Ebb7032972a0468b879ebf329a8e98e3TradeInvNews16Feb2009.doc



THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS

REPUBLIC OF INDONESIA

Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4 Jakarta 10710

Tel: (021) 351-1178    Fax: (021) 351-1186    Website:

Trade and Investment News[1], 16 February 2009

Highlights

 

National

•         Hillary Clinton will arrive in Indonesia as part of her first foreign trip as US Secretary of State

Politics

•         The General Election Commission remains confident that voting will go ahead as planned

Terrorism

•         Military aims to increase operations in border areas 

Security

•         Canada has removed its travel warning for Indonesia 

Law & order

•         New Supreme Court chief admits internal problems at the court

Economy

•        President Yudhoyono said the government will not interfere in Pertamina’s operations

Business briefs

Macroeconomy

•         Government revised down its 2009 economic growth forecast

•         US$340 million will be injected into a new infrastructure body

Investment

•         Aceh aims to boost investment as reconstruction efforts wrap up

SOEs

•         PT Garuda Indonesia said is hopeful to reach a debt restructuring agreement

•         Deposit Insurance Corporation cut its maximum guaranteed rupiah deposit rate

Banks

•         Banks are preparing payment rescheduling for borrowers reliant on overseas markets

 Power

•         PLN has set up a subsidiary engaged in geothermal energy

 Oil & gas

•         President urged Pertamina to build new refineries to cut imports of oil products

Mining

•         Government will allocate 68.3 million tons of coal for domestic use in 2009

 

NATIONAL

US Secretary of State Clinton to visit Jakarta this week

Hillary Clinton will visit Indonesia as part of her first foreign trip as US Secretary of State this week, Reuters reported. The inclusion of Indonesia in the trip highlights the importance the country will play in the administration of US President Barack Obama.

There are several issues likely to be raised during Clinton’s visit.

President Susilo Bambang Yudhoyono will showcase the country's stability. Jakarta is also eager to highlight how the world's most populous Muslim nation has remained predominantly moderate.

Trade is also expected to top the agenda. The US is Indonesia's second-biggest export destination after Japan, but Jakarta is concerned over a slide in exports of commodities such as palm oil, rubber and nickel to developed economies. A number of major US resource firms such as Newmont and Chevron also operate in Indonesia and Jakarta wants to attract more investment.

Indonesia wants a bigger role in world affairs, notably in the Middle East. It has friendly ties with countries such as North Korea and Iran, and has previously sought ways to mediate in disputes. It may look to leverage off this.

The fight against terrorism is also expected to be raised. Jakarta and Washington have cooperated in the fight against militants, but Indonesia also wants to modernize its poorly equipped military.

However, Foreign Minister Hassan Wirajuda said on Friday the government will not bring up with Clinton the potential deportation of Hambali, an Indonesian terrorist suspect being detained at Guantanamo Bay, Cuba, reported Antara.

“I think the issue is too specific and therefore is not necessary to be discussed in this level of meeting,” said Wirajuda.

The meeting, said Wirajuda, will focus on establishing a sound Indonesia – US relationship during the early days of US President Barack Obama’s administration.

Family Planning Agency seeks military help

The Family Planning Coordinating Agency (BKKBN) has turned to the Armed Forced (TNI) to reinvigorate its birth control program, which has been left in tatters following the inception of regional autonomy in 2000, reported The Jakarta Post.

“The TNI has the necessary equipment and manpower to assist us in our activities,” BKKBN chief Sugiri Syarief said after signing a cooperation agreement Thursday with TNI chief Gen. Djoko Santoso.

Syarief added the BKKBN would benefit from the TNI’s chain of command, which covers remote areas beyond the agency’s reach.

The BKKBN also failed to lower the country’s fertility rate from 2.6% to its original target of 2.2 percent.

Jakarta to send forensics team to Aussie fires

The government will send police forensic experts to Australia to help identify people killed in bushfires in the southeastern state of Victoria, the foreign minister said Friday, reported Agence France-Presse. "A team from the police Disaster Victim Identification unit comprising forensic pathologists and dental experts will leave for Australia on February 14," Foreign Minister Hassan Wirajuda said.

"We hope that Indonesia's assistance will lighten Australia's burden in identifying the victims," he said.

The forensic help comes after Indonesia said earlier in the week that it would send one million dollars to Australia to assist with reconstruction.

Indonesian Police Chief Bambang Hendarso Danuri said that the team of 20 forensic experts is being sent on the request of the Australian government. Danuri said the deployment followed from cooperation established when experts from both countries joined forces to identify those killed in the 2002 Bali bombings, in which 202 people, including 88 Australians, died.

At least 181 people were killed and more than 1,800 houses razed by the Australian wildfires, the deadliest in the nation's history. Two Indonesian students holidaying in the fire-hit town of Marysville are among the missing, local media reported.

POLITICS

No delay in election despite glitches: KPU

With nearly 50 days to go before the legislative election, the General Election Commission (KPU) is still struggling to ensure it has an accurate list of voters, among other issues, The Straits Times reported. But the KPU remains confident that voting will go ahead as planned on April 9, despite earlier worries of a postponement.

The commission's troubles, which have been heavily publicized for weeks, had led election officials and lawmakers to fear that the polls would be delayed. It led them to huddle behind closed doors earlier this week, after which Elections Supervisory Board (Bawaslu) chairman Nur Hidayat Sardini said he would encourage people to be “optimistic” that the election would go ahead.

KPU member Syamsul Bahri said Thursday that there would be no delay. “We have finished what we need to do in terms of logistics,” he said, while acknowledging that there were still some issues to be resolved.

Court turns down N. Maluku KPUD appeal

The Constitutional Court turned down a request by the North Maluku elections body (KPUD) to reverse last year’s gubernatorial election result that handed victory to Thaib Armeiyn and his running mate Abdul Gani Kasuba, The Jakarta Post reported.

Armeiyn won the election based on a decree issued by President Susilo Bambang Yudhoyono, sparking strong protests from rival Abdul Gafur and his running mate Abdul Rahim Fabanyo. “The court finds that the North Maluku KPUD has no legal standing to bring the case to court. Besides, the disputed object is not directly regulated in the Constitution,” presiding judge Mahfud M.D. told the court in Jakarta. He said it was the General Elections Commission (KPU), not the KPUD, which had legal standing to pursue the dispute.

TERRORISM

Terrorists may hide in border zones: Armed Forces

Armed Forces (TNI) chief Gen. Djoko Santoso said on Thursday the armed forces would intensify operations in border areas as terrorists could hide and sneak into the country, reported Antara. "The possibility is there, therefore we will stay alert," Santoso said. TNI would not sacrifice border security despite its budget shortage. "One of TNI's main duties is to protect land, sea and aerial borders," he said.

The Army has set up 33 security posts in the borders with East Timor, 25 posts near the border with Malaysian state of Sabah, 31 posts near the border with the Malaysian state of Sarawak and 114 posts near the border with Papua New Guinea, said Army chief assistant for operations, Maj. Gen. Hotma Marbun. Meanwhile, the Navy is maintaining warships in the disputed oil and gas-rich maritime zone of Ambalat in the Sulawesi Strait, he said.

US intel chief praises anti-terrorism drive

President Barack Obama's top intelligence official says Indonesian efforts have done much to weaken the Jemaah Islamiyah (JI) terror faction in the country, The Associated Press reported.

US National Intelligence Director Dennis Blair said Thursday that the group has not been eliminated. But he praised Jakarta for making "great strides" since the 2002 nightclub bombings in Bali that killed 202 people. Blair said the attack "jolted" Indonesia into realizing the threat the group posed.

He said counterterrorism efforts by Indonesia with occasional US help have led to the arrests or deaths of hundreds of JI operatives and top leaders.

SECURITY

Canadian government lifts travel warning for Indonesia

The Canadian government lifted its travel warning for Indonesia, said a press release from the Indonesian Embassy in Ottawa on Friday, reported Detikcom. Canada imposed a travel warning for Indonesia in 2002, following a deadly terrorist attack in Bali.

The press release said the travel warning revocation also shows the increasing trust of other countries towards Indonesia in regards to security matter. In May, 2008, the US government lifted its travel warning for Indonesia which was imposed in 2000. "Indonesia has not experienced a major terrorist attack since October 2005 and the government of Indonesia has disrupted, arrested and prosecuted numerous terrorist elements," said a release by the US Embassy at the time.

LAW & ORDER

New chief justice admits ‘internal problem’

New Supreme Court Chief Justice Harifin A. Tumpa admits there are problems within the country’s judiciary, but denies allegations that the institution he leads is infested with corruption, The Jakarta Post reported. Citing recent surveys conducted by Transparency International Indonesia (TII) and the Corruption Eradication Commission (KPK), Tumpa said the findings indicated a lack of control within the judiciary.

“Yes, I’ve certainly seen the results of the surveys by TII and the KPK,” he said at the State Palace, shortly after a ceremony to inaugurate him as the chief justice. “I think there’s something wrong, perhaps a lack of control in the management [of the judiciary].”

Deputy chief justice for judicial affairs Abdul Kadir Mappong and deputy chief justice for nonjudicial affairs Ahmad Kamil were also sworn in at Tuesday’s ceremony. “We will improve supervision; that will be part of our job,” Tumpa said.

Police net two suspected in mass credit card fraud

Jakarta Police have arrested two people who are believed to be part of a highly sophisticated credit card fraud ring that may have swindled individuals and banks out of many billions of rupiah since 2000, The Jakarta Globe reported. Jakarta Police Chief Wahyono said Friday that Andre Christian Brail, 28, was arrested at the Hotel Sultan in Central Jakarta and Khairunnissa Yulita, 44, was arrested at her house in Tebet, South Jakarta.

Police were also seeking a third suspect with the initials KR, who is suspected of having supplied credit card and PIN numbers of legitimate owners of credit cards. Wahyono said that the suspects received lists of credit card and PIN numbers, possibly with the help of bank employees, and then manufactured fake credit cards with whatever alias they chose.

"The false credit cards are used by the suspects to make illegal transactions, like shopping, cash withdrawals, and staying in some star-rated hotels," said Bahagia Dachi, head of the Jakarta Police's fiscal, monetary and reserves division. "According to the Indonesian Police Commission, credit cards from many banks had been multiplied and the loss could be in the billions of rupiah," Dachi said, adding that the police would investigate the network further.

The victims were patrons of a range of local and foreign banks, including Citibank and HSBC.

ECONOMY

President backs ‘professional’ Pertamina

President Susilo Bambang Yudhoyono commited to support Pertamina as a professional company and promised the government would not intervene in the operations of the state-owned energy company over operation of the Natuna block. “Pertamina’s team will decide with whom it can cooperate in developing Natuna field. I will avoid any kind of intervention,” Yudhoyono said during a visit to Pertamina’s headquarters in Jakarta.

The visit came only a week after the government appointed Karen Agustiawan as the company’s CEO, replacing Ari Soemarno. Pertamina is in process of selecting a partner from four candidates for further development of the Natuna block, a rich but carbon dioxide-heavy gas deposit in the South China Sea. The candidates are ExxonMobil, Royal Dutch Shell, Norway’s StatoilHydro and China’s CNPC.

The president said the selection process must be transparent and accountable. He added that the government will also support the construction of new refineries, despite hefty investment and small margins of the projects. “The government will support the plan. We will give incentives to attract investors,” Yudhoyono said. He made the comment after days after Vice President Jusuf Kalla discussed Indonesia’s need for refineries with Royal Dutch Shell in a visit to the Netherlands.

The government further revised the projection for economic growth for this year. The Finance Ministry now estimates economic growth between 4.2% and 4.7%, down from the 6% in the budget approved by the House last year. Finance Minister Sri Mulyani Indrawati told the House of Representatives that the global crisis is impacting economic growth. "The global crisis has developed quickly and the impact is deep, so every country needs to respond to anticipate it," Indrawati told a House budgetary commission hearing last Tuesday.

Trade Minister Mari Pangestu, quoted by Reuters on the same day, said total export growth will slow to just 1%-2.5% this year, from about 20% in 2008. Previously the government had forecast 5% growth this year.

Bank Indonesia Governor Boediono said he was confident the rupiah will be better traded by the end of this year, especially to the US Dollar. “Too many dollars have been pumped into the market this year. The dollar will be corrected and this will put the rupiah in a better position,” he told the House of Representatives on Thursday, according to Kompas. Boediono added that the coming general election and the government’s fiscal stimulus would bring the Indonesian currency into a better position.

BUSINESS BRIEFS

MACROECONOMY

Govt. revises down economic growth goal

The government on Thursday downwardly revised its economic growth targets in the 2009 state budget to reflect the impact of the global economic slowdown and sought speedy approval for the revision from the House of Representatives, The Jakarta Globe reported.

The Finance Ministry now projects 2009 growth of 4.2% to 4.7%, down from the 6% in the budget approved by the House last year, said Anggito Abimanyu, the ministry's head of fiscal policy. "The global crisis has developed quickly and the impact is deep, so every country needs to respond to anticipate it," Finance Minister Sri Mulyani Indrawati told a House budgetary commission hearing.

"The change in economic indicators in the form of lower economic growth, the rupiah exchange rate and oil prices carries an impact on the 2009 budget," Indrawati said. The finance minister said that in anticipation of the effects of the global crisis being felt at home, steps needed to be taken, including adjusting the state budget and the addition of fiscal stimulus.

In the proposed revised budget, the average exchange rate for 2009 has been raised to Rp11,000 a dollar, up from the original Rp9,400. The estimate for global crude oil prices is now $45 a barrel, down from the earlier projection of $80.

State revenue was originally projected in the budget to reach Rp985.7 trillion ($83.78 billion), but the revised projection put it at Rp853 trillion. The Rp132-trillion shortfall was largely because of expected lower revenues from the oil and gas sector and taxes.

Tax revenue was forecast to miss the original target, falling by 8.11% to Rp666.9 trillion, while oil and gas sector revenue was likely to slide to Rp92 trillion from Rp162.1 trillion earlier following the dive in global crude oil prices. The budget deficit was also predicted to soar by Rp78 trillion to Rp129.5 trillion, equivalent to 2.5% of the gross domestic product (GDP). The deficit in the original state budget was predicted at 1% of GDP – equivalent to Rp51.3 trillion.

The huge difference is accounted for by the Government's planned of Rp71.3 trillion fiscal stimulus package. A special provision in the 2009 budget law allows emergency adjustments to the budget without having to secure the approval of a plenary meeting, a process that would usually take weeks if not months. The government intended to invoke the clause because it deemed urgent action would be needed to safeguard the overall economy.

Planning Minister, Paskah Suzetta said that under the State Budget Law, the House has until Tuesday to decide whether to approve the revisions.

Meanwhile, Bank Indonesia Governor Boediono on Thursday told the House hearing that Indonesia's economy is expected to grow between 4-5% this year in the face of weaker demand for its commodities.

Boediono said that the central bank expects the currency to strengthen, with the exchange rate at Rp11,000 per dollar or stronger by the end of this year.

BI also said in a report released on Monday that the country's annual inflation rate was expected to continue easing until the first half of 2010, pulled down by slower domestic demand, Reuters reported.

Indonesia's annual inflation in January eased to 9.17% from 11.06% in December, the lowest inflation rate since April last year when it reached 8.96%. The central bank has forecast annual inflation will slow to 5%-7% this year.

Rp4T to be injected for new infrastructure body

The government, in concert with the World Bank and Asian Development Bank (ADB), plans to inject up to Rp4 trillion ($340 million) into a special body that will provide loans to investors interested in developing long-term infrastructure projects, a senior government official said on Tuesday, The Jakarta Globe reported.

"Looking at the current conditions, we expect the project to move forward and provide funding should developers have difficulty securing financing while banks have only short-term funds," Wahyu Utomo, the coordinating minister for the economy's deputy assistant for infrastructure and underdeveloped areas told reporters at a seminar in Jakarta. Utomo said the body to be called simply "Infrastructure Funds” would be set up in February and should be operational sometime in the first half of this year

The government expects to make a contribution of Rp1 trillion to the body, with the rest coming from ADB and World Bank. "Indonesian banks' balance sheets mostly consist of short-term deposits," said P.S. Srivinas, lead financial economist at the World Bank in Jakarta. "Therefore, they cannot finance long-term loans like those for an infrastructure project."

Dedy S. Priatna, the state minister for national development planning's deputy for infrastructure, said Indonesia would need Rp1.429 trillion to finance the infrastructure projects the government has planned for 2010-2014. However, he indicated that on its own the government likely could only afford 30% of that total. The rest, it is hoped, could be secured through public-private partnerships.

Minister calls for cut in housing loan risk factor

Public Housing Minister Yusuf Asy'ari has called on Bank Indonesia to reduce the risk factor for housing loans by 20% from the previous 40% in order to generate loans for subsidized homes, Tempo Interactive reported on Friday.

Asy'ari also asked the central bank to give priority to industries that support housing development through their policies. “If possible, housing loan portfolio should be categorized as productive credit,” he said on Thursday.

Bank Indonesia Governor Boediono said the central bank will consider the recommendation. However, he said the bank would have to maintain aspects of prudence.

INVESTMENT

Aceh eyes investment after BRR set to close

Aceh aims to lure more investment now that the state agency to rebuild after the 2004 tsunami is set to close, its governor said on Friday, Reuters reported. "Continued funding for rehabilitation and reconstruction programs beyond 2009 are necessary," Aceh Governor Irwandi Yusuf told a conference in Jakarta. Yusuf said the province, which has some pristine forest areas, would try to attract investment into carbon trading schemes and seek to develop food crops and fisheries. The governor said he would also seek to establish streamlined rules and open a new office in Aceh to attract investment.

The Aceh-Nias Reconstruction and Rehabilitation Agency( BRR), set up after the devastating 2004 tsunami to manage a huge global outpouring of donor aid, is due to wind down operations in April. The local government must take the main role, following a decree by President Susilo Bambang Yudhoyono to end the role of BRR in Aceh and Nias.

President Yudhoyono promised to establish a new agency to ensure oversight of reconstruction work in Aceh.

The province is one of the poorest in Indonesia, despite its rich in resources ranging from coffee to natural gas, after three decades of separatist conflict and a tsunami which killed 170,000 people and destroyed infrastructure.

In December, BRR chief Kuntoro Mangkusubroto said Aceh must reduce crime and improve workers' skills to attract investment and create jobs. While the peace agreement has generally been regarded as successful, there are concerns elections this year could fan tensions in the province. BRR, meanwhile, has built 134,000 houses, 3,600-km of roads, and about 1,400 schools in Aceh and Nias, spending $6.7 billion from donors and the Indonesian government, Mangkusubroto said.

Ancora to acquire mining, infrastructure stakes

Ancora Capital plans new acquisitions in the mining and infrastructure sectors throughout the first half, Gita Wirjawan, owner of PT Ancora International and co-chairman of Ancora Capital Management Ltd., an international Shariah-based private equity firm, The Jakarta Globe reported on Monday.

"We're monitoring the market every day for opportunities," said Wirjawan last Sunday, who recently became a commissioner at state oil and gas company PT Pertamina. Wirjawan said Ancora Capital was mainly interested in investing in natural resources and infrastructure, due to potential opportunities to expand in these sectors, despite the global economic crisis and falling commodity prices.

He said one possible acquisition target was PT Bormindo Nusantara, a national drilling company formed in 1981. Ancora is also interested in acquiring companies in the toll road sector. "But we may halt making acquisitions until the second half if the global crisis worsens."

Wirjawan said the company will fund its acquisition plans with a $300 million investment from several investors in Islamic countries, including the Middle East. "Ancora Capital has already invested in PT Apexindo Pratama Duta and PT Bumi Resources, and there is still money left to be invested," he said. "We have under $200 million left to spend."

Ancora Capital teamed up with PT Mitra Rajasa in September to acquire a $182 million, 80.3% stake in Apexindo. Ancora contributed $18.2 million. It also spent about $75 million to take over PT Bakrie & Brothers, a holding company owned by the Bakrie family, in return for a 2.9% stake in PT Bumi Resources, the country's largest coal producer.

Bakrie retained buyback rights in the deal.

SOEs

Garuda hopes to reach deal with creditors by June

State-owned carrier PT Garuda Indonesia hopes to reach a debt restructuring agreement with its creditors by June, chief financial officer Eddy Purwanto said Wednesday, Dow Jones reported. "We are making a very good progress from where we stood before," Purwanto said on the sidelines of an airline conference in Singapore.

Garuda has been working with creditors to restructure around $800 million in debt since last year. The company and the European Credit Agency, which Garuda owes around $400 million, had agreed last year in principle on several terms and conditions of the debt restructuring. Debt restructuring is a crucial step before the government privatizes the state-owned carrier.

However, Garuda still needs to talk with other creditors. Purwanto said that Garuda remained profitable in 2008 despite high oil prices.

The debt-laden company booked Rp258 billion in net profit in 2007 - its first time profit in three years - due to the ongoing restructuring of its routes, which resulted in a higher number of passengers and a higher yield per passenger. The company also took measures to boost its operational efficiency, such as improving airplane utilization. Purwanto said that Garuda will continue to add to its fleet in spite of the current slowdown on the global economy.

Meanwhile, the company’s subsidiary PT Garuda Maintenance Facility (GMF) expects its profit to rise from Rp71 billion in 2008 to Rp100 billion ($8.5 million) this year, its president director, Richard Budihadianto said, Asia Pulse reported. To meet this year's profit target, he said, the GMF planned to increase the number of its hangars with an investment of $50 million. The company also would diversify its market to the Middle East region and optimizing its existing markets namely the US, the Netherlands, Spain, Greece and Thailand.

However, Budihadianto predicted that the additional hangars could only be realized in 2011 due to the current global economic crisis.

LPS cuts rupiah guaranteed deposit rate to 9%

State-owned deposit insurance corporation LPS cut its maximum guaranteed rupiah deposit rate by 50 basis points to 9% as inflationary pressures eased, its executive director said on Thursday, Reuters reported. Firdaus Djaelani said that in addition to easing inflation, liquidity in the banking sector had improved as well as confidence in the financial system.

"Banking liquidity levels and consumer confidence in the banks have improved," he said. The rate cut comes into effect from February 15. LPS also kept its guaranteed dollar deposit rates unchanged at 3%.

Adhi Karya wins $37M contract for toll road

Publicly listed state construction company PT Adhi Karya won a contract to build a toll road linking Semarang and Solo in Central Java valued at Rp411.66 billion ($37.4 million), Asia Pulse reported. The toll road project is owned by PT Trans Marga Jateng, which is a joint venture between state toll road operator PT Jasa Marga and PT Sarana Pembangunan Jawa Tengah, corporate secretary of the state company Kurnadi Gularso said on Monday.

Work will start this month or early next month and will be completed early 2010, Gularso said.

Adhi Karya is finalizing the construction of the Rp2 trillion first and second phase of the Kanci-Pejagan toll road expected to be completed in mid 2009. Kurnadi said the company is set to chalk up Rp6.7 trillion in income with net profit at Rp160 billion this year. Last year its un-audited income totalled Rp6.5 trillion, or an increase of 30.78% from the previous year.

PRIVATE SECTOR

Foreign firms renew orders for $990M shoe supplies

Five multinational companies have renewed orders for Indonesian shoemakers to supply shoes valued at $990 million until July this year, Asia Pulse reported on Friday. Fila, Adidas, Nike, Reebok and Diadora earlier cancelled the orders on global economic slowdown, Eddy Widjanarko, chairman of the shoe making industry (Aprisindo) said on Thursday.

The orders were resumed by the foreign principals after the disbursement of stimulus package by the US President Barack Obama, Widjanarko said Thursday.

He said the five international brands have accounted for around 55% of the country's shoe exports, which were valued at $1.8 billion last year. The remaining 45% are non branded and sport shoes Investor Daily quoted him as saying.

Indonesia's shoe exports in 2008 were estimated to increase 10% to $1.84 billion from $1.64 billion in 2007, Widjanarko said.

December 2008 Indonesia's shoe exports reached $100 million, a figure of $1.8 billion in 2008 would be achieved. The country's shoe export target in 2008 was set between $1.75 and $1.8 billion.

BANKS

Banks to ease loan terms for exporters

A number of leading banks say they are preparing payment rescheduling schemes for corporate borrowers heavily reliant on overseas markets, as weaker demand from abroad eats into their profits, threatening their ability to repay their loans, The Jakarta Globe reported. "In facing the effects of the crisis, we are designing a simple rescheduling scheme for our export-oriented customers, especially those who sell to the US and European markets," Abdul Rahman, a director at PT Bank Mandiri said.

"As demand from overseas markets declines, companies are beginning to reduce production, and this is adversely impinging on their cash flow,” Rahman said, adding the bank would allow companies to extend the tenor for the repayment of loan principal. "The rescheduling of payments will be negotiated with the borrowers. Whatever the case, however, they will still have to pay interest on the principal," he said.

Rahman said that Bank Mandiri had been offering a relaxation of repayment terms since early January to corporate borrowers in the textile, furniture and footwear industries. "We are not going to extend this to borrowers in the agricultural sector as commodity prices are rising again."

Gatot Suwondo, the president director of PT Bank Negara Indonesia said on Saturday that the bank was also prepared to offer rescheduling facilities to export-based borrowers in the manufacturing sector. "The exact nature of these facilities will depend on their respective capacities. If they are unable to pay their installments, then we will extend the tenor of their loans to ease their difficulties," Suwondo said.

Figures from Bank Indonesia (BI) show that Rp14.67 trillion ($1.26 billion) in manufacturing-sector loans had turned sour as of the end of December, accounting for 5% of total outstanding loans to the sector at that time. While this figure is high, it marks an improvement on the figure for the end of November, which stood at Rp17.4 trillion, BI reported.

Suwondo said that as loan demand in the corporate sector was falling due to the economic downturn, Indonesian banks were increasingly investing their excess liquidity in BI certificates, or SBIs. As a result, the value of certificates held by the country's banks had risen to Rp166.52 trillion as of the end of December, compared with Rp87.7 trillion in September.

Central bank figures show that as of end of December 2008, total outstanding loans in the banking sector had decreased to Rp1.307 trillion from Rp1.325 trillion the previous month, while third party funds had increased to Rp1.753 trillion from Rp1.707 trillion previously.

POWER

PLN establishes geothermal energy subsidiary

State power company PT PLN has set up a subsidiary engaged in geothermal energy, its president director said on Tuesday at a hearing with the House of Representatives Commission VII for energy and mineral resources, Antara reported. The subsidiary, PT PLN Geothermal, is designed to answer energy challenges as well as to anticipate prospects for geothermal energy in the future, PLN president director Fahmi Mochtar said.

"The formation of the subsidiary is part of PLN's business expansion," he said. PLN already has a subsidiary called PT PLN Batubara which is engaged in coal mining.

OIL & GAS

SBY urges Pertamina to build new refineries

President Susilo Bambang Yudhoyono urged on Thursday state oil and gas company PT Pertamina to build new refineries to cut imports of oil products, Reuters reported. "As we are still importing high amounts of oil products, it would be more efficient if we could build refineries," Yudhoyono told reporters after meeting Pertamina officials.

"There is a plan to build refineries, however, Pertamina's president director has asked for more tax incentives," Yudhoyono said, referring to the newly appointed president director of Pertamina Karen Agustiawan. Yudhoyono asked Pertamina to reach conclusive agreements with ministries so a timeline for building refineries could be established.

Pertamina planned to build new refineries adding a combined 400,000 barrels per day (bpd) of capacity in Indonesia, marketing director Achmad Faisal said. "There are plans to build a refinery in Banten with a capacity of 150,000 bpd and we will expand Balongan refinery by 200,000 bpd in future," Faisal said.

In October last year, Yudhoyono had already issued a decree giving income tax incentives for investment in oil refineries. However, a Pertamina official who declined to be identified, said those incentives were insufficient given profit margins on new refineries were very thin.

Pertamina has signed several memorandum of understanding with Iran and China's Sinopec Corp in the past to build new refineries in joint ventures. But none of these plans have materialized so far. On Wednesday, Pertamina finance director Ferederick Siahaan said the company will build a refinery with a capacity of 200,000 bpd in Tuban, East Java, with or without partner, Platts reported.

The investment required to the proposed project is expected to reach $3 billion and to complete by 2014.

Pertamina has nine refineries scattered around the country with a combined capacity of around 1 million bpd. But it only supplies 70% of domestic oil product consumption and 30% comes from imports. Indonesia is Asia's biggest importer of oil products.

Four firms shortlisted for Natuna: Legislator

State oil and gas company PT Pertamina had short-listed half of the eight potential partners for the development of the Natuna D Alpha gas block in Riau Islands, a member of the House of Representatives said on Tuesday after a meeting with Pertamina newly appointed president director Karen Agustiawan, The Jakarta Globe reported.

Member of the House’s Commission VII which deals on energy affairs, Tjatur Sapto Edy, said that the short list included Royal Dutch Shell, Norway's StatoilHydro, the China National Petroleum Co. and the former operator of Natuna, US-based ExxonMobil. He also demanded that Pertamina take a minimum stake of 51% in the project, and ultimately be appointed operator.

Pertamina has been named to develop Natuna, but needs to select partners due to the huge cost involved and lack of expertise. The company has said it would be happy with a 40% stake in the project, with the rest being divided among a number of private-sector partners, giving Pertamina the final say in the project.

Tangguh LNG's train 2 to start production in mid May

Train 2 of Indonesia's Tangguh LNG project in Papua will start production in mid-May 2009, a month after train 1 begins, a senior official said Friday, The Jakarta Globe reported. Tangguh will delay its production by a month from March 2009 as expected earlier, to April. As a consequence of the delay, first commercial shipment will also be delayed from April to May this year, the oil and gas upstream regulator BP Migas chairman Raden Priyono said.

"BP Indonesia has constructed train 1 and train 2 simultaneously and construction has been completed. The first drop from train 1 will be done in mid-April, it will be followed by train 2 a month after that," Priyono said. The Tangguh project started its LNG processing facilities by flowing gas into its first LNG train on January 27. First production is expected towards the end of the first quarter 2009, while first commercial shipments are scheduled for second quarter of this year, BP Indonesia head of country Nico Kanter said.

The Indonesian unit of BP is the operator in the project with 37.16% interest. The project, in Bintuni Bay, Papua, is setting up two liquefaction trains to produce at least 7.6 million metric tons per year of LNG. It is based on 14.4 trillion cubic feet of proven gas reserves in three neighboring production sharing contracts.

MINING

Govt. sets 2009 domestic coal allocation

The government will allocate 68.3 million tons of coal for domestic use in 2009, or about 30% of forecast production, Bambang Setiawan, Director General of Mineral, Coal and Geothermal at the Energy and Mineral Resources Ministry said on Thursday, Reuters reported. "Each producer has an allocation on how much they have to supply every semester (quarter)," Setiawan told reporters. "Producers can't export until they fulfill domestic obligations," he added.

Out of this allocation, 41.4 million tons would be for power plants, including those operated by state power company PT PLN. The ministry was in the process of drafting government regulations for domestic market obligations that will be based on annual demand from domestic users, he said. The decree on the domestic market obligation is part of the government's moves to ensure sufficient supplies for domestic users.

The ministry has said the government would fix every year the minimum amount of coal that producers must supply to the domestic market, based on estimated demand from the state power firm and other local coal users, such as cement firms. Indonesia is expected to produce 225 million tons of coal this year, according to energy ministry data. The domestic market obligation appears in line with a figure of about 28% production mentioned by Bambang Gatot Ariyono, director of Mineral and Coal Enterprises at the ministry, on November 26. He added the rule would apply to producers holding coal contracts of work.

Producers to be bound by the rule account for around 80% of Indonesia's coal production and include Bumi Resources, Indonesia's biggest coal producer, and number two player Adaro Energy.

Antam acquires Cibaliung gold project

State owned miner PT Aneka Tambang said on Tuesday it has signed an agreement to acquire gold miner PT Cibaliung Sumber Daya in Banten but did not disclose the cost, Reuters reported. PT Cibaliung Sumber Daya was 95%-owned by Australian firm Arc, while Antam owned the remaining 5%.

"Antam acquired Cibaliung in order to continue the gold project after it incurred a cost over-run and PT Cibaliung experienced funding difficulty to continue mining activities and service its obligation," Bimo Satryo, Antam's corporate secretary, said in a statement.

Antam has signed a Heads of Agreement with ANZ Bank and Australian firm Arc Exploration Limited to arrange for the transfer of ownership of PT Cibaliung Sumber Daya. The completion of the transaction is conditional on various approvals, including from Arc Exploration's shareholders meeting in late March, but Antam expects to complete the transaction within four to six months, Satryo said.

The Cibaliung gold project has a mine life of six years with annual ore production of 220,000 tons and production of gold equivalent of around 2.2 tons. It has estimated gold reserves of around 12.8 tons.

Newmont royalties to the govt. triple in Q4 of 2008

Royalties paid to the government from PT Newmont Nusa Tenggara (NNT) rose to Rp48.8 billion ($4.13 million) in the fourth quarter of 2008 from Rp14.8 billion in the third quarter, Dow Jones reported. The company also said in a statement that its combined royalties, taxes and non-tax payments rose 83% in 2008 to Rp4.22 trillion.

Combined royalties, taxes and non-tax payments in the fourth quarter was Rp871.9 billion, 13.7% higher than Rp767.2 billion in the third quarter, the statement said but did not elaborate on the reason for the higher payments.

NNT operates the Batu Hijau gold and copper mine in West Nusa Tenggara, which contains 1.1 billion tons of mineral ore. The mine has proven and probable reserves of 7.65 million ounces of gold and 7.19 billion pounds of copper.

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[1] This Trade and Investment News is a publication of the Coordinating Ministry for Economic Affairs of the Republic of Indonesia. Readers are welcomed to forward it in its original form but no reproduction is allowed without permission.

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