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, November 13,  2007

Highlights

 Politics

• Poverty, education, investment, bird flu high on agenda for talks with George W. Bush

• Indonesia to push for a regional anti-corruption agreement at APEC summit

Regions

• A man who led an attack on teachers at the Freeport mine sentenced to life

• Preparations for Aceh polls proceeding well, says minister

Economy

•  Jakarta Stock Exchange hits new highs after another interest rate cut

Business briefs

Macro economy

• Bank Indonesia cuts key rate to 10.25%, says more cuts feasible

• Consumer confidence rises to its highest level for 14 months

Investment

• Reaction positive to new incentives on infrastructure

• Regional leaders taught how to promote investment

• Bajaj Auto enters motorcycle market

• New look at investment figures

State concerns

• US lifts Indonesia from priority watch list on IP rights

SOEs

• PT Jasa Marga delays float pending parliamentary approval

• Danareksa to partly finance new cement plant

• Pension fund PT Taspen looks to double share investments

Private sector

• Car, motorcycle sales slump over holiday, prospects brighter

• Singapore company sells first Indonesian bio-fuel output

Power

• International Atomic Energy Agency backs nuclear plan

• Investors sought for Bontang power changeover to coal

Oil & gas

• Lower subsidy bill for government as oil prices fall

• Pertamina likely to retain national distribution rights

POLITICS

Poverty, Graft on Bush Talks Agenda

Investment, Poverty reduction, fighting corruption and limiting nuclear weapons are among the issues US President George W. Bush wants to talk about when he meets President Susilo Bambang Yudhoyono during a flying 10-hour visit to Indonesia on November 20.

Indonesia, for its part, will focus on pursuing education opportunities for its students in the US, curbing the spread of bird flu and attracting new US energy investment.

Presidential spokesman Dino Djalal said the discussion on education and health issues will be led by five Indonesians who are experts in the two fields.

The meeting at Bogor’s presidential palace will come a day after the two leaders attend the Asia Pacific Economic Cooperation Forum meeting in Hanoi.

Djalal said Yudhoyono will push for more scholarship and educational opportunities for Indonesians wanting to study at American colleges.

"Bush donated some $157 million for education the last time he visited ... we want to get more schemes for education and training programs in the US,” he said.

While it was not clear if Indonesia would seek financial aid to combat bird flu, Djalal described the disease as a “key topic” for both leaders.

With 55 deaths from bird flu, Indonesia now has the world's highest number of deaths from the disease.

Djalal said other issues expected to be on the table included investment, particularly in the energy sector, bio-fuel development, natural disaster mitigation and information and technology.

He said Bush' visit was important to relations between the two countries, with the US considering Indonesia its "strategic partner" in the region.

"The US sees us as the world's third biggest democracy, the most populous Muslim nation, the biggest economy in Southeast Asia, with potential and a strategic location. We, on the other hand, are looking outward as we seek to polish our image and play a bigger role in the international scene," he said.

Defense Minister Juwono Sudarsono told reporters on Monday that political and military issues would take a back seat during the talks.

He said Indonesia will declare its intent "to maintain good relations with all those who want to enter into partnerships with us, whether they are Russia, China, India or South Korea.”

He was alluding to Indonesia's drive to diversify its sources of weaponry. Indonesia has increasingly sought military equipment from countries other than the US, its traditional key source.

Sudarsono said while Indonesia will welcome assistance from the US in fighting terrorism, but Jakarta will not allow Washington to set its own agenda.

"We have stated several times that we will handle terrorism issues ourselves," he said.  "If America wants to help, it should only be in technical matters and without any pressure."

Jakarta Pushes Anti-Graft Pact

Indonesia will push for a regional anti-corruption agreement at the upcoming Asia-
Pacific Economic Cooperation (APEC) leaders meeting in Hanoi, Foreign Affairs Minister Hassan Wirayuda said on Thursday (9/11/06).

Bilateral agreements alone are ineffective in adequately tackling corruption, he told reporters.

"We will ask for commitment and cooperation from all APEC members to help us fight corruption (because) there are many (corruption suspects) that have fled Indonesia and hidden their wealth overseas," he said. The APEC meeting will be held November 18-19.

Wirayuda's comments indicate that the government of President Susilo Bambang Yudhoyono has recognized that regional assistance is essential to the success of an ongoing anti-corruption campaign.

Efforts to track corruption suspects and their ill-gotten gains have been hobbled by a lack of regional cooperation, officials say.

Jakarta Accepts Saddam Verdict

Indonesia said on Monday (6/11/06) it could understand the death sentence handed down against former Iraqi dictator Saddam Hussein.

Foreign ministry spokesman Desra Percaya said the raging insurgency in Iraq meant conditions were not ideal for a fair trial but it was still better than many victims of Saddam's regime had enjoyed when he was in power.

"We can understand the issuance of a death sentence on Saddam Hussein," he said in a written statement, reported Agence France-Presse.

Saddam, ousted in a US-led invasion in 2003, was Sunday sentenced to death by hanging for ordering the deaths of 148 Shiite residents of a village north of Baghdad after a 1982
assassination attempt.

Two Get Death for Ecstasy

The two bosses of an Ecstasy factory capable of producing millions of illegal pills a year were sentenced to death on Monday (6/11/06), while seven foreigners who operated the factory got 20 years to life in prison.

Presiding judge Jaid Umar Bob Sain told the Tangerang District Court the Indonesian owner of the factory and its chief chemical expert will face a firing squad for helping produce the high-quality drug.

"Their actions hurt our young generation," he said, as dozens in the packed courtroom erupted in cheers.

Frenchman Serge Areski Atloui and Dick Nicolaas of the Netherlands got life behind bars for producing ingredients used to make the drug in a separate trial and five Chinese men each got 20 years.

Indonesian police launched a November 11, 2005, raid on a sprawling factory on the outskirts of Serang, 100 km west of the capital Jakarta, following months of surveillance with Australian, US and Chinese drug enforcement officers.

The factory was capable of producing 300,000 Ecstasy tablets per week, some destined for overseas markets, prosecutors said.

They said police seized an estimated $142 million worth of Ecstasy, methamphetamines, ketamine and chemical ingredients from the site.

New Security Treaty Clinched

Australia and Indonesia have agreed to a new broad-ranging security treaty, seven years after Jakarta cancelled a previous agreement negotiated by then-president Suharto and Australian prime minister Paul Keating.

Under the terms of the new pact, Jakarta and Canberra have pledged not to support separatist causes in each other's country.

This was a key demand made by Jakarta in the wake of the crisis generated by the granting of temporary protection visas to 43 Papuan asylum seekers earlier this year after they landed on Cape York.

The two countries have also agreed to "do everything possible, individually and jointly, to eradicate international terrorism and extremism,” including rapid, practical and effective responses to terrorist attacks.

Foreign Minister Alexander Downer and his Indonesian counterpart, Hassan Wirayuda, will sign the new pact on the island of Lombok today (13/11/06) after nearly two years of discussions and negotiations.

IIt's a very significant step forward in the bilateral relationship," Downer told The Australian newspaper on Tuesday (7/11/06).

"It is a sensible agreement, a realistic agreement and it is a sustainable agreement. The Australian public think it is important we have a good relationship with Indonesia and we
should look for ways of strengthening that."

The Framework for Security Co-operation is a far more detailed document than the four-clause agreement signed in 1995.

Article 2 of the document commits the signatories to "not in any manner support or participate in activities by any person or entity which constitutes a threat to the stability, sovereignty, or territorial integrity of the other party", consistent with their respective domestic laws and international obligations.

This includes those who use the countries' territory for "encouraging or committing such activities, including separatism, in the territory of the other party". The effect of Article 2 is to unambiguously rule out support by a future Australian government for groups such as the Free Papua Movement (OPM).

The treaty has a sharp focus on counter-terrorism and trans-national crime, with both countries pledging to work together to "respond to these new challenges and threats".

 Jakarta Gets Role in Iran Crisis

The US is seeking support from Indonesia to help push Iran to the negotiating table to stop its uranium enrichment program.

Vienna-based US Permanent Representative to International Organizations Gregory Schulte said support from the international community was essential as the UN Security Council prepares sanctions against Iran for not abiding by a UN resolution on its nuclear program.

Vienna is the home of the International Atomic Energy Agency (IAEA), which is charged with monitoring nuclear programs in Iran and North Korea.

Schulte said international condemnation of North Korea may have achieved results. "We don't know exactly why the leadership in Pyongyang decided to go back to six-party talks, but I think we can speculate that the universal condemnation of their nuclear tests and the swift deduction of the Security Council resolution both played a very important role," he said during a teleconference on Tuesday (7/11/06).

"So, for Indonesia and countries across the world to call on the Iranian leadership to change course will vastly increase the prospect of success in our common diplomatic endeavour," he said.

Schulte said he believed that Indonesia had a constructive role to play in communicating international concerns about the direction the leadership in Pyongyang has taken.

He said that Indonesia could also play a very important role in the Iranian nuclear issue, because Indonesia and the US shared a common objective in forging a diplomatic solution to the problem.

"Indonesia is on the board of governors of the IAEA. Indonesia is a country whose voice is well-respected across the world community and the Non-Aligned Movement. I think Indonesia can play a very important role in helping communicate both publicly and privately to the leadership in Iran that they need to take a different course," Schulte said.

The Indonesian government has expressed its support for Iran's peaceful uranium enrichment program, and has called for a diplomatic solution to the dispute.

Peacekeepers Land in Lebanon

The first batch of Indonesian troops arrived on Friday (10/11/06) in Lebanon to join a United Nations peacekeeping force monitoring the cease-fire between Israel and Hizbollah.

The 125-member advance team landed at Beirut airport aboard two US Air Force planes from Istanbul.

They boarded buses at the airport and headed to south Lebanon where they will take up positions along with thousands of other peacekeepers from some 20 countries in the UN's Interim Force in Lebanon, or UNIFIL.

REGIONS

Papua: Wamang Sentenced to Life

Antonius Wamang, the man who orchestrated the killings of two American teachers and an Indonesian colleague at the Freeport mine site in 2002, was sentenced to life in prison on Tuesday (7/11/06).

The judge handed down the sentence soon after he and six other defendants walked out of the courtroom in the latest of many protests over what they say are unfair legal processes.

The sentence for Wamang was more than the 20 years demanded by prosecutors.

"This was premeditated murder," Judge Andriani Nurdin told the Central Jakarta District Court, describing his actions as a "gross violation of human rights."

Two other defendants received seven-year sentences while the remaining four were sentenced to 18 months in jail each.

Good Progress on Aceh Polls: Minister

Preparations for the election of governors, mayors and district heads in the formerly conflict-torn province of Aceh are proceeding smoothly, Minister of Home Affairs M Ma’aruf said Wednesday (8/11/06).

He said a visit to the region had shown progress in preparations by the provincial administration, the Independent Elections Commission (KIP), security agencies and the public.

“Let us hope that the further processes such as campaigns, elections and vote counting will run smoothly and fairly," he said after attending a coordination meeting of regional officials on the elections.Read more

The minister appealed to all parties, especially the candidates, to maintain law and peace during campaigns.

Ma’ruf said if the elections in Aceh were successful, the poll would be an important example for other regions.

At least 2.6 million people in the region will cast their votes in the election of a governor and 19 mayors and district heads, which would be the biggest poll in the country so far.

Bird Flu: No Pandemic, says Official

A senior health official played down fears that a pandemic sparked by bird flu could occur in Indonesia although admitting that a risk still existed.

"We are still far from a pandemic," said Bayu Krisnamurthi, the chief executive of the Indonesian National Committee for Avian Influenza Control and Pandemic Influenza Preparedness (Komnas FBPI.)

He said, however, that the virus remained unpredictable and the threat of a pandemic of human infections could not be ruled out.

Indonesia now has 72 confirmed cases of human bird flu infection, 55 of them fatal. Further tests are being conducted on a boy who died of bird flu-like symptoms in central Java on Monday (6/11/06) after initial tests proved negative for the disease. 

Krisnamurthi said the ratio of confirmed cases compared to reported suspect cases was decreasing, from about 30% to 35% six months ago to currently about 14%.

Although bird flu had been found in 30 of the country's 32 provinces, human infections were contained to nine provinces.

The ratio between confirmed cases and fatalities remained largely unchanged at about 75%, due to late treatment following late diagnosis, and limited health facilities.

Planes Start Work on Kalimantan Fires

Two Russian planes arrived in South Kalimantan on Wednesday (8/11/06) to battle fires causing choking smoke haze, but one slipped off the runway at their base in Banjarmarsin airport after landing in heavy rain.

The planes helped douse fires in southern Sumatra before moving to Kalimantan, where fires are continuing in a number of areas of underlying peat.

The aircraft, which can each carry up to 12 tons of water to drop over forest fires, have been rented for 45 days, officials said.

Hopes that Indonesia will not need to use the planes for the full period rose as regular rain began in Palangkaraya, the capital of Central Kalimantan.

Visibility improved to around 4 km around noon from around 500 meters at daybreak by mid-week.

Transparency International to Monitor BRR

The Aceh-Nias Rehabilitation and Reconstruction Agency (BRR) has agreed to cooperate with Transparency International Indonesia to tighten supervision of expenditure by BRR.

BRR head Kuntoro Mangkusubroto and Transparancy International Indonesia (TII) chairman Todung Mulya Lubis signed a memorandum of understanding on Tuesday (7/11/06) on good governance in Medan, The Jakarta Post reported.

Under the memorandum, the two parties will evaluate BRR's systems, improve its use of technology and educate stakeholders involved in the program about how to avoid graft.

"The signing of the MOU constitutes a positive and historical moment. We will carry out surveys and assessments of the integrity of BRR systems in order to minimize graft," Lubis said at the signing ceremony.

Mangkusubroto said the agreement would increase transparency in the agency’s expenditure of Rp9.6 trillion ($1.6 billion) this year.

ECONOMY

Share Market Booms

The Jakarta Stock Exchange continues to hit new highs, with the composite index hitting a new record on Friday (10/11/06) after Bank Indonesia (BI) dropped its key rate by 50 points to 10.25%.

The composite index rose to 1,673.125 before falling off to close at 1,664.837. Interest was driven by buying in telecommunication and mining blue chips, dealers said.

The advances put the market’s growth up 42% for the year, making it one of the best performers in Asia, with analysts saying more highs are expected.

On Tuesday, BI cut its key rate for the sixth cut this year, after annual inflation plunged in October. A bank spokesman said BI would continue to act cautiously but it saw room for further cuts in months to come.

The economy was predicted to have moved faster in the third quarter, with exports booming and domestic consumption starting to pick up.

Seven economists polled by Dow Jones Newswires forecast gross domestic product in the July-September period to have expanded an average 5.53% on year, up from the second quarter's 5.22%.

The government’s efforts to pitch a new investment climate in the infrastructure sector were boosted by a pledge to offer financial backing for private investors in state-sponsored ventures, The Wall Street Journal reported.

"The foundations for future projects are potentially there," the daily quoted Karin Finkelston, associate director for East Asia at the International Finance Corp., the World Bank arm for lending to the private sector, as saying. "The key now is how this is implemented."

 Officials had highlighted 10 projects with a total value of $4.5 billion the government hopes will become models for private-public deals and pave the way for other investment. They include power plants, toll roads, water-supply projects, fiber-optic networks, a ferry terminal and a port.

 Finance Minister Sri Mulyani Indrawati outlined a plan to earmark $450 million from Jakarta's 2006 and 2007 budgets to fund financial guarantees and offer other support for the projects.

 Also unveiled at the conference was a separate $300 million fund for government purchases of land for infrastructure projects, which would relieve private investors of long and difficult negotiations.

 Peter Eliot, the president director of Citibank Indonesia, told The Jakarta Post conditions were looking positive for next year.

 “If we look at the macro financial condition, the situation is improving and getting better here. I'm optimistic about next year,” he said, adding that the bank would retain its prudent position on loans.

 Asked where he would project the growth figure of next year, he replied: Economic growth of 6.3% for next year is reasonable. Again I'm optimistic about next year. I think that in terms of various sectors of the economy here, whether it's oil and gas, mining, palm oil, or consumers goods, they've all got tremendous opportunities. So I certainly hope Indonesia will achieve the 6.3% growth. Perhaps it'll be higher.”

 BUSINESS BRIEFS

MACROECONOMY

 BI Cuts Rate to 10.25%, More Seen

Bank Indonesia (BI) cut its key interest rate by 50 basis points on Tuesday (7/11/06) to 10.25%, the sixth cut this year, after annual inflation plunged in October.

 The central bank will remain cautious but "there is still room for further BI rate cuts," BI spokesman Budi Mulya was quoted as saying by Reuters.

 Tuesday's rate cut was in line with expectations and the rupiah currency was trading at 9,120 to the dollar on Tuesday, little changed from 9,123 before the announcement.

"There are unlikely to be any large capital outflows as the interest rate differentials with the Fed funds rate still remain wide," said Jakarta-based economist Juniman of Bank Internasional Indonesia (BII). 

"I see another 50 basis-point cut next month which will bring us to single digit... and then another 200-basis-point reduction in 2007," ING economist, Tim Condon, was quoted as saying by Dow Jones Newswires.

Ongoing rate cuts are "the privilege (BI) gets for successfully containing inflation and bolstering the rupiah... and there's certainly room for another 50 basis points (cut) in December, taking them below the magic 10% level," said David Cohen, economist at Action Economics.  Cohen projected the rate to bottom at 9% by the end of the first quarter of 2007.

The central bank said its monetary policy would remain measured, despite some suggestions it should be more aggressive in helping stimulate the economy.

The board of governors is of the view that monetary policy going forward needs to remain more measured and cautious to maintain macroeconomic stability and strengthen the momentum for sustained economic growth," Mulya said.

The central bank has said that its key interest rate may fall to between 9% and 9.5% by the end of the year, despite a sharp drop in inflation.  Annual inflation dropped by more than half in October to 6.29% from 14.55% in September as the impact of a big fuel price hike in October 2005 fell out of the calculation.

The rupiah has risen around 8% so far this year.

Consumer Confidence Index at 14-Month High

The consumer confidence index rose to 98.1 points in October, its highest mark in 14 months, up from 96.1 points in September, a central bank survey showed Wednesday (8/11/06), according to Agence France-Presse.

The confidence index, which indicates respondents' optimism about the economy, last stood above 100 points in June last year.

The two components of the index -- the present condition index and consumer expectation index -- both rose in October.  The present situation index, which indicates the level of consumer confidence in current economic conditions, rose to 82.3 points in October from 81.8 points in September.

Meanwhile, the consumer expectation index, which shows the level of confidence in economic prospects for the next six months, rose to 113.9 points in October from 110.5 points previously.

The survey said the increase in the expectation index was mainly due to rising optimism over income prospects for the next six months on the back of improved economic conditions.

Forex Reserves Fall to $39.77b

Indonesia's international reserves fell to $39.77 billion at the end of October from $42.35 billion at the end of September, Bank Indonesia (BI) data showed on Monday (6/11/06), according to Reuters.

Central bank spokesman Budi Mulya said the fall was due to the repayment of $3.2 billion of Indonesia's debt to the International Monetary Fund (IMF) last month.

BI said on its website base money fell to Rp257.39 trillion ($28.27 billion) at the end of October from Rp257.84 trillion at the end of September, while net domestic assets rose to Rp17.27 trillion from Rp2.66 trillion over the same period.   Net claims on government likewise increased to Rp243.68 trillion in October from Rp219.53 trillion in September.

INVESTMENT

Jakarta Paves the Way on Works Projects

Indonesia’s efforts to get delayed infrastructure projects off the ground inched forward as foreign and local investors at the recent infrastructure conference were encouraged by a government pledge to offer financial backing for private investors in state-sponsored ventures, The Wall Street Journal reported on Monday (6/11/06).

“Whether that will translate into new tie-ups between private companies and Jakarta to improve Indonesia's decrepit toll roads, ports and power plants, investors say, will become clearer over the next few months, the Journal said.

"The foundations for future projects are potentially there," said Karin Finkelston, associate director for East Asia at the International Finance Corp, the World Bank’s private investment subsidiary.

At the recent Infrastructure Summit, the government set out a number of fresh initiatives, including financial guarantees, which it hopes will lure more foreign investment. 

Indonesia's economy is unlikely to grow faster than this year’s projected rate of 5.6% unless infrastructure can be improved, frustrating Jakarta’s hopes of creating jobs and cutting poverty.

At the summit, President Susilo Bambang Yudhoyono appealed to foreign investors to help supply the $22 billion Indonesia needs to spend annually in the next few years to upgrade its infrastructure.  "The government will provide only part of this funding," he said, "while the major portion will have to come from the private sector."

Officials highlighted 10 projects with a total value of $4.5 billion the government hopes will become models for private-public deals and pave the way for other investment.  They include power plants, toll roads, water-supply projects, fiber-optic networks, a ferry terminal and a port.

Finance Minister Sri Mulyani Indrawati outlined a plan to earmark $450 million from Jakarta's 2006 and 2007 budgets to fund financial guarantees and offer other support for the projects.  Investors have been demanding these guarantees, which are meant to cover the risk that state-owned companies like PT PLN, which runs the national electricity grid, could break contractual agreements or default on payments.

Also unveiled at the conference was a separate $300 million fund for government purchases of land for infrastructure projects.  Poor land documentation in Indonesia has deterred foreign companies from investing in projects such as toll roads for fear of getting bogged down in legal disputes with property owners.  While the moves drew praise, many investors say they want more detailed information about projects before they commit money.

"The government has shown strong determination to move forward," said Muhammad Fadzil Abdul Hamid, business development manager at Plus Expressways Bhd, a Malaysian toll-road operator.

Regional Leaders Learn to Pitch

Several regional leaders took part in the Indonesian Regional Investment Forum (IRIF) held in Jakarta recently to learn basic salesmanship and promote the economic potential of their regions.

The lack of sales and business skills in regional leaders has not only resulted in poor marketing but also in the issuance of policies which often harm investors' interests, The Jakarta Post reported on Monday (6/11/06).

"The problem is the local government officials' mind-set.  They are bureaucrats, not businessmen.  We have to change that," Tanri Abeng, a noted businessman, who is also the forum's advisory board chairman, said.

In the hope of improving the investment climate in the regions, the Regional Representatives Council (DPD), in collaboration with a global event organizer, held the IRIF, where regional leaders were taught basic skills in business promotion, from guidelines in making leaflets to talking to foreign investors.

Chairman of the forum's organizing committee, Irman Gusman, said that the forum would help regional leaders learn to stand out in international forums dealing with investors.  "For example, we help them design investor-friendly investment proposals," he said.

The two-day investment forum was participated in by more than 400 foreign investors, coming from 20 countries, including the US, Japan, Australia, Singapore, Taiwan and China.

Bajaj Enters Bike Market, Eyes Growth

India's second largest motorcycle maker, Bajaj Auto Ltd, rode into Indonesia's $6 billion bike market with its flagship model on Thursday (9/11/06), and plans to set up a regional production base in the country.

Bajaj Auto, which also makes scooters and three-wheeled motorized rickshaws, launched the 180 cc Bajaj Pulsar, and said it would invest $50 million in Indonesia, the world's third largest motorcycle market, over the next three years to set up a production base and distribution network.

"In the first phase, we will focus on customer satisfaction.  The second phase would be to set up a local manufacturing facility and the third phase is to make Indonesia the hub for the Southeast Asian market," executive director, Sanjiv Bajaj was quoted as saying by Reuters. 

KS Grihapathy, president director of Bajaj Auto Indonesia, said the company initially aimed to sell 100,000 motorbikes in Indonesia in two years.

BKPM to Adopt New Statistical System

The Investment Coordinating Board (BKPM) is planning to revamp the way it records the flow of investment into the country so as to better reflect what is actually happening.

 "The current system is inaccurate," BKPM chief, M Luthfi said Monday (6/11/06), according to The Jakarta Post.  "The data about actual, realized investment, for example, refers to what happened 18 months, and sometimes even 36 months ago."

 Luthfi said the government would adopt a system of investment statistics similar to that used in Singapore, in which the actual expenditure of investors is updated on a near real-time basis.

 "So, as soon as the investors get their approvals, we will immediately record how much they spend on office space, on importing capital goods and equipment, on building materials to set up their factories, and so on," he said.

 The figures for capital goods and equipment imports are particularly important, Luthfi said, as they sometimes account for 80% of an investment's value, and result in an actual trickle-down effect that benefits the real sector.

 The new system is expected to be adopted this November, in tandem with the Central Bureau of Statistics (BPS) and Bank Indonesia (BI), both of which produce their own investment statistics.

 STATE CONCERNS

 Indonesia Out of IP Priority Watch List

The US government has changed Indonesia's position in its intellectual property right protection list, raising its position from priority watch list to watch list.

 Assistant to US Trade Representatives Barbara Weisel said Monday (6/11/06) the decision of the US government was a result of out of cycle review of progress on improvements in intellectual property rights protection, Antara reported.

 Weisel said the Indonesian status may be changed again in April next year when the US government evaluates the performances of all US trading partners in the world in intellectual property rights protection.

 She described the change in the Indonesian status as a significant development, which could bring about positive implications for the country's economy.  The improvement in the status is expected to contribute significantly to improving international confidence in the country.

Rice Output Seen Up 5% in 2007

Indonesia's dry unhusked rice production is projected to rise by 5% in 2007 to 57.54 million tons, Agriculture Minister Anton Apriyantono said Monday (6/11/06).

"Production in 2007 is targeted to rise by 5% from this year's production of 54.8 million tons," Apriyantono was quoted as saying by Antara. 

He said the increase in production would be reached through expansion of rice fields and improvements in yield per hectare, but gave no details.  He also said that the government would subsidize grains for planting as well as develop organic fertilizers to encourage rice farming.

SOEs

Jasa Marga Delays IPO to Early 2007

State-owned toll road firm PT Jasa Marga said it has postponed a planned Rp2 trillion ($219.6 million) initial public offering to the first quarter of 2007.

The firm said in September it planned to list 15% of its shares on the Jakarta Stock Exchange in November to raise funds to finance the construction of some toll roads.  But a company official said on Wednesday (8/11/06) it has yet to receive parliamentary approval for the offering, Reuters reported.

The firm, which controls more than 75% of the country's toll roads, plans to build three toll roads as part of government efforts to improve the country's creaking infrastructure.

Jasa Marga president director Frans Sunito said the company needs Rp4 trillion to finance the toll road projects on Java next year.  "Part of the funding will come from the IPO, which will be done in the first quarter of 2007," Sunito said.

He said the company expects to raise Rp1.5 trillion to Rp2 trillion from the IPO while the rest would come from loans.

Danareksa to Join $500m Cement Project

State-owned trust company Danareksa has agreed to partly finance the construction of a Rp4.5 trillion ($500 million) cement plant to be built by Semen Gerobogan in Central Java.

Semen Gerobogan general manager Tonny Santoso said Tuesday (7/11/06) that Danareksa had signed a letter of intent (LoI) to become one of the financiers of the cement plant, which when completed will have a production capacity of 2.3 million tons a year.

He however declined to disclose any details on the size of Danareksa's investment in the project.  "For sure, three months after the signing of the LoI, we will start the preparations for the construction of the cement plant," he was quoted as saying by The Jakarta Post.

The deal, signed by Danareksa and Semen Gerobogan, was one of 38 investment agreements signed during a Central Java Infrastructure Business Forum held on November 5-7 in Solo.  The agreements, with a total value of Rp6.56 trillion, cover 27 infrastructure projects, including waste treatment, water, railways and agribusiness.

Even though the investment commitments failed to reach the initial target of Rp14 trillion, Central Java Governor Mardiyanto hailed the forum as a success. 

Investors from China, Taiwan, the Netherlands, France and Malaysia attended the forum.

Taspen to Double Stock Funds to Rp340b

PT Taspen, Indonesia's second largest state-owned pension fund, is looking to double its investments on the Jakarta Stock Exchange to about Rp340 billion ($37.3 million) "soon", amid improving sentiment on the bourse and a stronger economic outlook, a fund executive said Thursday (9/11/06).

"Our investment in stocks is less than 1% (of total funds), we will increase this to around 2% soon," Taspen’s chief financial officer Heru Maliksjah told Dow Jones Newswires.

Taspen currently has Rp17 trillion in investment funds, about 73% of which is invested in fixed income instruments, Maliksjah said.  He said Taspen may invest in stocks including telecommunications blue chips and sector leaders.

Taspen will also invest in second-tier stocks that have good trading liquidity and strong potential to offer gains, Maliksjah said, declining to name specific companies.

Adhi Karya Eyes 65% Profit Rise in 2007

State construction company PT Adhi Karya expects to post a 65% increase in its net profit next year as the company will sign more projects, president director Saiful Iman said Wednesday (8/11/06).

Adhi Karya's net profit is likely to reach Rp150 billion ($16.48 million) next year compared to an expected Rp91 billion this year “as we have more (projects)", Iman said, according to Reuters.

Revenue is expected to jump to Rp6.04 trillion in 2007 from Rp4.15 trillion this year, as it will construct the $224 million monorail project in Jakarta and a $215 million power plant project for state electricity firm, PT PLN. 

 Funding for the power plant project will come from its owner, PT Indonesia Power, while for the monorail, it will come from a consortium led by the Dubai Islamic Bank.

 He said the total cost of the monorail project is $650 million, $224 million of which is for the construction of the rail by Adhi Karya and the rest will be used to acquire carriages.  "We expect to get the funds by December and in October next year the project could come into operation," Iman said.

PRIVATE SECTOR

October Car Sales Down 40%, Bikes Down 30%

Car sales in Indonesia are expected to have slumped 40% in October, hit by the week-long Idul Fitri holiday, but industry experts see interest rate cuts, and cheaper car loans stoking a recovery into next year.

 Annual sales are expected to fall to 330,000 to 350,000 units from last year's record 533,910, but analysts and manufacturers predict a rebound to 500,000 units in 2007 as the central bank moves aggressively to cut interest rates, Reuters reported.

 Meanwhile, sales of the country’s top three motorcycle makers fell nearly 30% last month, also due to the holiday, a PT Astra International official said Tuesday (7/11/06).

 Motorbike sales have soared to a record 5.1 million units last year from less than 1 million in 2000.  But sales in January to September dropped by nearly a fifth amid high interest rates and loans that deterred buyers.  Some analysts and industry executives expect volumes to recover to 2005 levels next year.

 First Bio-fuel Output Sold

A Singapore-based company says it has sold Indonesia’s first commercial production of bio-fuel, Reuters reported.

 Wilmar International Holdings said it has already sold half of its planned bio-diesel production from three plants due to start operating next year.

 The firm expects the first of its three, 350,000-tonne bio-diesel plants to start production in January 2007 and will run at full capacity in 2008.

 Wilmar operates 96,360 hectares of palm plantations and operates 72 milling, crushing, refining and processing plants in Indonesia and Malaysia.

 Kuok Khoon Hong, Wilmar's chairman and CEO, said the company planned to produce 700,000 tons of bio-diesel next year, and has already lined up customers in the United States and Europe to buy half of that amount.

 By the end of 2007 all the plants, based in Indonesia, will be up and running, taking bio-diesel production capacity to a total of 1.05 million tons, he said.

 "Half of the 2007 bio-diesel production has been sold and the margins we are getting are likely to push our profits higher," Kuok told a press and analyst briefing in Singapore.

 Wilmar, in which US agribusiness giant Archer Daniels Midland Co is a significant shareholder through its Asia- Pacific subsidiary, said on Thursday that net profit jumped 76% to 36.3 million in the third quarter ending September, from $20.6 million in the year-ago period.

  Global Institute to Promote Small Firms

To support the growth of small and medium enterprises (SMEs), the World Resource Institute (WRI) -- an independent US-based think thank -- will assist 10 selected SMEs to gain global market access and financial support.

 Under a non-profit program called New Ventures Indonesia, WRI has selected 10 profitable enterprises operating in a wide variety of sectors, such as Archipelago Senoadi Perkasa which operates in the renewable energy field, Caprina Agroindustry in organic agriculture, Yussagrindo in sustainable forestry, Manunggal Aswinaba Sejahtera in tourism and Dyna Energy in clean technology.

 "Based on our set-up criteria, from 56 companies, we select 10 that have the most environmental and social benefits, and profitability," New Ventures director Virgiana Barriero said Monday (6/11/06), according to The Jakarta Post.

 Firms that have a high level of social and environmental awareness are more likely to produce sustainable growth, she said, adding that the 10 firms would be able to avail of business consulting services to improve their business plans, develop their cash-flow analysis capabilities, allow them to contact investors and better prepare them to move into the global market.

 Indonesia New Ventures country director Diyanto Imam stressed the important role played by SMEs in the Indonesian economy.  "Some 60% of gross domestic product comes from SMEs and 90% of employment also comes from this sector," he said.

 Figures from the Central Bureau of Statistics (BPS) show that the total number of SMEs in Indonesia increased by 28% from 33 million in 2004 to 42.4 million in 2005.

 The World Resources Institute's New Ventures program operates in five key emerging economies: Brazil, China, India, Indonesia and Mexico.  To date, New Venture has trained more than 1,000 entrepreneurs, involving more than 100 companies, and assisted with the transfer of more than $15 million in investment.

Adam Air to List in Singapore

Low-cost carrier Adam Air plans a public listing in Singapore by the middle of 2008, a top executive said Thursday (9/11/06) at a regional aviation conference in the city state, Agence France-Presse reported.

"I think mid-2008 will be a good time to (list)," said Adam Suherman, president director of the budget airline.

Speaking at the Aviation Outlook Summit, Suherman said the founders of the budget carrier were likely to retain at least 51% of Adam Air if it proceeds with the public listing.

Suherman also said Adam Air was planning to beef up its fleet by an additional 10 planes next year to handle a projected rise in passenger numbers.

The airline expects to handle 11 million passengers in 2007, up from an estimated seven million this year, Suherman said, adding the carrier will concentrate on its domestic market which is still largely untapped.

Adam Air has also reported to be in talks with Australia’s Qantas, reported to be interested in the upstart’s route permits. The company began operations in 2003.

POWER

IAEA Backs Nuclear Plant

The International Atomic Energy Agency (IAEA) believes Indonesia has met all the prerequisites to build a nuclear power plant and that it will not develop nuclear weapons.

"Nuclear is the energy of the future, so the development of a nuclear power plant should not be monopolized by the rich countries alone. Poor countries should also be given the chance to use nuclear energy in power generation," IAEA public information director, Marc Vidricaire said during a discussion on nuclear energy in Jakarta on Tuesday (7/11/06).

The IAEA supports the development of nuclear energy to meet public demand for a sufficient electricity supply, said Vidricaire. He also pointed out that nuclear technology has been used in various fields such as health, food production, and water resources exploration.

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He conceded however that the peaceful application of the technology could be easily abused to develop nuclear weapons. Thus, a number of countries have been discouraged to apply nuclear energy, while other countries, such as Indonesia, are free to pursue it, he added.

Vidricaire told the audience that so far, there are 442 nuclear power plants in 30 countries which provide 370 gigawatts or 16% of the world’s electricity demand. Some 28 other nuclear plants are under construction in 16 countries, including developing countries.

Indonesia has said it plans to have its own nuclear power plant by 2016, to be built at Ujung Lemah Abang in Central Java’s Muria peninsula. The first plant is expected to have a capacity of 2,000 MW and an open tender for its construction will be opened in 2008.

 Investors Sought for Bontang Coal Plant

Indonesia is seeking investors to build a plant to supply coal steam to the Bontang liquefied natural gas (LNG) facility that uses natural gas to generate electricity, Mines and Energy Minister Purnomo Yusgiantoro said on Thursday (9/11/06).

 The move aims to boost LNG production in Indonesia, the world's top LNG exporter, which has failed to meet its contractual commitments to traditional buyers such as Japan, South Korea and Taiwan because of a slump in production.

 "We need to replace gas used at the power plant with coal steam.  We will process that gas to become LNG," Yusgiantoro was quoted as saying by Reuters.

 Separately, Yoga Suprapto, president director of PT Badak, said about 300 million cubic ft per day of gas are burned to generate power at Bontang plants.

 "If we replace that gas with coal steam then we can process an additional 21 cargoes of LNG per year," Suprapto said.  "We will open a tender soon to build that coal steam.  We expect the coal steam plant will be on stream in 2009."

 Another Badak official, who declined to be identified, said Bontang LNG will produce 316 cargoes of 125,000 cubic m each of LNG in 2006 and 310 cargoes in 2007.  The official said Indonesia has a contractual obligation to sell 365 cargoes of LNG from Bontang each year.

 French oil group, Total is the main supplier of gas, delivering about 2.6 billion cubic ft per day to the Bontang LNG plant in East Kalimantan.  Other suppliers are Chevron Corp and Vico Indonesia.  Vico's shareholders include BP Plc and Italian energy group Eni SpA.  Both supply about 800 million cubic ft per day of gas.

 Badak, which operates the Bontang LNG plant, is 55% owned by state oil firm PT Pertamina.  Vico has a 20% stake, Total 15% and a consortium of Japanese firms 10%.

  OIL AND GAS

 Subsidy Bill Shrinks

Current international prices for oil will soon allow the government to reduce the price of subsidized gasoline, a Mines and Energy Ministry official said.

 "If crude prices are on the decrease like they are now, then the government will consequently lower the price of subsidized fuel as well," Director General for Oil and Gas Luluk Sumiarso was quoted as saying by Antara on Wednesday (8/11/06).

 Crude oil has lately been trading at about $59 a barrel on the New York and London markets, well down from its mid-year price level of $70.  This means the global market price of gasoline equivalent to the subsidized medium-octane Premium type popular in Indonesia has also dropped to Rp4,740 a liter, nearing Premium's price cap of Rp4,500 a liter.

 "If the market price goes below Rp4,500, then the domestic selling price will follow, and the government will not have to subsidize it anymore," Sumiarso said, adding that the government will continue to cap gasoline at the Rp4,500 ceiling should crude oil prices rise again, subsidizing the difference.

 The price decreases will not apply to automotive diesel or kerosene, which are subsidized at levels far lower than current market rates, he added.

  Pertamina May Get Subsidized Supply Rights

Downstream oil and gas regulator, BPH Migas may give state oil firm PT Pertamina exclusive rights to supply and distribute subsidized oil products in 2007 as private firms do not have the necessary network, its chief said Tuesday (7/11/06).

 "There is no other firm so far to meet BPH MIGAS’ criteria to become a supplier and distributor of subsidized oil products, except Pertamina," Tubagus Haryono was quoted as saying by Reuters.  "One of the criteria is the firm has to have a supply network in Indonesia's remote areas."

 In 2004, the government opened up its domestic downstream oil business to foreign firms, including oil products retail, paving the way for them to directly import fuel and sell to local customers, after revoking Pertamina's monopoly in 2001.  But BPH MIGAS evaluates the supply and distribution rights of subsidized oil products such as low-octane gasoline, kerosene and diesel every year.

 The agency had given Pertamina exclusive rights to supply subsidized oil products in 2006 with estimated volumes of 37.9 million kiloliters (kl).

 International firms such as Royal Dutch Shell Plc and Malaysia's Petronas have several pump stations around Jakarta to retail high-octane gasoline, and have expressed interest in participating in also supplying subsidized oil products.

 Haryono said Indonesia is expected to consume 37.9 million kl (237 million barrels) of subsidized oil products in 2007, or 17 million kl of low-octane gasoline, 11 million kl of diesel oil and 9.9 million kl of kerosene.  The figures are the same as 2006.

  Total Makes New Gas Find

French oil major Total said on Tuesday (7/11/06) it had made a new gas discovery between the Tunu and Peciko fields in the offshore Mahakam block in Kalimantan.

 The Tunu Great South-1 well encountered a number of gas reservoirs that confirm the existence of an extension of the southern zone of Tunu, Total said, according to Reuters.  It added that it would carry out a production test to confirm the find, and further wells will be drilled in the area to appraise the potential.  The new resources could come on stream by 2009.

 Total operates the Mahakam block in a 50-50 joint venture with Japanese energy company Inpex Holdings Inc.

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