[Kabar-indonesia] 2 of 2: RI Trade and Investment News, 24 July 2006

[JoyoNews at aol.com]

The Coordinating Ministry for Economic Affairs
Republic of Indonesia
Jakarta
Monday, July 24, 2006

Trade and Investment News, 24 July 2006

Part 2 of 2-

State Concerns

Govt. Mulls Export Duty for Cane Molasses

Indonesia is planning to impose an export duty on cane molasses to secure 
domestic supplies for its growing ethanol industry, the Trade Department's 
Director General of Foreign Trade, Diah Maulida, said on Thursday (20/7/06).

Domestic demand for cane molasses is expected to increase this year as 
soaring crude oil prices have prompted investors to open new ethanol factories this 
year, Maulida said, according to Reuters.  Ethanol is used as an alternative 
motor fuel 
or fuel additive.

"The government is drafting regulations on molasses exports because there is 
a shortage of supply for the domestic industry, particularly ethanol," she 
said.

Molasses is used in the making of ethanol and food seasoning monosodium 
glutamate (MSG).  Indonesia produces an average of 1.3 million tons of molasses per 
year, while demand from the ethanol and food seasoning industries averages 
800,000 tons and 500,000 tons a year, respectively.

But the domestic industries do not get enough supply due to growing molasses 
exports as the commodity fetches a higher price in the export market, Maulida 
said.  

SOEs

Telkom to Lease Russian Satellite

State telecommunications company PT Telkom said it will lease a Russian 
floater satellite to fill the orbit slot of 118 degrees east longitude, before its 
Telkom-3 satellite is orbited in 2009, Antara reported on Friday (21/7/06).

Telkom president Arwin Rasyid said the government supports the plan to lease 
the Russian satellite with an investment of about $168 million to save the 
orbit slot.

Rasyid said talks with the Russians have come to the final phase of the 
agreement.  He said Telkom needs to coordinate with the satellite maker to place it 
in the required slot.

He said the Telkom-3 satellite, built for $120 million, will be launched only 
in 2009 to take over the position.

PRIVATE SECTOR

Lion Air Orders 30 Boeing 737s 

Low-cost Indonesian airline Lion Air on Monday (17/7/06) announced it would 
buy an additional 30 Boeing 737-900ER single-aisle passenger airplanes for more 
than $2.2 billion, taking its total order to 60.

The deal, which saw Lion Air exercise a purchase right for 30 more airplanes, 
was unveiled by Lion and US giant Boeing at the Farnborough International 
Airshow in southern England, according to an Agence France-Presse report.

Lion Air, the launch customer for the 737-900ER, had announced its first 
order totaling 30 airplanes and 30 purchase rights in July 2005.  Deliveries of 
the first 30 airplanes are set to begin in 2007.

Valued at more than $2.2 billion at list price, deliveries of the latest 
order are planned for between 2010 and 2012.

"The next-generation 737 is the most efficient single-aisle family today, and 
we are thrilled that Lion Air has selected the 737-900ER to support its 
expansion and fleet modernization plans," Boeing Commercial Airplanes president 
Alan Mulally said.

Indosat's Mobile Users Fall to 14m 

Indonesia's second largest mobile phone firm, PT Indosat, said on Monday 
(17/7/06) its user base fell to 14 million in June, from 14.4 million at the end 
of last year.

The fall in numbers sent its market share down to 27%, from more than 30% at 
the end of last year, Indosat director Wahyu Wijayadi was quoted as saying by 
Reuters.

Indonesia's mobile phone users have been growing at a rapid pace in the past 
few years, owing to a low penetration rate of about 20% in the country of 220 
million people.

But some analysts say a high churn rate and the calling card phenomenon, or 
habit of throwing away pre-paid cards when they run out instead of recharging 
them, has affected Indosat worse than others in the sector.

Wijayadi said he hoped Indosat, 42% owned by Singapore's ST Telemedia, would 
recover its market share by the end of the year.  "Until the end of June, our 
subscribers were at 14 million.  Our market share is 27%," he said.  "With 3 
million to 4 million new users expected until the year's end, we hope our 
market share will become 30%."

Industry experts expect the number of users in Indonesia to reach 100 million 
by 2010.

Hitachi Aims for 25% of Plasma TV Market 

Japanese electronics company Hitachi, one of the world's major producers of 
plasma display panels, is targeting a 25% market share in Indonesia's growing 
plasma TV market.

Indonesia's plasma TV market is looking good as an increasing number of 
people are buying plasma TVs for their homes, Andy Yusuf, general manager for new 
media products at PT Dinamika Ardimas -- Hitachi's sole agent in Indonesia -- 
said recently.  

"With total sales projected to reach 30,000 units this year, the market is 
quite promising," he said, according to The Jakarta Post.

Hitachi would focus on the sales of 40-inch plasma TVs and above, Yusuf said. 
 "While in the LCD (liquid crystal display) TV market, we will give priority 
to the sales of 25- to 37-inch sets." 

Dinamika Ardimas director Tjitra W Sanusi said the demand for plasma TVs 
continues to increase as more people are installing them at home and in the 
office.  "Sales of plasma TVs reached about 15,000 units last year, and this year, 
the sales figure is projected to double to 30,000 units," he said. 

According to the Fortune Global 500, Hitachi is the 23rd largest company in 
the world with total sales of $83.99 billion in the fiscal year that ended in 
March 2005.

Indofood Proposes Merger of Palm Oil Units

The world's largest instant noodle maker, PT Indofood Sukses Makmur, plans to 
merge its five units in the palm oil industry business into a sixth unit to 
increase efficiency, one of the subsidiaries involved in the merger said on 
Monday (17/7/06).

Indofood will merge the five units with PT Salim Ivomas Pratama, which will 
become the surviving company in this merger, Salim Ivomas said in a statement, 
without giving financial details.

"They (companies) are supporting each other in its business and a merger will 
become an alternative to achieve a more efficient, effective and productive 
management," Salim Ivomas said, according to Reuters.

Indofood, which has a market capitalization of $950 million, had said it 
plans to eventually offer a stake in its edible oils and fats business through an 
initial public offering.  Edible oils and fats contributed about 16% of its 
Rp18.8 trillion ($2.05 billion) net sales last year.

Indonesia's Salim family controls Indofood through Hong Kong's First Pacific 
Ltd.

BANKS

Banks Begin Cutting Deposit Rates 

Lenders have begun cutting their deposit rates to reduce costs and avoid the 
risk of default, following the recent lowering of the maximum rate on rupiah 
deposits which the government guarantees, The Jakarta Post reported on Friday 
(21/7/06).

A similar slashing of lending rates, which is expected to help spur growth in 
the country's real sector, is however unlikely in the near future, with the 
lenders still waiting for the central bank to further reduce its key rate. 

"Banks will reduce their deposit rates soon to keep their cost of funds 
down," Bank Central Asia (BCA) deputy manager Evoni Barlianto was quoted as saying 
by Antara on Thursday (20/7/06).  

Lenders regard the interest they pay on savings and deposits as costs of the 
funds they will later channel as loans.  They profit from the difference in 
the rates. 

BCA, the country's largest lender by market value and third largest by 
assets, has cut its deposit rates to 9.5% for all time deposits less than Rp1 
billion ($108,000), and between 10.25% and 11.25% for all others, Barlianto said.  
She did not elaborate on BCA's lending rates. 

The government's Deposit Insurance Agency (LPS), which guarantees deposits at 
domestic banks, had on July 11 cut the maximum rate of rupiah deposits it 
will still cover by half a percentage point to 12%.  The agency will not 
guarantee any deposit offering higher rates, or whose value exceeds its current Rp5 
billion ceiling. 

LPS' decision comes after the central bank cut its benchmark BI rate, which 
is used as a reference for bill sales and banking rates, by a quarter 
percentage point to 12.25%, following the decline in June inflation to 15.53%.  BI and 
LPS decide their rate policies on a monthly basis. 

Bank Haga international banking group head, Yenny Santosa, agreed with 
Barlianto on the upcoming trend of lenders cutting their deposit rates, saying high 
rates will only give them a financial burden.  "Banks don't like high 
(lending) rates either, as it makes credit channeling more difficult," she said. 

Meanwhile, Bank Mandiri chief economist Martin Panggabean said predictions of 
a downward trend in interest rates in the second half of the year still ring 
true but the decrease will be very slow because the central bank cannot afford 
to narrow the gap between its key interest rate and the US Federal Reserve's 
to less than 5 percentage points. 

POWER

Govt. Caps Prices from Coal-Fired Plants 

Indonesia set a ceiling price for electricity that generators sell to state 
power company PT PLN, in an effort to limit energy prices and ease power 
shortages, Bloomberg News reported Friday (21/7/06).

The government decided on a maximum price of Rp485 per kilowatt hour for 
companies selling in the domestic currency from plants with a capacity of more 
than 150 MW, according to a regulation signed by Mines and Energy Minister 
Purnomo Yusgiantoro on July 18.  The price for those selling in US dollars is capped 
at 4.5 US cents per kilowatt hour.

The government set a ceiling price of Rp495 and 4.75 US cents a kilowatt hour 
for power generated by plants with capacity of between 25 MW and 150 MW, 
according to the regulation.  Power supplied by plants with a capacity of as much 
as 25 MW will be sold at a maximum of Rp520 or $4.95 a kilowatt hour, the 
regulation said.

The prices were based on a coal price of $30 a ton and the rupiah's exchange 
rate of 9,200 a dollar.

Lively Bidding Expected for Java Plants  

Japan's Sumitomo Corp, India's Essar Group and China's Harbin Electric Inc 
may submit bids to build 10 coal-fired power plants on Java.

Marubeni, Japan's fifth largest trading company by revenue, and Shanghai 
Electric Power Co are also among 59 companies that have taken bidding documents 
for the plants, PT PLN acting president director, Djuanda Nugraha Ibrahim, said 
Friday (21/7/06), according to Bloomberg News.

The state power company on July 10 invited bids for 10 coal-fired power 
plants on Java, with units able to generate between 300 MW and 700 MW each.  
Contractors are expected to finance at least 85% of the project cost using export 
credits, it said in an announcement in local newspapers.

The utility plans to name the winners of the contracts to build power plants 
with a total capacity of about 7,000 MW in early October, Ibrahim said 
Thursday (20/7/06).

"We're focusing on Java first, after that we'll start inviting bids for 
outside Java," he said.  The company plans to start inviting bids to build 30 
coal-fired plants outside Java in three months.  The plants will have a total 
capacity of 2,900 MW to 3,200 MW, he said.

PLN may pick Indonesian companies over foreign ones to build the plants 
outside Java, he said. 

PLN, PGN to Raise Power Supply in Batam 

State power firm PT PLN and state gas company PT PGN, in cooperation with 
Riau Island province, have committed to raise the power supply on the islands of 
Batam, Bintan and Karimun in preparation for the three islands' being declared 
a special economic zone. 

PGN will install a gas pipeline between Batam and Bintan as part of its 
commitment to supply gas to power stations on the three islands, The Jakarta Post 
reported.

PLN's director for primary energy Ali Herman Ibrahim, after a meeting with 
PGN president WMP Simanjuntak and Riau Islands Vice Governor Muhammad Sani on 
Tuesday (18/7/06), said the electricity supply on the three islands is 
considered adequate to provide power for both small and large foreign companies 
intending to invest in the area. 
 
Ibrahim further said that the meeting aimed to ascertain PGN's commitment to 
set aside part of its gas production to power generators owned by PLN, under 
the framework to implement the special economic zone on the three islands.  

Nearly 80% of power generators operated by PLN in Riau Islands are fueled by 
gas.  In Batam alone, power generators owned by PLN produce about 150 MW of 
electricity. 

Muhammad Sani told the Post that to prepare the necessary infrastructure on 
the three islands, his administration had earmarked Rp50 billion ($5.26 
million) from the 2007 regional budget.  The emphasis would be on electricity and 
drinking water. 

Meanwhile, Simanjuntak said PGN had been asked to give a commitment to supply 
gas to the three islands for power generation.  He said PGN has plans to 
build an undersea pipeline to supply gas to Bintan from Batam, where a pipeline 
from South Sumatra passes to Singapore. 

The Batam-Bintan pipeline project is estimated to cost $14 million with the 
capacity to supply 100 million cubic ft of gas per day, while the supply to 
Karimun could be supplied using tankers as it would be very expensive to build a 
similar pipeline to the island. 

Simanjuntak said the supply of gas to the three islands depended on 
preparatory work by Conoco Philips, Petro China and Jambi Berang as the gas producers. 

OIL AND GAS

Pertamina Vows to Secure Stocks 

State oil and gas company, PT Pertamina, vowed to keep its oil product stocks 
at no less than 21 days' demand despite high international oil prices, deputy 
director for trading and marketing, Hanung Budya, said on Monday (17/7/06).  
The company will guarantee the availability of domestic oil products, 
regardless of oil prices, he said.

Tensions in the Middle East have pushed oil prices to near $80-a-barrel 
levels.  "Whatever the oil price is, we will secure our stock, no less than 21 
days.  Currently, our stock stands at 23 days," Budya said.

Stock levels soared as high as 27 days at the start of the year after oil 
demand slumped following Jakarta's decision to nearly double subsidized retail 
prices last October.  As a result, Pertamina, the region's biggest importer of 
gasoline and diesel, cut back sharply on imports to draw down stocks.

It is expected to import 12 million to 13 million barrels of oil products in 
August, compared with 12.71 million in July and 12.36 million a month before.

Coordinating Minister for Economic Affairs Boediono on Monday (17/7/06) 
called on people to refrain from getting "too worried" about the soaring global oil 
prices, saying economic fundamentals are strong enough to deal with the 
impacts.

"We must remain vigilant, but we don't need to expect worse things to come. 
Our economy is strong," Boediono said, according to Xinhua.

Mines and Energy Minister Purnomo Yusgiantoro said the government still has 
no plan to increase the price of domestic oil because of the skyrocketing 
global oil prices.

Govt. Lowers Fuel Consumption Forecast

The government has proposed to parliament that forecast consumption of 
subsidized fuel in 2006 should be revised down following a rise in domestic prices 
last October, Mines and Energy Minister Purnomo Yusgiantoro said on Wednesday 
(19/7/06).

The government had proposed revising the consumption forecast down by 8.7% to 
37.9 million kiloliters (kl) in 2006 from a previous estimate of 41.5 million 
kl, he said.  "Subsidized fuel consumption is forecast to be lower than our 
previous estimate because consumption for transportation has fallen," the 
minister was quoted as saying by Reuters.

Consumption of subsidized gasoline is likely to be largely unchanged at 17 
million kl, but diesel oil consumption is forecast at 11 million kl, less than a 
previous estimate of 14.5 million kl.  Kerosene consumption is projected to 
fall slightly to 9.9 million kl from 10 million kl, Yusgiantoro said.

Separately, an official of state oil company PT Pertamina said Indonesia 
would continue importing diesel oil and gasoline as domestic refineries find it 
hard to meet demand.

China, Indonesia Agree on LNG Price - CNOOC 

China and Indonesia have reached an agreement on the pricing of liquefied 
natural gas (LNG) to be supplied to China's Fujian province from the Tangguh 
project and will announce details shortly, Chinese buyer CNOOC Ltd said.

Terms of the accord will be unveiled at an energy forum the two nations plan 
to hold later this year, CNOOC chairman Fu Chengyu said in Beijing on Tuesday 
(18/7/06), Bloomberg News reported.

CNOOC, China's largest offshore oil company, is helping build terminals that 
receive LNG as the nation pursues a target to get 8% of its energy needs from 
natural gas by 2010.

The push will increase consumption of natural gas in the country, which uses 
coal to generate two-thirds of its power.  "Both sides will officially 
announce the details at an energy forum," Fu said.  "It involves government officials 
and we're working out the timing."

The accord will advance the development of the BP Plc-led Tangguh project at 
Bintuni Bay in West Irian Jaya province. 

Higher crude oil prices, rising demand and limited supply have pushed LNG 
prices up from all-time low levels in 2002, when China agreed to buy the fuel 
from Tangguh.

Funding Interest in Gas Pipeline 
Deutsche Bank AG, Malaysia's CIMB Bhd, and Japan's Sumitomo Mitsui Banking 
Corp and Mizuho Corporate Bank Ltd may fund the $1.26 billion Indonesian gas 
pipeline connecting Kalimantan and Java, Bloomberg News reported on Wednesday 
(19/7/06).

Saryono Hadi Widjoyo, head of the tender team at state oil refining and 
pipelines regulator BPH Migas, said bidding documents submitted by PT Bakrie & 
Brothers show that the banks offered to finance the project,.  Each bank offered 
to extend loans of as much as $1.5 billion, he said.

Bakrie won the tender to build the pipeline after it offered the lowest toll 
fee of 84 US cents for each million British thermal unit of gas transported. 
It will start constructing the pipeline next year, company president Bobby 
Gafur Umar said Tuesday.  The 1,115-km pipeline is scheduled to start operation by 
July 2009. 

Bakrie will conduct a "beauty contest" to select where it will get the loans 
from, Umar said, noting that the company may use loans from Indonesian banks 
to fund expenses in rupiah.  Bank Internasional Indonesia (BII) has agreed to 
lend Bakrie funds, according to the bidding documents.

ConocoPhillips Outlines Block A Investment 

ConocoPhillips and its joint venture partners have outlined the investment 
they will be making to commercialize the natural gas deposits in Block A in Aceh 
province. 

According to Upstream Online, the consortium will spend $400 million to 
develop the gas held in the Alur Siwah, Alur Rambong and Julu Rayeu fields.  
Production is expected to commence at those sites by 2010.

ConocoPhillips operates the license with a 50% interest, while Premier Oil, 
PT Medco and Japex each have a 16.67% stake.  The gas output has already been 
tied up by off-takers in the domestic fertilizer industry.

MINING

Timah Upbeat on Tin Price, Cuts Output

The world's largest integrated tin miner, PT Timah, hopes an output cut would 
help the price of the metal rebound to $10,000 per ton later this year, its 
president director told Reuters.

Timah plans to slash this year's output by 8.1% to 38,407 tons from 41,799 
tons in 2005 to reduce stockpiles and offer support for the metal.  "By cutting 
supply, the tin price may fetch $10,000 a ton by the second half of this 
year," Thobrani Alwi said late on Monday (17/7/06).

"The current price is not profitable, especially after last year's fuel price 
hike.  If it fell below $7,000, we won't be able to work.  The reasonable 
price should be between $10,000 and $12,000," he said.

Tin was little changed at about $8,400 per ton on the London Metal Exchange 
(LME) on Tuesday (18/7/06).  It rallied to $9,600 in mid-May, just below a 
15-year high of $9,650 set in May 2004, but has since failed to sustain the gains.

Petrosea Wins Coal Contract

Engineering and construction firm Clough Ltd said its Indonesian unit, PT 
Petrosea, has won a A$42 million coal mining deal on top of its existing contract 
at the Muara Pahu coal mine in East Kalimantan.

The original contract was awarded to Petrosea by PT Gunungbayan Pratamacoal 
(GBP) in November 1999 and was extended for four years from December 2004, 
XFN-Asia reported on Monday (17/7/06).

GBP mines high-quality coal in the Muara Pahu district of East Kalimantan, 
which is exported to Asia and Europe.

-End 2 of 2-

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Joyo Indonesia News Service
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