141cd0914349487ca0d79f825325ba66TradeInvNews15June2009.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], 15 June 2009

Highlights

National

• Internet networks to cover villages by 2010: Minister

Politics

• Presidential candidates commit to fair campaign

Terrorism

• Books by JI bomb maker seized from Aceh suspect

Security

• Indonesia, China commit to closer defense cooperation

Law & Order

• Police detain another 34 asylum seekers bound for Australia

Economy

• Budget deficit in 2010 may be pushed higher by fuel subsidies: minister

• Moody’s rating agency boosts outlook to positive

Macroeconomy

• Banks start to revise loan growth projections upward

BUSINESS BRIEFS

Investment

• Finance minister tips rise in investment for second quarter

• Mitsubishi Corp. to build $1.5 billion coal-fed petrochemical plant

State Concern        

• Export fall likely to reach only 20%, trade minister says

• Cairns Group of agricultural producers calls for Doha Round completion

SOE

• PT Krakatau Steel to resume production at capacity as orders grow

Private Sector

• May sales of CPO up at PT Astra Agro Lestari

Bank

• Major banks start to cut interest rates to lenders

Oil & Gas

• PT Pertamina looks to expansion into overseas upstream projects

Mining

• Independent appraisal to set price for Newmont acquisition

NATIONAL

Internet networks to cover villages by 2010: Minister

All villages in Indonesia are expected to have internet access by the end of 2009 or early 2010 at the latest, a minister said on Friday, Antara reported.

Information and Communication Minister M. Nuh said the total number of villages not yet covered by telecommunications networks has reached 31,000.

"All villages, including ones in remote areas, will soon be able to enjoy telecommunication networks, including the internet," the minister said.

The minister said that in order to provide telecommunications networks and the internet for all residents, the government had allocated Rp2 trillion this year alone.

Nuh said that the availability of telecommunication access in remote areas is also expected to boost local economies and improve education and health programs.

POLITICS

Campaigning kicks-off as presidential hopefuls pledge fairness

Presidential hopefuls kicked off 24 days of open rallies on Thursday, with all three teams pledging a fair and peaceful campaign, Channel News Asia reported.

President Susilo Bambang Yudhoyono is still ahead in opinion polls, indicating a possible one-round election on July 8.

The incumbent is challenged by his Vice President Jusuf Kalla and former President Megawati Sukarnoputri.

Kalla, whose slogan says "faster is better", was determined to live up to it as the first candidate to start his campaign rally.

He was in Central Java on Thursday morning to consolidate support, before jetting to his hometown in South Sulawesi to address a mass rally.

With only 24 days of campaigning, Kalla and his running mate Wiranto have little time to lose as they are trailing in the opinion polls.

The latest poll by Indonesian Survey Circle (LSI) showed that Yudhoyono is still enjoying an overwhelming lead, with more than 60% of support, Agence France-Presse reported.

"The Yudhoynono-Boediono ticket has the greatest potential to win the election in one round if they do not make big blunders, (if there are) no excellent or massive programs by the challengers, and no extraordinary events occurring during the campaign period," said LSI research director Arman Salam.

With soaring popularity, Yudhoyono is choosing to reach out to his supporters through dialogues and road shows, and he plans to hold only one mass rally throughout the campaign.

Former President Megawati Sukarnoputri, with her running mate former Special Forces general Prabowo Subianto, is in second place with 16%, according to the LSI poll.

Although Kalla is sitting at a distant third with only 6% backing, he is determined to close the gap and force the election into a run-off.

TERRORISM

Aceh: Books written by slain JI bomb maker seized

Police confiscated dozens of books written by Malaysian-born Jemaah Islamiyah (JI) “bomb maker” Dr. Husin Azahari from a robbery suspect who surrendered to police, Bireuen Police chief Adj. Sr. Comm. Teuku Saladin said on Thursday, Serambi Online reported.

A UK-trained engineer and former university lecturer, Azahari was shot dead in a raid by anti-terrorist Detachment 88 police in Batu, Malang, East Java in November 2005.

Azahari was known as an explosives expert who adapted his academic training to terrorism at al Qaeda-run camps in Afghanistan in the 1990s.

Saladin said the robbery suspect claimed to have been a member of JI and met with a group led by Azahari while serving prison time at Tanjung Gusta prison in Medan, North Sumatra.

“Azahari’s group reportedly robbed a Lippo Bank in Medan, North Sumatra and several other areas,” said Saladin without elaborating.

Saladin said the suspect identified as Safrizal was wanted in connection to a robbery at Bank Rakyat Indonesia (BRI) in Kutablang Bireuen branch and surrendered on May 12.

“We did not immediately announce Safrizal’s surrender because officers are still trying to capture his three accomplices and further investigate for possible terrorism links,” Saladin said.

SECURITY

Indonesia, China affirm closer military cooperation

The Indonesian and Chinese governments have reaffirmed their commitment to intensify military cooperation, especially through transfer of technology, an Indonesian defense official said, reported Antara.

"We have reaffirmed our commitment to step up existing military cooperation, especially in technology," Rear Marshal Erys Heriyanto, Director General of Defense Infrastructure, said on Friday following a working visit to China.

Heriyanto said military and defense cooperation between Indonesia and China has run well so far, and the two countries agreed to intensify cooperation based on mutual respect and mutual benefits.

It was reported recently from Beijing that Indonesia welcomed China’s offer to cooperate in military technology and in the production and marketing of military equipment.

"Indonesia welcomes the Chinese desire to cooperate in the production of military equipment on the basis of mutual benefit," Indonesian military attaché Col. Yayat Sudrajat at the Indonesian embassy in Beijing said in May.

"This cooperation also constitutes an effort to reduce Indonesia’s dependence on Western military technology," he said.

The Indonesian and Chinese governments signed a sweeping defense and security cooperation agreement in Beijing on November 7, 2007.

LAW & ORDER

Police detain 34 asylum seekers in Bengkulu

Police in Bengkulu said Friday they have detained 34 illegal immigrants from Afghanistan and Iran, United Press International reported.

Agung Setya, Bengkulu Police adjunct senior commissioner, said the asylum seekers were caught in Bengkulu Tengah district Friday and will be handed over to immigration officials.

The detained immigrants told police they were traveling through Indonesia on their way to Australia, Setya said.

The police official added the individuals were detained since they did not possess the necessary immigration documents.

Two Indonesians operating a boat that had been carrying the immigrants were also detained by authorities.

Setya said there is the possibility the immigrants may have been involved in a human trafficking operation.

"We are also trying to find out who was behind their exit from their countries and transportation to Indonesia," the police official said.

Indonesia is increasingly being used as a transit point for illegal migrants from war-ravaged countries like Afghanistan and Iraq as they attempt to reach Australian shores to claim asylum.

Center sees increase in suspicious financial transaction

The number of money laundering cases since the beginning of the year has increased to 29,903, the Financial Transaction Reporting and Analysis Center (PPATK) said on Friday, Detikcom reported.

“From 2003 to 2008 there were 800 cases reported each month, while in 2009 the number increased to 1,300 to 1,500 per month,” said PPATK head Yunus Husein.

He said the reports increased significantly because people were getting more courageous to report suspicious transactions supported by law enforcers’ incessant efforts, especially to eradicate corruption.

He said most of the reports were coming from banks, moneychangers, insurance and futures and securities firms.

HEALTH

BPOM pulls 70 ‘hazardous’ cosmetics

Health authorities have announced a ban on the sale of 70 brands of imported and locally-produced cosmetic products after they were found to contain dangerous chemical compounds, reported The Jakarta Globe.

Husniah Rubiana Thamrin Akib, head of the Food and Drug Monitoring Agency (BPOM), said that tests conducted since September 2008 found that the products, which include a whitening cream, a night cream and makeup, contained dangerous substances such as mercury, hydroquinone, retinoid acid and rhodamine.

“We have found 70 brands of cosmetics that contain dangerous chemical substances and we have ordered these products to be withdrawn from markets,” Akib told a press conference.

She said more than half the products had already had their licenses revoked.

Some had fake or nonexistent registration numbers, and others were counterfeit brands, she added.

ECONOMY

2010 budget deficit may rise on oil: Minister

The government's target for a budget deficit of 1.3% of gross domestic product next year could be threatened by a rise in crude oil prices, Finance Minister Sri Mulyani Indrawati said Thursday, Dow Jones reported.

"If the global oil price stays at the $70-a-barrel level ... and there is no change to the price of processed products such as premium, diesel and other (fuels), the deficit could rise to 1.6%-1.7%," she told a parliamentary budget committee.

Indrawati said the government has raised its forecast for the average Indonesia crude price next year to between $50 a barrel and $70 a barrel. The forecast, which is used to calculate the budget, was previously $45 to $60 a barrel.

Sarwono said the government and central bank are watching crude oil prices for signs of speculation, which he said was partly responsible for the large run-up in crude oil prices last year, which forced the government to increase domestic fuel prices by almost 30%.

He said the effects of the current rise in crude oil prices on Indonesia's macroeconomic conditions likely "will be temporary," but didn't elaborate further.

The deficit this year is forecast to reach 2.5% of GDP.

In another boost for Indonesia’s international reputation, ratings agency Moody's changed its outlook on the country's sovereign rating to "positive" from "stable" on Thursday, citing the country's "strong" growth prospects given its reliance on domestic demand and its "effective" economic policies.

Fitch Ratings already is rating Indonesia one notch above Moody's current rating with a "stable" outlook, Reuters reported.

"The improvement in the outlook was prompted by Indonesia's relatively strong growth prospects, and an increasingly effective macroeconomic policy framework," said Aninda Mitra, a Moody's Investors Service analyst for Indonesia, in the statement.

Moody's also raised the outlook on the country's foreign currency bank deposit ceilings to positive from stable, but left the outlook on its foreign currency country ceiling at stable.

Moody's also noted that Indonesia's overall political stability had improved and is not currently a rating concern.

Bank Indonesia data meanwhile showed that the cumulative profits of domestic lenders as of the end of April had soared 32% to Rp15.7 trillion ($1.55 billion) from the year-earlier period, when the figure was Rp11.9 trillion, The Jakarta Globe reported on Saturday.

In another move likely to create a higher level of lending, Bank Central Asia (BCA) said Tuesday it will significantly reduce its mortgage rate to below 10% by the end of the month, the bank confirmed on Tuesday.

“We are going to cut it from 14% to 9.9% for one-year and two-year (loan) tenures, and to 10.5% for the three-year tenure,” Jahja Setiaatmadja, BCA vice president director said

Setiaatmadja said BCA set a 10.5% lending rate ceiling for three years, meaning it cannot exceed 10.5% but can go lower if the market interest rate continues to decline. The special rates will only be given to borrowers who have been BCA customers for at least two years.

BUSINESS BRIEFS

MACROECONOMY

Q2 GDP growth may be below 4% on year

Indonesia's economy may grow below 4% in the second quarter of 2009 from a year ago, although domestic consumption should support growth, Finance Minister Sri Mulyani Indrawati said on Monday, Reuters reported.

“The economic growth may only be nearing 4%. But because consumption is still quite strong and government spending has begun, banks and capital market have started to respond," Indrawati told reporters.

She added that the economy could still grow quite strongly in the second and third quarter but the growth rate would not be as high as the 4.4% expansion in the first quarter.

Indrawati expected private domestic consumption to grow above 5%, compared to 5.8% growth in the first quarter.

She added that the International Monetary Fund (IMF) had wrongly forecast this year’s growth when it last week raised its forecast from 2.5% to between 3% and 4%.

"The IMF made the wrong forecast on our economy. They overestimated the impacts of the global downturn on Indonesia," said Indrawati.

The government expects the economy to expand between 4% and 4.5% this year, while BI forecasts growth of between 3% and 4%.

Banks seen revising up loan growth: Minister

Commercial banks are revising up their lending growth targets this year due to improving market sentiment in the past months, Finance Minister Sri Mulyani Indrawati said on Monday, Reuters reported.

“They had revised it to 15% from 35%. Now that economic growth is already very healthy, they have started revising up their loan target,” the minister said.

She said that capital inflows amounted to more than $4 billion in the past three to four months.

“The momentum today shows that the optimism is there and that at least it has boosted the attractiveness of Indonesian assets," Indrawati told reporters on the sidelines of a ministerial meeting of 19 agricultural exporting countries in Bali.

Bank loans account for the major share of corporate debt financing in the country as, unlike in many other countries, the domestic corporate bond market remains largely insignificant.

Improving commodity prices on the global market have also helped bolster Indonesia’s economic outlook.

INVESTMENT

Investment to recover in Q2: Finance Minister

Investment, which in the first quarter only rose 3.5%, is estimated to recover in the second and third quarters of this year as indicated by the recent increases in capital inflows, Finance Minister Sri Mulyani Indrawati said Monday, The Jakarta Post reported.

The government has also started to invest in infrastructure projects, as part of its economic stimulus package.

"Government investment in the form of capital spending has also begun to materialize in the second and third quarters," Indrawati said.

She also said the recent cuts in the central bank's benchmark interest rate would prompt banks to cut lending rates and make loans roll again, contributing to the real sector.

Mitsubishi to build $1.5B petrochemical factory

Mitsubishi will build a coal-based petrochemical factory with an investment of $1.5 billion in East Kalimantan, chairman of the Indonesian Chemical Industry Federation (FIKI) Hidayat Nyakman said on Tuesday, Asia Pulse reported.

"As of now, Mitsubishi is the only company serious about making an investment in the petrochemical industry sector while others have only expressed interest," Nyakman said.

He said that the Japanese company had finished feasibility studies on the construction of the factory, but it was still waiting for the government to provide support such as infrastructure and tax incentives to ensure the factory's operation.

The petrochemical factory will be built on a 37-hectare plot of land but Nyakman did not indicate the exact location where the factory is to be built.

Nyakman said the factory would make the same products as the integrated petrochemical factory run by PT Chandra Asri, but on a smaller scale.

PT Chandra Asri produces upstream and intermediate chemical products.

He said the factory will need at least 10 million tons of coal as raw material every year to produce petrochemical products.

India's TVS to expand motorcycle factory

India's PT TVS Motor Company Indonesia will invest $40 million this year to expand the capacity of its motorcycle plant in Indonesia, Asia Pulse reported on Friday.

The additional investment will increase its total investment to $90 million in its factory in Karawang, West Java, TVS Indonesia corporate communication officer Nurlina Fatmikasari said.

Part of the fund will be used to expand the network of dealers, Fatmikasari said, adding the company plans to open marketing offices in 115 locations in 16 of provinces.

It will also improve after-sales service through 350 official workshops located in Java, Sumatra and Kalimantan, she told Bisnis Indonesia.

IDX launches 'responsible' investment index

The Indonesian Stock Exchange (IDX) on Monday launched a sustainable and responsible investment (SRI) index with a leading environmental organization to raise investor awareness of companies’ environmental and social track records, The Jakarta Post reported.

Those involved in the SRI-KEHATI index, which now lists 25 companies, say it is the first single-nation sustainability index in Asia outside Japan.

“We have to internalize the environment into the economy,” said Emil Salim, a former environment minister who founded KEHATI, the Indonesian Biodiversity Foundation. “We need to raise awareness that there is more to business than just profit.”

Listed companies qualify that have assets of more than $100 million, a free float of more than 10% of the shares and a positive price to earnings ratio.

IDX officials said 106 companies currently meet the criteria. The index will be reviewed every February and August.

Companies are judged in six areas: the environment, community involvement, good corporate governance, human rights, business behavior and labor practices.

STATE CONCERNS

Indonesia sees less severe export fall: Minister

Indonesia expects a drop in the value of its exports this year to be less severe than previously forecast given signs of an improving regional economy, Trade Minister Mari Pangestu said on Monday, Reuters reported.

"We had been worried that it could be down 30%," she said on the sidelines of a ministerial meeting of 19 agricultural exporting countries in Bali, when asked about the export outlook this year.

"If the current stable condition continues, given that we likely have hit bottom and commodity prices largely stabilized at the current levels, it would probably fall by 20%."

Pangestu said the improving export figures, along with an expected continued sharp drop in imports, would likely leave the country's trade balance in surplus this year, which should help the country's foreign exchange reserves and the rupiah.

Meanwhile, the Indonesian Chamber of Commerce and Industry (Kadin) said the country is set to chalk up a 20% increase in its exports to Africa to $3.2 billion this year, Asia Pulse reported.

Agriculture exporters meet in Bali to push WTO talks

Ministers and officials from 19 farm exporting countries, including Indonesia, plus the US and India met in Bali last week to give impetus to world trade talks amid the global economic slump, with predictions that world trade is continuing to shrink.

World Trade Organization (WTO) may deputy director general Valentine Rugwabiza said the WTO may further reduce its forecast for a 9% fall in global trade this year as the global economic crisis bites.

"WTO economists are forecasting a contraction of 9% for this year in world trade, which is a big contraction, and even this forecast might need to be revised," said Rugwabiza, one of the WTO's four deputy directors, told Reuters.

She said some low-level protectionist measures had already been taken by major economies, such as the reintroduction of dairy subsidies by the United States and European Union, which have had an impact on poorer agricultural nations.

She said the meeting in Indonesia of the Cairns Group of agricultural nations -- 19 nations which account for a quarter of the world's farm exports -- was "very encouraging" because it condemned protectionism and called for senior technocrats to draft a road map by the summer for a deal on the Doha trade talks.

"If senior officials meet before the summer to put together a road map ... that is going to give us a clear indication of when the round should be concluded," Rugwabiza said. "All indications are pointing to 2010."

US Trade Representative Ron Kirk and World Trade Organization (WTO) Director General Pascal Lamy attended the three-day Cairns Group meeting at Nusa Dua, Bali, Agence France-Presse reported

Australian Trade Minister Simon Crean, who chaired the meeting, said the talks were an opportunity to send the new US administration a strong message about the need for open markets.

The Cairns Group has bitterly condemned a new trade war between the US and the European Union after Washington reintroduced export subsidies for its dairy industry last month in response to similar moves by Brussels.

"This meeting will send a strong political message on the need to fight protectionism and conclude WTO negotiations," Crean said in a statement.

SOEs

Krakatau steel to resume output at capacity

PT Krakatau Steel, Indonesia’s largest producer, plans to resume output at capacity next month as demand recovers, Bloomberg reported on Friday.

“We will start operation at full capacity in July as demand starts to increase,” chairman Taufiequrrahman Ruki told reporters. “We’ll try to fill domestic demand even as prices remain low.”

Krakatau started cutting production in November as lower demand and increased imports boosted the country’s stockpiles of steel coils, depressing prices.

Krakatau’s net profit rose to Rp459 billion ($45 million) last year from Rp313 billion a year earlier, Ruki said. In April, he said the state-owned company’s steel sales may drop 17% this year compared with 2008 as prices decline.

Krakatau has decided to pay a Rp137.872 billion ($137.9 million) dividend to the government, or 30% of its 2008 net profit of Rp459.572 billion, Asia Pulse reported.

Ruki said the shareholders in the meeting also agreed to allocate Rp312.509 billion of the company`s profit made in 2008 for reserves.

"The reserve funds are intended for strengthening capital for investment and capital expenditures," he said.

Garuda seeks small airlines to boost Citilink subsidiary

State-owned air carrier PT Garuda Indonesia plans to acquire small, financially troubled airlines to support the growth of its underperforming regional subsidiary, Citilink Indonesia, Emirsyah Satar, Garuda’s chief executive, said on Wednesday, The Jakarta Globe reported.

“Principally, we’re looking for small and troubled airlines to purchase because if we’re talking about a healthy airline, then it would be expensive,” he said, adding that one of the airlines being looked at was Linus Airways, which halted operations on April 29.

Satar said that Garuda would study Linus’s accounts, as well as those of other small airlines, before deciding whether to purchase.

“Small airlines would benefit Garuda strategically if we were to combine them with Citilink,” he said, adding that Garuda had appointed an assessment team to weigh its options.

Linus was a regional airline that served cities including Pekanbaru, Riau; Medan, North Sumatra; Semarang, Central Java; Palembang, South Sumatra; Batam, Riau Islands and Bandung, West Java.

Kimia Farma plans to build cancer medicine plant

State pharmaceutical company PT Kimia Farma plans to build a cancer medicine plant in the country in cooperation with India's Nardprod, Asia Pulse reported.

Production director of Kimia Farma Jisman Siagian said the two companies are holding intensive discussions on the project.

Siagian said Kimia Farma has agreed to import cancer medicines produced by the Indian company until local production begins.

Construction of the factory will likely begin next year, he said without giving more details.

PRIVATE SECTOR

Astra Agro reports increase in May CPO sales

Publicly traded agri-business company PT Astra Agro Lestari posted a 15.3% increase in crude palm oil (CPO) sales to 82,700 tons in May compared to the previous month, Asia Pulse reported.

The sales in May brought its total sales to 384,050 tons in the first five months of the year, company spokesman Tjahjo Dwi Ariantono said.

Ariantono attributed the increase in sales to improved performance in production.

In the first quarter of 2009, Astra Agro reported Rp1.4 trillion ($140 million) in net income down 38%, and its net profit fell 74% to Rp217.7 billion compared to the same period last year.

Bakrie Plantations set to double capital spending

PT Bakrie Sumatera Plantations has decided to double its capital expenditure to Rp250 billion ($25 million) this year, from Rp125 billion set previously, Asia Pulse reported.

The company needed more funds for replanting in 2,700 hectares of oil palm plantations in West Sumatra and North Sumatra, its president Ambono Januarianto said.

The company also planned to build a palm oil processing factory in Central Kalimantan, Januarianto said.

A company director Howard James Sargeant said that planting would cover 7,000 hectares of oil palm plantations this year and 8,000 hectares next year.

Last year, the company posted Rp2.93 trillion in sales, with net profit at Rp173.57 billion, Bisnis Indonesia said.

Protelindo acquires Hutchison telecom towers

PT Profesional Telekomunkasi Indonesia (Protelindo) has acquired 3,629 telecommunication towers from PT CP Hutchison Telecom Indonesia, a company official said Wednesday, Asia Pulse reported.

The subsidiary of the Djarum Group, one of the country's largest cigarette makers and the majority owner of Bank Central Asia, has bought most of the towers belonging to Hutchison Indonesia, said Sidharta Sidik, the Indonesian unit director from Hutchison Telecommunications International Ltd.

A report issued by the parent company said the towers were sold for around $500 million.

The towers are located in several areas in Java, Sumatra, Kalimantan and Sulawesi, Investor Daily reported.

Heidelberg cuts Indocement stake to 51%: Sources

Heidelberg Cement cut its stake in PT Indocement Tunggal Prakarsa to around 51% and raised about $310 million to reduce debt, two sources with knowledge of the deal said, Reuters reported.

The deal was upsized from 400 million shares after strong demand. Shares were distributed to 45 investors, one of the sources said.

Heidelberg sold 520.5 million shares at Rp6,000 a share to institutional investors, the sources said, a discount of 12% from Tuesday's closing price of Rp6,850 a share.

Shares of Indocement opened 2.2% lower in Jakarta following news of the stake sale, which cut Heidelberg’s stake from around 65%.

Christian Kartawijaya, Indocement's chief financial officer, said he was unaware of the share sale, but added it will not affect the company.

Heidelberg indicated it has no plans to reduce the stake to below 51%, one of the sources said, adding there was a 90-day lock-up period for Heidelberg's remaining shares in Indocement

The German cement maker is loaded with borrowings resulting from the takeover of British rival Hanson in 2007 and is selling assets around the world including in Malaysia and Australia.

Indofood plans $161M bond issue

PT Indofood Sukses Makmur plans to raise Rp1.61 trillion ($161 million) from a five-year bond issue this month, the firm said in a prospectus on Wednesday, Reuters reported.

Indofood, the world's largest instant noodle maker, said the bonds would carry a coupon rate of 13% and the proceeds of the issue would be used to refinance maturing debts.

PT DBS Vickers Securities Indonesia, PT Danareksa Sekuritas, PT ING Securities Indonesia, PT Kim Eng Securities and PT OSK Nusadana Securities Indonesia had been appointed as underwriters.

The company, controlled by the Salim family through Hong Kong-listed First Pacific Ltd, has set the offer period from June 11-15, before listing on June 19.

BANKS

Major banks initiate cuts in lending rates

Major banks have initiated a cut of at least 50 basis points in credit interest rates this month and are expected to encourage other banks to follow the lead, Asia Pulse reported on Thursday.

Three state banks - Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI), and three private banks - Bank Central Asia (BCA), Bank Mega and OCBC NISP - decided to cut their credit interest rates this month.

Agus Martowardojo, the president of Bank Mandiri, said the country's largest lender in assets would start to cut its credit interest rate by 0.5 percentage point on June 15.

Bankers were optimistic bank lending rates would decline to not more than 10% by the end of this year from around 15% at present, Investor Daily said.

The business sector and investors have complained about bank interest rates being too high, saying the high rates are to blame for sluggish growth of the real sector.

Deputy Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Sandiago Uno, said Thursday that the government should intervene in private banks which had not yet lowered their interest rates because BI had already cut its benchmark rate to 7%, Asia Pulse reported.

Uno said that banks should have lowered their interest rates to assist micro, small and medium businesses.

Banks at present still imposed a range of rates between 16% and 24% on their lending. Kadin hoped that banks would in the near future cut their rates to about 10%.

BRI Syariah sees doubling in assets

Islamic lender PT Bank Rakyat Indonesia Syariah (BRI Syariah) expects its assets to double to Rp3 trillion ($297.6 million) by the end of the year, the bank's top official told Reuters.

"Our assets are at about Rp1.5 trillion and we hope they will increase to Rp3 trillion by the end of the year,” chief director Ventje Raharjo said Thursday.

The bank had also secured an additional Rp500 billion of funds to double its working capital to Rp1 trillion.

"It will be used for investment, strengthening the infrastructure and expanding business," Raharjo said.

He added the bank would focus more on low- and middle-income segments, in line with its parent company, PT Bank Rakyat Indonesia.

Most Islamic-based banks and shariah banking divisions in the country have provided financing for small- and medium- sized enterprises, focusing on agriculture, manufacturing, and trading sectors as well as business services.

POWER

WB to finance nine geothermal power projects

PT Pertamina Geothermal Energy (PGE) will receive a loan of $500 million from the World Bank to finance nine geothermal power projects in the country, Antara reported.

The World Bank was expected to disburse the loan funds in the first quarter of 2010, Abadi Poernomo, PGE's president director said.

PGE would need $3 billion to build its entire group of geothermal power projects from the upstream to downstream sectors, Poernomo said last weekend.

PGE was also seeking loans from the Japan International Cooperation Agency (JICA) and the German bank KfW to finance the projects.

OIL & GAS

Pertamina expands oil drilling to overseas

State-owned oil and gas company PT Pertamina is actively developing oil and gas blocks overseas to add to its reserves and production, quoted an official as saying on Thursday.

"To increase reserve and production, Pertamina tries to obtain new production fields overseas or domestically. These efforts are conducting by cooperating with foreign oil and gas companies," said Karen Agustiawan, the company's president director.

She also said that Pertamina and one of a national oil and gas company were joining a tender for an oil production block in Iraq. In Libya and Algeria, Pertamina is exploring cooperation with local state-run oil and gas companies to get licenses to manage oil blocks there.

The company is also acquiring new fields in Qatar, Malaysia, Vietnam, Australia, Venezuela, Brazil, Mexico and China, Xinhua reported.

Frederick Siahaan, Pertamina's director of finance, said that the company was ready to materialize the expansion plan.

"Pertamina is preparing a special capital spending to fund new oil and gas blocks worth 3.2 trillion rupiah (about $318.7 million)," he said.

Pertamina to add refinery capacity by 2012

State-owned oil and gas company PT Pertamina plans to start adding domestic refining capacity from 2012 with an aim to reduce fuel imports from 2017, a company director said on Wednesday, Dow Jones reported.

Pertamina officials said the company has appointed South Korea's Hyundai to carry out front-end engineering design on the Dumai refinery expansion in Riau, Platts Commodity News reported.

The company plans to increase the capacity of Dumai from the current 120,000 barrels per day (bpd) to 200,000 bpd, Pertamina processing director Rukmi Hadihartini told a hearing at the House of Representatives.

Apart from Dumai, Pertamina also plans to expand capacity at its Balongan refinery to 325,000 bpd by building a 200,000 bpd crude distillation unit at a total cost of about $5.2 billion.

The company said it will try to fast track the project for completion in 2014.

Pertamina is also looking at building a 200,000 bpd refinery at Tuban, East Java at a cost of $3 billion, scheduled for completion by 2014.

It will also build a 300,000 bpd refinery in Banten at a cost of $4.2 billion together with the National Iranian Oil Refining and Distribution Co and the Malaysian Petrofield Refining co.

Separately, Energy and Mineral Resources Minister Yusgiantoro Purnomo said Pertamina is set to increase its crude oil production by almost 15% this year, by optimizing output from several oil fields, Antara reported.

Yusgiantoro said Pertamina will produce 171,900 bpd this year, up from 150,000 bpd last year.

Yusgiantoro said Pertamina will optimize production at its Sukowati, Tambun, Limau and Polent oil fields to achieve the increase in output.

May crude output up 0.25%, gas down 1.8%

Indonesia's crude oil output in May 2009 edged up 0.25% to 824,783 barrels per day (bpd) compared with 822,700 bpd in April, an official at upstream regulator BP Migas said Tuesday, Platts Commodity News reported.

The increase was due to some field operators such as ConocoPhillips and Chevron that boosted production.

Indonesia pumped 116,800 bpd of condensate in May, a 1.3% increase over April's 115,300 bpd.

Crude and condensate output in May together increased 0.38% to 941,583 bpd compared with 938,000 bpd in April.

The government is targeting 960,000 bpd of oil and condensate production in 2009. However, Indonesia had only produced 951,833 bpd of oil and condensate on average between January and May this year.

Meanwhile, the country produced 7.653 billion cubic feet per day (bcfpd) of gas in May or 1.8% less than April's 7.796 bcfpd.

Indonesia produced 7.773 bcfpd of gas between January and May, which was higher than the production target of 7.56 bcfpd for this year.

Medco plans Rp1.5T bond issue

Publicly listed energy firm PT Medco Energi Internasional plans to raise Rp1.5 trillion ($149 million) from a bond issue, the firm said on Tuesday, revised up from a previous plan of Rp1 trillion, Reuters reported.

Medco said in a prospectus that it planned to use around 70% of the proceeds for capital expenditure and the rest for working capital.

On June 2, Medco reportedly increased the size of its bond issue after it was oversubscribed by nearly Rp800 billion.

Medco, which has a stock market value of $1.15 billion, set a coupon rate of 13.375% for its three-year bonds and 14.25% for its five-year bonds.

It has appointed PT Danareksa Sekuritas, PT Bahana Securities, PT Kresna Graha Sekurindo and PT Andalan Artha Advisindo Sekuritas to underwrite the issue.

Tangguh LNG to see first shipment in July: BP Migas

The Tangguh liquefied natural gas (LNG) project is expected to make its first commercial shipment by early July 2009, as first gas is targeted for end June, a senior BP Migas official said Tuesday, Platts Commodity News reported.

"The first drop of Tangguh's gas is scheduled for end June," the chairman of upstream oil and gas regulator BP Migas, R Priyono, said.

The first LNG cargo is due to be shipped to China's CNOOC, with the two following shipments going to South Korea's K-Power and Posco, the official said.

"Tangguh may deliver two cargoes to South Korean buyers in July," he said.

Tangguh had expected to delay its first production from June to July this year because of technical problems, the operation deputy chief of BP Migas, Eddy Purwanto, said earlier.

The Tangguh project started its LNG processing facilities by flowing gas into its first LNG train on January 27. However, a valve problem caused a halt in commissioning.

The Indonesian unit of BP is the operator of the project with a 37.16% interest. The other stakeholders are LNG Japan Corp., Talisman, CNOOC and Nippon Oil.

MINING

Govt. to determine Newmont unit stake value in July

The government will seek independent appraisal on the value of the stake it plans to buy in Newmont Mining Corp.'s local unit and hopes to determine the value of the stake next month, the energy minister said Friday, Dow Jones reported.

"There is a difference in the values (determined by the government and Newmont) of about Rp5 trillion, so it is best to seek independent appraisal, and we hope to have the result in July," Minister for Energy and Mineral Resources Purnomo Yusgiantoro told reporters. He didn't elaborate further.

The government plans to buy a 21% stake in PT Newmont Nusa Tenggara. Newmont has said the company is worth $4.9 billion but the government has said it is worth less than $4 billion. Neither has yet revealed what they consider the 21% stake to be worth.

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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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