark the New Year.

Asked about the expected US troop surge, he said: "We are concerned, if it is true, that in the new policy on Iraq America would give priority to military deployment in resolving the problem. We know that the existence of the US forces and their allies is part of the problem there," the minister said, stressing the need for "buffer forces involving Muslim nations.”

 REGIONS

Crash Debris Found, Search Narrows

Police and the military have narrowed their search to focus on a beach area and surrounding waters where plane wreckage from a missing Indonesian airliner has been found, Reuters quoted the head of the search as saying on Friday (12/1/07).

Pieces of the Adam Air Boeing 737-400 that vanished from radar screens on January 1 with 102 people aboard were found in the past few days at roughly the same location, floating in the sea or washed up on beaches.

The biggest part found so far appeared to be the tail stabilizer, found snarled in a fisherman's net off Lojie Beach near Pare-Pare in South Sulawesi. A life vest, food trays and interior material have also been recovered by residents, military and police in the sea and on the shore around Pare-Pare.

"Search teams in the mountains have been pulled back and we have built new posts in Pare-Pare. Marines are helping police and army scour beaches there," said 1st Air Marshal Eddy Suyanto, who is coordinating the search.

Suyanto suggested the plane had crashed into the sea off Majene, northwest of Pare-Pare, adding that he believed it had disintegrated into small pieces. He declined to say whether this could have happened before or after it hit the water.

Despite the possibility that the Boeing had broken up, Indonesian navy vessels assisted by a US oceanographic ship were still trying to locate its fuselage, which could still house the black box that could provide clues to explain the disaster.

The plane was heading from Surabaya in East Java to Manado in North Sulawesi when it vanished in bad weather on New Year's Day.

President Endorses Former Aceh Rebel

President Susilo Bambang Yudhoyono met Aceh governor-elect Irwandi Yusuf on Thursday (8/1/07) and endorsed the former Free Aceh Movement (GAM) rebel as the province’s first directly elected leader, presidential spokesman Andi Malarangeng told Antara after the meeting.

Yusuf and running mate Muhammad Nazar will be installed as governor and deputy on February 8. Aceh's Independent Election Committee (KIP) declared Yusuf the winner of December's poll after he won 768,745 votes, or 38.20% of the more than two million ballots counted across the province.

During the occasion, Yusuf said his plan for Aceh was consistent with the national programs outlined by the Yudhoyono administration. The governor-elect said the pair would focus on poverty eradication, job creation, quality education, improving health services and empowering small- and medium-sized enterprises.

After the meeting, Yusuf reiterated he had no plans to split Aceh from Indonesia. "There is no longer a problem about Aceh being part of the Unitary State of Indonesia," Yusuf told Antara.

Bali May Get World Heritage Sites

Indonesia has nominated three sites in Bali for world cultural and natural heritage listings with UNESCO, The Jakarta Post reported on Saturday (13/1/07).

Herry Untoro Drajat, Director General for Culture at the State Ministry of Culture and Tourism, said the three places had outstanding historical and natural worth.

The Jatiluwih rice terraces in Tabanan regency, have been nominated, along with Pura Taman Ayun temple in Mengwi, Badung, and Tukad Pakerisan River in Gianyar regency.

Indonesia already has several sites with heritage listings, including the seventh century Buddhist temple Borobudur, the Prambanan Hindu temple, Sangiran prehistoric park in Central Java and Ujung Kulon National Park in West Java.

"Members of the committee visited our nominees last November and will come to the sites again on January 21," Drajat said, adding that the winners would be announced in June.

ECONOMY

Bio-fuel, Telecom Investment Plans

The Sinar Mas group signed memoranda of understanding on Tuesday (9/1/07) for $5.5 billion in bio-fuel development and said it would work with Russian investor Altimo in the telecommunications sector.

 The MoUs were with China National Offshore Oil Corp. (CNOOC) and Hong Kong Energy (Holdings) Ltd.for programs in Kalimantan and Papua.

 The project will develop bio-diesel from crude palm oil and bio-ethanol from sugar cane or cassava.

According to a statement from Sinar Mas Agro Resources & Technology (SMART), the three companies will develop the project in three phases and over eight years.

In the Russian deal, Sinar Mas and Altimo will cooperate in PT Indoprima Mikroselindo (Primasel), which earlier said it planned to invest $2 billion in the sector.

 Altimo will join as a new shareholder in the subsidiary of the Sinar Mas Group, a company official told the newspaper Investor Daily.

 Primasel Director Ubaidillah Fatah said Primasel will commercially launch a cellular product based on CDMA technology in February or March this year.

 Meanwhile a new report from the World Bank said Indonesia can mobilize Rp375 trillion ($41.1 billion) from financial institutions parked outside the banking sector to fund development programs, XFN-ASIA reported.

 “What is needed is a broad agenda of reforms and the time is now right to broaden the policy debate beyond banks and bring non-bank institutions' issues also center-stage,” said P.S. Srinivas, principal author of the report.

 "Non-bank assets currently worth Rp375 trillion ($41.16 billion), representing 14% of GDP, represent substantial resources that can support Indonesia's development," Andrew Steer, Country Director for the World Bank in Indonesia, said in a statement.

 Steer said improving non-bank financial institutions has been internationally demonstrated to be a sound route to financing long-term development as well as increasing access to and reducing the cost of financial services.

 He said Indonesia needs to spend $5 billion per year in infrastructure investment in order to sustain 6% GDP growth.

 State pension fund Jamsostek said it is already looking to invest in areas including financing of low-cost housing and soft loans for small and medium enterprises.

 The government is to issue a new regulation allowing Jamsostek to invest a part of its assets in the areas, The Jakarta Post reported.

Under a draft government regulation, due to be issued in February, Jamsostek will be allowed to invest Rp5 trillion annually in the low-cost housing sector, and 10% of its assets, now totaling Rp38 trillion, in SMEs.

Bank Indonesia (BI) Governor Burhanuddin Abdullah said the central bank will relax its guidelines on non-performing loans, credit ceilings and loan dispersion to encourage stronger lending to the real sector.

BI will require banks to strengthen their risk management on loans, rather than setting excessively strict criteria for determining whether a loan has gone bad or not, The Jakarta Post reported.

 Coordinating Economics Minister Boediono said Tuesday that economic growth in 2006 is expected to be better than the previous year on the back of stronger exports, investment and government spending.The economy expanded 5.6% in.

 Boediono also said he was hoping that the central bank would further cut its benchmark interest rates this year to spur economic growth further.

 He said the only potential inflation sources this year might come from disruptions in the supply of goods due to "weather and transportation vagaries".

 Boediono stressed that the government has no plans to impose the type of strict foreign exchange controls imposed last month by Thailand's central bank.

 BUSINESS BRIEFS

MACROECONOMY

No Serious Inflation Threat in 2007 - Minister

The government perceives no serious threat of a growth-stunting inflation surge in 2007 and will accelerate efforts to spur economic expansion this year, Coordinating Minister for the Economy Boediono said Tuesday (9/01/07).

The only potential inflation source this year might come from disruptions in the supply of goods due to "weather and transportation vagaries", Boediono was quoted as saying by Dow Jones Newswires.

 He said the government will continue to import rice until at least the domestic rice harvest season in March and April.  A surge in domestic rice prices caused on-year inflation to jump to 6.6% in December from 5.27% in November and spurred the government to accelerate rice imports.

 Indonesia's macroeconomic performance this year will likely be better than in 2006, the minister said.  A potential downturn in the global economy has not yet emerged, he said.

 The government has forecast an ambitious 6.3% gross domestic product growth in 2007, compared to a projection of 5.8% in 2006.  The economy expanded 5.6% in 2005.  "We want to accelerate growth without sacrificing stability," Boediono said.

 Indonesia's economic growth will rise on a combination of ongoing monetary policy easing and a rise in exports, he said, noting that there is still room for the central bank to make further cuts in its benchmark one-month interest rate, without providing specific forecasts.

 BI cut its benchmark rate by 25 basis points to 9.5% the previous week.  Analysts and central bank officials expect the benchmark rate will bottom out at about 8% to 9% in 2007.

 Boediono said monthly short-term investment inflows of up to $1 billion don't threaten to fuel as sharp spike in the value of the rupiah against the dollar, as happened to the Thai baht in recent months.

 Progress on Jobs: Minister

Coordinating Minister for the People's Welfare Aburizal Bakrie claimed that 2.8 million new jobs had been created between February 2005 and August 2006, The Jakarta Post reported on Thursday (11/01/07).

 Bakrie said that investments in the service, construction and industry sectors could be credited for the new jobs.  "The services sector alone created 2.2 million jobs, followed by construction with 300,000 jobs and industry 300,000 jobs."

 He said there had been a rapid decline in the national unemployment rate.  Using data from the Central Bureau of Statistics, the minister said that "open unemployment" -- people of working age who do not work at all -- was down from 11.24% in November 2005 to 10.28% in August 2006.

 He however conceded that unemployment would remain the country's biggest problem for the years to come.  "The total figure of 10.9 million (open unemployed) is quite a serious problem," he said.

 To tackle the problems during the short-term, the government would soon begin a new version of its poverty eradication program.

 Bakrie said that, for this year, the government had allocated Rp4.43 trillion ($487.88 million) for village and sub-district development programs.  "The projects will cover 33,500 villages in 33 provinces and more than 31 million poor will be affected," he said.

 The government has also earmarked Rp7.8 trillion for infrastructure projects in 2008 and 2009, which it expects will create 15 million jobs during the next five years.

 Indonesia Swaps Rp1.562t Govt. Bonds

Investors swapped Rp1.562 trillion ($172.9 million) of Indonesian government bonds maturing between 2008 and 2011, with papers maturing in 2025, a Finance Department official was quoted as saying by Reuters.

 INVESTMENT

 Shares to Continue Strong Gains

Jakarta's main stock index is set for further heady gains this year, supported by improving economic conditions, firm commodity prices and subdued inflation which should give corporate earnings a boost, encouraging fresh capital into the share market, analysts said.

 They are picking a gain of between 16% and 43%, after last year's 55% surge, which saw the composite index repeatedly setting new records to finish 2006 at an all-time high of 1,805.522 points, XFN-Asia reported.

 The lion's share of last year's rise came in the second half, as a series of central bank interest rate cuts and softer inflation numbers encouraged investors, while the rupiah strengthened.

 This year, economic conditions will remain favorable, with GDP seen growing 6.3% from an estimated 5.8% last year, the analysts said.  Inflation should moderate further, providing scope for more rate cuts, though they are unlikely to be as frequent, or as large, as in 2006.

 Firm commodity prices, driven by rising global demand and tight supply for some goods, are also expected to continue this year, and that will boost mining and agriculture-based companies in particular.

 “There is room for the market to extend its gains this year, building on the positive factors that began to emerge in the second half of last year, such as falling inflation and interest rates,” said Satrio Utomo, an analyst with Recapital Securities.

 Mega Capital analyst, Ikhsan Binanto expects the heavy cuts in interest rates to pave the way for a pickup in private consumption, investment and government spending.  The government of President Susilo Bambang Yudhoyono has already pledged to accelerate its infrastructure program in 2007 and is also planning to boost the salaries of civil servants, which should aid consumption.

 Binanto cautioned that the market is starting to look a little pricey relative to some of its neighbors, such as Malaysia and Thailand.

 Nevertheless, the bright prospects for corporate earnings, aided by increased consumer spending and investment, will continue to make local stocks attractive.

 In addition, the absence of any increase in fuel and power tariffs this year is a bonus for the economy that will remove a key cost concern, Binanto noted.  The government previously pledged it would not raise the tariffs in 2007, citing the need to curb inflation and keep the economy on an improving track.

 “2006 was a good year for the market and 2007 will be even better...  Interest rates are coming down, while inflation is lower,” UOB Kay Hian Securities analyst, David Chang said, adding he sees the main index ending the year comfortably above 2,000 points.

 The sectors likely to be in vogue, are those seen benefiting the most from easier interest rates, and rising commodity prices.  That includes the mining, plantation, construction, cement, property and heavy equipment sectors.

 Telecom stocks should also gain as cellular subscriber numbers pick up, amid rising consumer purchasing power, Indopremier Securities analyst Suherman Santikno said.

 Among forecasts for the full year, Mega Capital was one of the most optimistic, picking the main index to raise 30% to 45% to 2,300-2,580 points by the end of 2007.  Indopremier sees the level

at 2,200 points, while Erdikha Elit analyst, Muhammad Reza was more guarded, estimating a year-end level of 2,100 points.

 Singapore's OCBC Eyes Stake in Trimegah

A unit of the Oversea-Chinese Banking Corp Ltd is in talks to buy a stake of more than 25% in Indonesia's PT Trimegah Securities, the Singapore bank said in a statement.

 OCBC, the smallest of Singapore's three banks, said its unit, Excel Holdings Pte Ltd, is offering Rp160 for each Trimegah share, a slight premium on Monday’s (8/01/07) closing price of Rp157 per share, Reuters reported.

 If both sides reach an agreement on the acquisition, it said Excel would conduct a tender offer for all shares held by shareholders of Trimegah, Indonesia's largest listed securities company.

 Trimegah has a market capitalization of $63.7 million and total assets of Rp753 billion ($83.34 million).  Its net profit soared 171.5% to nearly Rp19 billion in the third quarter.

 Indonesia's strong stock market performance in the past five years has helped boost the securities industry. 

STATE CONCERNS 

Govt. to Urge Regions to Spend

Coordinating Minister for the Economy Boediono said Monday (8/01/07) the government will help the regions secure the more expeditious approval of their budgets from their local councils, and is devising policies to ensure that development funds are actually spent on time, rather then being parked in central bank treasury bills. 

 "We acknowledge that a number of regions are experiencing technical problems in having their budgets approved by their local councils, and in disbursing the allocated funds.  We will help them," Boediono was quoted as saying by The Jakarta Post.

 He did not elaborate on how the government plans to do this, but said he expects that the period between the disbursement of government development funds to the regions and the approval of their local budgets could be shortened, to discourage regions from parking idle funds in central bank treasury bills and government bonds.

 This would also be in line with a new government policy of approving regional projects and disbursing the necessary monies out of the General Allocation Fund (DAU) by as early as possible at the beginning of the year. 

 Regional budgets -- many of which still rely on a large extent on assistance from the General Allocation Fund -- are usually approved by local councils only during the first quarter of the year. 

 Several regions have, however, adjusted their budgetary cycle in line with the latest central government policy, including Jakarta, whose council approved the 2007 local budget in December 2006, as opposed to April as had been the case in previous years.

 The government has since last year been speeding up project approvals and development fund disbursements to help spur higher economic growth from government spending. 

 By January 2, it had disbursed Rp763.5 trillion ($84.8 billion) under the 2007 national budget -- Rp504.8 trillion in central government spending and Rp258.7 trillion for the country's 34 provinces. 

 Separately, Finance Minister Sri Mulyani Indrawati said Monday that the government is considering putting in place budgetary mechanisms that would prevent the regions from parking funds in treasury bills in the future so as to ensure that the money is actually spent on development projects.

Govt. Eyes Sales of Non-Military Products to UN

The government wants to boost the sales of products other than arms to meet the needs of the United Nations, Industry Minister Fahmi Idris said.

 According to him, Indonesia has great potential to supply non-military products, such as textiles, shoes and uniforms.

 Anshari Bukhari, the Industry Department’s Director General for Metal, Machinery, Textile and Multifarious Industries, said the country's sales of non-military products to the UN has been declining since 2001, when exports reached a record $11 million.

 A number of companies supply non-military products like towels, mosquito nets, blankets, jackets, hats and uniforms for the overseas and domestic markets. 

SOEs

Jamsostek Books Rp738b Profit in 2006

State-owned insurance provider, PT Jamsostek, said Thursday (11/01/07) it had posted a net profit of Rp738 billion ($86.2 million) last year. 

A percentage of last year's profit would be paid as a dividend to the government, while the remainder would be used to help improve workers' social security and cover this year's operating costs, Jamsostek president director Iwan P Pontjowinoto said following the company's shareholders meeting on Thursday, The Jakarta Post reported.

 The government, as Jamsostek's main shareholder, would receive 14% of the profit as a dividend.

 As of the end of September last year, the company's assets stood at Rp39.48 trillion, representing the proceeds of premiums paid by some 25 million workers and 1.5 million companies participating in the company's occupational security schemes.

 "Most of the profit will be spent on improving workers' social security," he said, adding that in the past, most of Jamsostek's profits had been used to construct low-cost housing, finance the education of low-income workers' children and help small and medium enterprises (SMEs). 

The company would also allocate 10% of its profits to help SMEs generate new jobs to reduce unemployment, and Rp5 trillion to construct affordable homes and apartments for workers in 10 cities.

 During the shareholders meeting, the government and Jamsostek management set a target to attract 1.9 million new clients this year so that the total number of workers actively participating in the social security schemes could rise to 8 million.

 "With the additional participants, the premiums paid into the pension program will rise by 9% to Rp6.1 trillion so that the pension fund could reach Rp48.7 trillion by the end of the year," said Pontjowinoto.

 Telkom to Spin Off Fixed Wireless Unit

PT Telkom plans to spin off its fixed-wireless operation, Telkom Flexi, into a separate unit next month, its president director, Arwin Rasyid, said Wednesday (10/01/07). 

The move aims to provide greater flexibility for the unit in fixed wireless telecommunications, where Telkom faces competition, Rasyid said, according to Reuters.

 Operators in the fixed-wireless market, which provides mobile telecommunications with limited range, use code division multiple access (CDMA) technology, rather than the more widely used GSM standard.

 "The CDMA market is getting more developed and competition is tougher. The spin-off will create more efficiency," he added.

 Telkom's fixed-wireless operations contributed more than Rp2 trillion ($221.5 million) to the company's total revenue, which was expected to reach Rp51.3 trillion last year.

 Rasyid also said Telkom Flexi plans to spend Rp2 trillion to Rp3 trillion for capital spending this year.

 PRIVATE SECTOR

Astra Sees Auto Market Growing 10%

PT Astra International sees the country's vehicle and motorbike sales expanding by 10% this year as economic conditions start recovering, its president director, Michael D Ruslim, said on Friday (12/01/07).

 Astra, the country's largest car distributor, hopes to maintain its market share this year.  "In the final three months of 2006, we have seen a pick-up in the sales trend.  We are hoping this trend will continue," Ruslim told Reuters on the sidelines of the launch of a new vehicle.

 The automotive industry has been hit by high interest rates and weak consumer purchasing power in the first 11 months of 2006.  Motorcycle sales were down 15.7% while vehicle sales plunged 42.6%. 

Some market watchers said the recent decline in interest rates and aggressive promotions from dealers have helped lure back customers to the showroom.

Separately, Johnny Darmawan, president director of PT Toyota Astra Motor, Astra's unit that distributes Toyota cars, said he expects the country's vehicle sales to start recovering by the end of the first quarter.

 BANKS

BI Eyes Incentives for Banks to Boost Loans

Bank Indonesia on Friday (12/1/07) unveiled a policy package aimed at boosting domestic commercial bank sector lending and economic growth, Dow Jones Newswires reported.

"The policy measures will have significant impact in our efforts to boost bank lending," Bank Indonesia Deputy Director Muliaman Hadad told reporters at a press briefing.

The lending stimulus package is designed to reduce loan provisioning by domestic banks to free up capital that can be steered into lending to the private sector.

The measures include raising the ceiling for loans that are subject to solely a "timely repayment" criteria - to determine whether the loan is performing well - to Rp5 billion from Rp500 million, he said.

 Banks still have to consider two additional criteria; namely business outlook and financial performance, in classifying loans above Rp5 billion, Muliaman said.

Muliaman said Bank Indonesia will also allow banks to apply solely the "timely repayment" metric in classifying the loans funneled toward projects guaranteed by the government, including infrastructure.
Currently, 54% of all domestic bank sector lending is for individual loans of less than Rp5 billion, he said.

The central bank will also introduce money market securities, called Sertifikat Bank Indonesia, with terms longer than one and two months to discourage banks from parking their funds in the notes, and to loan them to companies instead.

"We are experiencing a liquidity overhang in the form of a (huge) SBI outstanding amount of Rp200 trillion," Hadad said.

The policy package also calls for deepening Indonesia's financial sector operations through the issuance of clearer regulations allowing banks to buy non-government bonds and other securities, he said.

Bank Indonesia will also limit the number of foreign expatriate executives that can staff foreign-owned banks, Hadad stated.

He said foreign expatriates will be limited to the top three tiers of management in any foreign-owned bank within three years of implementation of the pending regulation.

 CBA Buys Majority Stake in Indonesian Lender

The Commonwealth Bank of Australia (CBA) will pay $28.4 million to secure a majority stake in small Indonesian lender, Arta Niaga Kencana, boosting its retail banking footprint in Indonesia’s fast-growing economy, the Australian Financial Review reported on Tuesday (9/01/07).

 The formal offer for an 83% stake in Arta Niaga follows more than a month of talks, which also involved the central bank, Bank Indonesia (BI).  The acquisition is subject to regulatory and shareholder approval.

 CBA will offer Rp1,660 per share for Arta Niaga, representing a 55% premium from when the Surabaya-based bank's shares last traded on December 19.  The transaction is valued at about Rp261.8 billion.

 CBA has already secured commitments to acquire more than 50% of Arta Niaga from the bank's biggest shareholders.

 Arta Niaga operates 19 branches in Indonesia and employs 349 staff.  The bank in 2005 reported a profit of Rp11.9 billion.  Its ratio of non-performing loans that year fell slightly to 2.13%.

 For CBA, the investment would add to the 21 branches it already operates in Indonesia through its profitable Bank Commonwealth subsidiary, which focuses on expatriates and the mass affluent market. 

 Rabobank Completes Purchase of Two Banks

Rabobank has completed the acquisition of Indonesian banks, Hagabank and Bank Hagakita, the Dutch cooperative bank said in a statement on Wednesday (10/01/07).

 Rabobank plans to develop the two banks to target the small and medium enterprise sector, and retail market in the country.  "Rabobank will own 95% share of Hagabank and Bank Hagakita," the bank said in a statement, according to Reuters.

 Rabobank said the two Indonesian banks, established 18 years ago, had a combined total of 1,659 employees and a network of 81 branches, sub-branches and cash offices located in Java, Bali and southern Sumatra.

 POWER

PLN Eyes $333m Profit in 2007

State-owned electricity company, PT PLN, aims to earn Rp3 trillion ($333 million) in profit this year, after suffering a loss of Rp1.08 trillion last year, president of its board of commissioners, Ali Hilal Hamdi, said.

 The profit is expected to come from power plants not running on fuel oil, Antara reported on Tuesday (9/01/07).  "The profit target has been included in the company's work plan and budget, which have been endorsed by a shareholders' general meeting," Hamdi said.

 He said the non-fuel-fired power plants, which will start full operation this year, are the 600-megawatt (MW) Cilacap and 1,320-MW Tanjung Jati thermal power plants, as well as the 740-MW Cilegon gas-fired thermal power plant.

 Hamdi said PLN’s total income this year has been projected at Rp108 trillion, including a Rp25.8 trillion government subsidy.

 OIL AND GAS

RI, Energy Firms Ink $12.4b Bio-fuel Deals

Indonesia is laying the foundation to become one of the world's top bio-fuel producers, with 59 energy firms and institutions inking 58 agreements on Tuesday (9/01/07) as their preliminary commitment to invest $12.4 billion in the renewable energy sector, The Jakarta Post reported.

 The biggest single investment will come from China's major energy firm, CNOOC, which will team up with Sinar Mas Agro Resources and Technology and Hong Kong Energy (Holdings) Ltd to invest $5.5 billion to develop bio-diesel from crude palm oil and bio-ethanol from sugarcane or cassava in Papua and Kalimantan. 

 Other major deals include one signed by Malaysia-based Genting Biofuels Asia for an investment of $3 billion, and another for a joint Indonesian-Malaysian venture involving an investment of $1 billion.

 Tuesday's signing ceremony also involved a number of financial firms, including local banks, which have committed to provide Rp50 trillion ($5.4 billion) in loans to support the country's green energy fund.

 The banks -- Bank Rakyat Indonesia, Bank Mandiri, Bank Bukopin, the West Sumatra regional development bank and the North Sumatra regional development bank -- have committed to extend loans of up to Rp25 trillion for the development of plantations and Rp25 trillion for the building of processing plants.

 E. Java Mudflow Natural - Geologists

An independent committee of geologists has found that the massive mudflow disaster is most likely a natural phenomenon and not caused by drilling activity, the Australian Financial Review reported on Wednesday (10/01/07).

 The Indonesia-Japan joint research team issued a preliminary finding that the so-called mud volcano at a gas exploration well in East Java was probably caused by recent seismic activity.

 The team of 19 Japanese and Indonesian scientists concluded the most likely "direct trigger" was a large earthquake just two days before a massive amount of mud began to erupt from the ground in May last year.

 The environmental catastrophe has left more than 10,000 people homeless, forced hundreds of businesses to close and swamped a large area under meters of hot mud.  The cross-Java toll road, a railway line and a gas pipeline are being permanently relocated.

 The committee of geologists said it is possible the disaster would have happened even if the drilling had not been occurring.  The scientists said the area was on a fault line and there had been at least three other mud volcanoes over the years.

 Mud is still spewing out of the ground at the site at a growing rate, currently about 200,000 cubic meters a day, and the committee concluded it would continue to do so for several years before slowing down.  The mudflow would continue for about 10 years.

 Japanese geologist Yamomoto Hiroyuki said it is impossible to stop the flow and efforts to plug the well are in effect a waste of time and money.

Pertamina Plans Rp15t Capex for 2007

State oil and gas firm PT Pertamina is earmarking capital expenditure (capex) of Rp15 trillion this year, with about 87% going to the upstream oil and gas business, finance director Frederick Siahaan said.

To finance the capex, Pertamina has secured a $500 million five-year loan from 23 lenders, with Credit Suisse acting as the lead manager, Siahaan was quoted as saying by XFN-Asia.  The remaining funds will be obtained from other sources, he said, without elaborating.

Siahaan said this year's spending will focus on the development of two major blocks -- Cepu in East Java and Pondok Tengah in West Java.

Meanwhile, Pertamina is laying down measures to help tackle shortages in its fuel storage facilities this year.

 Pertamina fuel division chief, Djaelani Sutomo, said recently that this year, the company expects not to find shortages in any of its stores -- unlike last year, when its 119 offshore stores were hit by a total of 377 shortages, meaning that 1.03 depots suffered shortages each day.

 He said that the company would conduct several efforts to overcome the problem, including the procurement of a floating storage tanker in Kalimantan, which has been left seriously exposed by last year's fuel shortages.

 "We have one big tanker that has not been optimized, so we will place it near the areas frequently recorded to have depots suffering fuel shortage," Sutomo was quoted as saying by The Jakarta Post.

 Data from Pertamina show that in 2006, of the company's 119 depots, those in three areas suffered the most frequent fuel shortages -- Kota Baru, South Kalimantan (25 times); Pangkalan Bun, West Kalimantan (30 times); and Sintang, Kalimantan Baru (40 times).

Pertamina blames the shortage problem mainly on the dry season and silted-up rivers that hamper the distribution of fuel through water routes, he said, adding the company is in the process of negotiating with local companies in Kalimantan to establish smaller depots in several places in surrounding areas, and is trying to find alternative routes using land transportation.

 "We also have a new system in place called Regular Area Emergency," Sutomo said.  The system will redirect water distribution routes to land ones should problems occur in the regular distribution lines.

 MINING

 Papua Moves to Acquire Stake in Freeport

Papua’s provincial administration is negotiating with PT Freeport Indonesia on a 9.36% stake offered by the US copper and gold mining company.

 Freeport earlier said it would sell the stake for $1 billion.  Freeport made the offer as it is required by regulation to sell part of its shares to a local partner.

 "We are holding talks with Freeport.  The offer attracted the region," Papua Governor Barnabas Suebu was quoted as saying by Antara on Tuesday (9/01/07).

 The funds could come from anywhere, Suebu said, adding the plan had been first considered by his predecessor, Jacobus Perviddya.

 Earlier, Mines and Energy Minister Purnomo Yusgiantoro said if the provincial administration fails in the negotiation, Freeport would be asked to hold an open tender.

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