Trade and Investment News, 20 February 2006

Written by Mahendra Siregar/ Hari S.noegroho

Tuesday, 21 February 2006

• The presidents of Indonesia and East Timor agreed to put the past behind them
• The foreign minister criticizes Denmark for withdrawing its diplomats, saying their safety was not at risk
• Two Australians sentenced to death for their part in a heroin-smuggling conspiracy Regions
• GOI and Newmont agrees to out-of-court settlement
• Parliament promises to deal quickly with Aceh governance bill Economy
• Infrastructure Policy Package Launched
• New investment reform package to be released
• The economy grew at 5.6% last year, faster than analyst’s predictions

Business briefs

• Economic growth in 2005 ahead of previous year’s improvement
• Caution on economy to continue, says central bank governor Investment
• January investment figures top $1 billion
• Singapore-based US businesses upbeat on Indonesia State concerns
• EU to help check illegal logging
• Manufactured exports put on 12.7% SOEs
• PPA to sell 800 properties

Private sector
• Car sales figures down, expecting second half boost Banks
• Consumer spending keeps moving forward
• Former bank debtors to bring money back
• Bank stakes to be sold by government Oil & gas
• Government sets deadline for Cepu deal
• Santos drills third well at Jeruk

Gusmao, Yudhoyono Look Forward
President Susilo Bambang Yudhoyono embraced his East Timorese counterpart on Friday (17/2/06), and said a report detailing atrocities committed by Indonesia during its occupation of the tiny nation would not affect ties.

East Timorese President Xanana Gusmao did not address the report, which was submitted to the United Nations last month, but said he was looking forward to "living in peace" with his neighbor.

Gusmao said both countries had "more to do" on reconciliation, but would satisfy the international community with a responsible and credible account of rights abuses. "We are committed to our principles ... as sovereign states," he added.

"Collective justice should prevail over individual justice," East Timor's Prime Minister Mari Alkatiri said in an interview. "We can't now find among the people victim A, B or C," he said in the interview published in Portuguese newspaper Diario de Noticias.

"If the entire people suffered to gain independence, the compensation for this suffering was independence," he added.

Why Leave? Danes Asked

Denmark's decision to withdraw its diplomats and embassy staff from Jakarta after protests over Danish newspaper cartoons of the Prophet Mohammad was taken in haste, Indonesia's foreign minister said on February 12.

The Danish foreign ministry said diplomats and staff had been withdrawn because of security threats in the world's most populous Muslim nation.

We think this decision was quite hasty. We have given protection to the ambassador and his staffs. Moreover, the demonstrations in Indonesia have been relatively peaceful," said Foreign Minister Hassan Wirayuda.

"There is no good reason, but it is for them to decide," he told reporters on the sidelines of an Asian inter-religious forum.

Wirayuda said Indonesia did not have any specific information about any threat. "(Denmark) said hey received threats through the telephone but we have no way to confirm that. We have heard of such things before and usually they are only rhetoric," he said.

Denmark has been the target of protests in Islamic countries since cartoons of the Prophet, first published in the Danish newspaper Jyllands-Posten in September, were reprinted by other European newspapers in January.

Indonesia has condemned the cartoons and called on the media to draw a lesson from the publications that have sparked Muslim protests worldwide, saying freedom of the press was not absolute.

On February 12, Vice President Jusuf Kalla said the cartoon furor was not a sign that there was a clash between Islam and the Western civilization or other religions.

"This is press, media without tolerance versus (dignity of) the faith. This is because tolerance was not implemented," he told East Asian religious leaders from 10 faiths.

Two Australians Get Death Sentences
The Indonesian Government is likely to reject Australian pleas for leniency on behalf of two of the the nine heroin traffickers, with top officials calling for the death sentences to be carried out as soon as the appeals process finishes.

A spokesman for Attorney General Abdul Rahman Saleh said on Friday (17/2/06) that prosecutors would continue to push for Andrew Chan, 22, and Myuran Sukumaran, 24, to go before the firing squad if their appeals fail.

Presidential pardons for the pair or to reduce the life sentences handed down to the rest of the nine were unlikely as none had ever been granted to drug offenders, Mashudi Ridwan said.

The head of Indonesia's police force and its anti-drugs agency also supported the verdicts, calling for the executions to take place quickly to deter other traffickers, who were caught with the assistance of the Australian Federal Police. The remainder of the accused were sentenced to terms of life in prison.


GOI-Newmont Settle Community Development and Environment

Agreement in Buyat Area

Newmont Mining Corp agreed to pay a foundation $30 million to fund community development and environmental monitoring programs around the gold mine in Buyat Area, North Sulawesi, as part of an agreement with the Government reached Thursday (16/2/06) to end a civil suit over pollution allegations. The deal was announced at a joint news conference.

"This is the best option for us to resolve the dispute for the welfare of the people there,'' Indonesia's Coordinating Minister for People's Welfare Aburizal Bakrie was quoted as saying by Bloomberg. Minister for Environment, North Sulawesi Governor and representatives of 3 districts surrounding the area were presence at the signing ceremony.

The Office of the State Minister for Environment filed the lawsuit last year and had been seeking $133.6 million in damages.

Robert Gallagher, Newmont's vice president for Indonesian operations, said the deal "reaffirmed our long-term presence and investment in Indonesia and our commitment to the communities where we operate."

"This is a good sign to show that the government is moving in the right direction," said Standard Chartered economist Fauzi Ichsan.

Indonesia hopeful Aceh Law passed by deadline

The House of Representatives (DPR) is optimistic that legislation on governance for Aceh province will be passed before the March 31 date set out in the Helsinki peace accord, Deputy House Speaker Zaenal Maarif said Tuesday (14/2/06), the Associated Press reported.

The legislation would allow former rebels to form their own political party and give the province up to 70% of revenues from its natural resources, including gas and oil reserves, Maarif said.

A parliamentary committee began debating the bill on Wednesday. "We all know that there is a deadline contained within the peace deal," said Maarif. He said members of a committee formed to deal with the bill understood the need for haste.

The Free Aceh Movement (GAM) and the government have up to now fulfilled the terms of the deal, sealed last August. The agreement has stopped violence in the province, which lost more than 131,000 people to the December 26, 2004 earthquake and tsunami.

Infrastructure Project for Aceh

Indonesia and foreign donors announced plans Friday (17/2/06) to launch a $1 billion infrastructure project in the province.

The project, to be jointly funded by the government and a multi-donor fund, will focus on road and bridge repair, prevention of future floods and the rehabilitation of ports in Aceh and Nias island.

Money also will be spent on a comprehensive land title program, waste management and other large-scale infrastructure needs, said Kuntoro Mangkusubroto, who heads the government's Aceh-Nias Reconstruction Agency (BRR).

The Multi-Donor Fund, set up to coordinate money that poured into the region after the December 26, 2004, tsunami and a subsequent earthquake in Nias, will contribute $340 million to the projects.

The rest of the money will come from the government, Kuntoro said at a joint news conference in Jakarta.

Papua Shooting Probe Completed

Indonesian police have finished their investigation into eight suspects accused in the 2002 slayings of two American and one Indonesian teacher at the Freeport mine in Papua and handed over their charge sheets to prosecutors, a spokesman said Friday (17/2/06).

Prosecutors will now study the dossiers and decide whether they are strong enough to file to court, or need to be returned to police for more investigation, the Associated Press reported.

The eight men were arrested last month over their alleged roles in the slayings close to the Freeport copper and gold mine.

One of the men, Anthonius Wamang, was indicted by a US grand jury over the attack.

"We have finished the investigation," said spokesman Brig. Gen. Anton Bachrul Alam. "We have also questioned 22 witnesses, including some American citizens as well as getting information from the FBI."

He said Wamang was facing a charge of premeditated murder, which carries the death sentence.

The other men were accused of lesser charges, he said.

Jambi Regent Guilty of Corruption

A court in Jambi on Tuesday (14/2/06) sentenced suspended Sarolangun regent Muhammad Madel to a year in prison for corruption.

Prosecutors, who demanded a four-year sentence, claimed he had caused Rp2.8 billion ($300,000) in losses to the state.

Madel was also fined Rp100 million or an extra six months for his role in the construction of a pontoon dock in 2004. He was found to have endorsed changes to blueprints that led to the dock’s collapse six months after it was completed, The Jakarta Post reported.


Infrastructure Policy Package Launched

Coordinating Minister for Economics Affairs Boediono and six other ministers launched a new infrastructure policy package on Friday. The policies mainly consist of improving related regulations, simplifying licensing procedures and providing several facilities to better implement infrastructure projects, as well as support their financing needs.

The policies will concern 10 main infrastructure sectors: roads, railways, power, oil and gas, telecommunications, housing, water and sanitation, air, water and land transportation, he said, according to The Jakarta Post.
Boediono also welcomed the final calculation of last year’s growth, which the Bureau of Statistics (BPS) put at 5.6%. It was a positive result considering the problems that beset the economy last year and was higher than growth in most of Indonesia’s neighboring economies, he said.

Growth in the fourth quarter had come in at only 4.9%, the slowest for six quarters, BPS said.

The slowdown in annual growth was "milder than expected," Morgan Stanley Economists said.

Consumption weakness was still expected to slow the economy, but should be contained by funds for the poor.

Citigroup economist Anton Gunawan said the full-year figure suggested the impact of last year's double fuel price hikes was not as severe as many analysts feared.

The Fitch ratings agency downgraded Indonesia’s sovereign credit rating outlook to stable from positive, but analysts said the move appeared to be based on outdated data, and noted that it followed by a week a Standard & Poor’s outlook upgrade to positive.

A group of Singapore-based US business executives said they were confident about Indonesia’s outlook, citing continuing reform measures and the expanding market.

"Indonesia is a very important country in the region, and it is an area with a lot of opportunities and interest for our members," said Amy M. Adams, chairman of the American Chamber of Commerce in Singapore.

Indonesia can achieve sustained economic recovery and faster growth with the completion of structural reforms, senior International Monetary Fund (IMF) official Daniel Citrin said on Thursday (17/2/06).

The comment came as Indonesia prepares to launch a new set of reforms which aim to create a better environment for investment.

"Indonesia has a pretty positive medium-term outlook with growth possibly accelerating to the 6-7% range," said Citrin, deputy director of the IMF's Asia-Pacific department.

"Continuing to preserve macroeconomic stability and pushing ahead much more forcefully with structural reforms will be the keys to producing growth and reducing unemployment," he told the US-Indonesia Society in Washington, according to Reuters.

He named the tax system, labor regulations, the judicial system and governance in general as factors that still needed work.



Economy expanded 5.6% in 2005

Indonesia’s economy expanded 5.6% in 2005 from the previous year, outpacing growth of 5.4% in 2004. However, the economy contracted in the fourth quarter of 2005 from the previous three months, as high inflation and heavy interest rates took their toll.

The economy contracted 2.18% in the October to December period from the previous quarter, data from the Central Bureau of Statistics (BPS) showed on Wednesday (15/2/06). That compares with growth of 2.87% in the third quarter from the second quarter.

Year on year, the economy expanded 4.9%, decelerating from 5.63% in the July to September period due to a variety of internal and external factors, BPS chief Choiril Maksum said.

The bureau said per capita income last year was $1,267, up from $1,120 in 2004.

Growth last year was partly driven by the transport and telecommunications sectors, which expanded on foreign investment, Reuters reported.

The transport and communications sector grew 10.78% in the fourth quarter from a year earlier compared with 12.87% growth in the previous quarter.

Based on industrial sectors, manufacturing grew 2.91% in the fourth quarter from a year earlier versus 5.59% growth in the previous quarter.

Private consumption grew 4.18% in the fourth quarter, slower than 4.43% in the third quarter.

Citibank economist Anton Gunawan said that to some extent, relatively strong consumption growth in the fourth quarter may have been spurred by the distribution of cash compensation to help ease the burden of the fuel price hike on the poorest families. The government paid Rp300,000 to each of 15.648 million households registered as poor in the last quarter of 2005.

Private consumption was the economy's main driver, making up 65.41% of GDP in 2005 against 67.78% the year before. It expanded 3.95% for 2005, growing 4.18% year-on-year in the fourth quarter and rising 1.1% quarter-on-quarter.

Coordinating Minister for Economy Boediono meanwhile said that the government still aims to achieve economic growth of 6% to 7% in the medium term.

"Going forward, we will try to achieve higher growth by pushing up investment," he was quoted as saying by XFN-Asia.

"I would say that compared to our neighbors, we did quite well given the difficulties we faced last year," he said, referring to the oil price spike and the severe impact brought about by the December 2004 tsunami.

He said that to create jobs and reduce poverty, the economy has to grow by at least 6% to 7% over the medium term. "We are striving towards that direction," he said.

BI to Keep Tight Monetary Policy

Bank Indonesia (BI) Governor Burhanuddin Abdullah said the central bank would not as yet relax its monetary policy to maintain monetary stability over the next several months.

During that period, the benchmark interest rate will either stay at the present level of 12.75% or rise to 13%, Abdullah said on Wednesday (15/2/06), according to Antara.

There have been calls for a cut in the interest rate to boost the real sector as improvements have been shown in the macroeconomic condition marked with the rupiah's appreciation and an increase in the Jakarta composite index.

During Wednesday’s auction, the interest rate on the BI promissory note was 12.74% or one basis point below the benchmark interest rate set by the central bank.

BI absorbed Rp32.23 trillion ($3.5 billion) in public funds from the sale of the BI certificates in the auction.

Abdullah has said the monetary policy will remain tight in the first quarter of the year and will begin to relax in the following quarter.

He said the interest rate gap between the US dollar and the rupiah kept the inflow of funds steady. The decrease in oil imports, thanks to a rise in domestic oil prices, also helped stabilize the currency.

BI to Replace 3-Month SBIs

The central bank, Bank Indonesia (BI), is planning to replace its three-month BI Certificates (SBI) with treasury bonds to create a clear interest rate benchmark, BI director for public relations and strategic planning Budi Mulya said.

"Maybe in March or April, we will stop the auction of three-month SBIs. So there would only be the one-month SBI. This is to make the SBI rate better reflect the BI rate," he said, referring to the central bank's key policy rate.

"The reason we are doing this is to remove market confusion about which rate should be the reference of the BI rate. We have discussed the matter with the government," he was quoted as saying by XFN-Asia.


Govt. to Unveil Investment Package

The government is set to unveil this week a long-awaited policy package aimed at immediately boosting investment.

Coordinating Minister for Economy Boediono is finalizing the policy measures, Trade Minister Mari Pangestu told Dow Jones Newswires on Thursday (16/2/06).

"(The package) will contain a lot of immediate short-term deregulation and streamlining (of investment stimulus) measures," Pangestu said.

There will also be "clear indications of changes in the law and regulations which people are hoping for in investment, tax, customs, labor and decentralization," she said.

Pangestu said the departments of trade and transportation have also drawn up a list of urgent, short-term measures to assist the export production sector.

Indonesia’s stimulus package reflects government efforts to lure back investor dollars. "We've got to see increased investment coming back in, including expansion of existing (production) capacity," Pangestu said. "For that to happen, a number of things have to begin to be felt this year with regard to improving the invest climate and infrastructure."

She projected that exports will rise at least 13% this year from last year. That would mark an easing from 19.5% year-on-year growth to $85.57 billion in 2005.

$1b in New Investment Approved

The prospect of a prolonged economic slowdown has not deterred nine local and overseas firms from proposing new investment plans worth more than $1 billion to the government, chairman of the Investment Coordinating Board (BKPM), Muhammad Lutfi, said on Tuesday (14/2/06).

"Between January and February alone, we approved several major investment projects worth hundreds of millions of dollars each. This shows that the business community still has confidence in us," he was quoted as saying by The Jakarta Post.According to Global Insight Daily, foreign direct investment (FDI) in Indonesia reached $1.4 billion (Rp12.8 trillion) last month, while domestic investment totaled Rp2.6 trillion.

Lutfi said the agency predicts investment -- both foreign and domestic – to grow by 21% this year to Rp139 trillion ($14.94 billion) from Rp115 trillion last year, creating 470,000 new jobs, compared to the 280,000 jobs created by investors last year.

The BKPM estimate excluded investments in the oil, gas and mining industries, banks and nonbank financial institutions, and the capital markets as these are regulated by other agencies.

Realized FDI from January to December last year nearly doubled to $8.91 billion (909 projects) from $4.6 billion (544 projects) during the same period in 2004.

US Businesses Upbeat About Reforms

A group of Singapore-based US businessmen has expressed confidence about the future outlook for Indonesia's economy due to its expanding market and the government's continuing economic reform measures.

The businessmen, representing some 20 US companies based in Singapore, met with local counterparts and economics ministers in Indonesia during their visit to get firsthand information about business opportunities and the direction of economic reform in Indonesia, The Jakarta Post reported on Wednesday (15/2/06).

"Indonesia is a very important country in the region, and it is an area with a lot of opportunities and interest for our members," said Amy M Adams, chairman of the American Chamber of Commerce in Singapore.

Such qualities, however, would not attract investment unless the government addresses various concerns raised by business, especially those concerning taxation, labor and customs -- three problematic areas that have made investing in Indonesia less attractive.

Adams noted that the government leaders they met during their visit appeared to be serious about reforming the taxation, labor and customs sectors.

On top of these reforms, the government also needs to take care of security issues, which often frighten off foreign businesses and tourists, she said.


EU Proposes Plywood Inspection

The European Union (EU) is proposing a collaborative scheme with the Indonesian government to allow its members to inspect wood-based imports from Indonesia, such as plywood and wood panels, as part of EU's efforts to help the country curb illegal logging.

"We hope that we can arrive at an agreement on the matter with the Indonesian government by the end of this year or early next year," the EU's natural resources program manager for Indonesia, Vernon Copeland, told The Jakarta Post on the sidelines of a workshop on illegal logging organized by the Forestry Department on Wednesday (15/2/06).

Forestry Minister MS Kaban, in a speech during the workshop, urged the EU to bar its members from importing illegally felled timber.

"We're asking the European countries not to serve as markets for the illegal loggers," he said.

The scheme, Copeland said, is part of an EU action plan on forestry law enforcement and trade, designed to prevent the entry of panels or plywood sourced from illegal logging.

Under the scheme, Indonesia will be required to issue documents providing evidence of the legality of the exported panels.

The customs and excise services of the individual EU members would then inspect the documents and confiscate panels found to be illegal.

However, he said the scheme would be applied on a voluntary basis, and that no sanction would be imposed against member states that allow the entry of illegal logs.

The EU has been supporting the government's effort to eradicate illegal logging for the last three years. The European Commission has disbursed about 1 million euros in grant to fund the operation of the Illegal Logging Response Centers.

Indonesia suffers annual losses of about Rp30 trillion due to illegal logging, while deforestation has affected some 2.8 million hectares.

Export of Manufactured Goods Up

Indonesia's export of manufactured goods rose 12.7% in the first 11 months of 2005 from $50 billion in the same period the year before.

The highest increase of 28.5% was recorded in the export of steel and automotive products, valued at $2.36 billion, up from $1.87 billion in the same period the previous year, Industry

Minister Fahmi Idris was quoted as saying by Antara.

A 5.24% decline was recorded in the export of timber and wood products to $2.82 billion.

The largest contributors to the export value were electronic products, information technology and electric machines with exports valued at $11.08 billion, followed by textiles and garments valued at $7.66 billion.


Qantas, Lufthansa Eye Garuda

Australia’s Qantas and Germany's Lufthansa are reportedly eyeing stakes in debt-laden Indonesian carrier, Garuda Indonesia.

The Sydney Morning Herald reported on Wednesday (15/2/06) that Qantas is exploring a potential partnership with Garuda in an attempt to gain a toehold in one of Asia's fastest growing aviation markets.

Qantas chief executive Geoff Dixon and chief financial officer Peter Gregg held talks with stateowned Garuda earlier this month.

Another attraction for Qantas in building its presence in Indonesia could be the country's potential as a low-cost maintenance base, the Herald said.

It could provide a maintenance hub for parts of the Qantas and Jetstar fleet of short-haul 737s and A320s.

Meanwhile, State Minister for State Enterprises Sugiharto said Garuda officials have recently returned from Germany where they met with their counterparts from Lufthansa to explain the condition of the airline, Antara reported on Thursday (16/2/06).

Sugiharto described the talks as encouraging, but noted that Lufthansa is not the only investor eyeing Garuda, since investors from the Middle East are also interested in acquiring Garuda.

PPA to Sell Property Units

The Finance Department’s asset management company, PT PPA, plans to sell 800 properties this year after placing a value on the assets, The Jakarta Post reported on Monday (13/2/06).

PPA vice president Raden Pardede said recently that the evaluation process should be completed within the next one to two months so that the assets could be sold.

Pardede said PPA spends about Rp150 billion ($16.22 million) each year for the maintenance of various fixed assets under its control.

PPA manages some 3,113 properties, mostly in the form of land assets. Other assets include shares in banks and companies.

PPA received various forms of assets from the now defunct Indonesian Bank Restructuring Agency (IBRA), which took over assets of troubled banks and indebted bank owners in the wake of the late 1990s regional financial crisis. The PPA is tasked to sell them to raise cash to help finance the state budget deficit.


Auto Sales Drop, Hopes for Second Half

Indonesia's auto industry is undergoing a slow start to the year after sales slumped last month, with higher fuel costs seen triggering production cuts, and a drop in annual sales of up to 16%, Reuters reported on Wednesday (15/2/06).

Auto makers are trimming working hours and output following a slump in sales since the government more than doubled domestic fuel prices in October to ease pressure on the budget.

Domestic vehicle sales were a record 533,910 units last year, as consumers snapped up cars, pick-ups and motorbikes with cheap loans. But sales have tapered off since the fuel price hike and slumped 41.5% in January from a year earlier, the sharpest fall in four years.

Industry experts say 2006 sales could drop to as low as 450,000 units as the fuel hike bites and interest rates have gone up.

Chairman of Indonesia's Automotive Industry Association (Gaikindo), Bambang Trisulo, said he does not believe trimming output would result in massive layoffs.

Some executives expect sales to recover in the second half, when inflation is forecast to slow and interest rates ease.


Consumer Borrowing Still Strong

High inflation and interest rates have failed to dampen consumer demand, with the latest central bank figures showing that consumer borrowing grew at an even faster pace last year than the year before, The Jakarta Post reported on Wednesday (15/2/06).

Consumer spending, which has been the backbone of the economy since the 1997 economic crisis, grew 36.7% in 2005, compared to 34.7% in 2004 when the country's macroeconomic picture was relatively more benign.

According to Bank Indonesia (BI) figures, borrowing for investment and working capital purposes, mostly by large corporations, declined, contributing to lower overall lending growth of 24.6% last year compared to the growth of 26.4% booked in 2004.

The figures showed that as of December 2005, the banking sector had extended loans amounting to Rp689.7 trillion (some $69.1 billion).

Debtors Expected to Come Home, Pay Up

Dozens of Bank Indonesia Liquidity Support (BLBI) program debtors who fled the country to avoid prosecution are ready to come home to return funds owed to the state, an official has said.

"In the near future, dozens more BLBI debtors will return home with this good intention," Cabinet Secretary Sudi Silalahi told the House of Representatives’ legal affairs commission during a meeting on Monday (13/2/06), The Jakarta Post reported.

The government has said it is considering reverting to its release and discharge policy, which allowed the dropping of charges against bad debtors who return their funds.

Silalahi said the police had worked hard in cooperation with Interpol to trace the debtors, most of whom fled to countries with no extradition treaties with Indonesia.

Yudhoyono welcomed the debtors' willingness to return, but insisted the law must be upheld and that they should not be prey to unscrupulous officials.

About Rp144.5 trillion ($15.6 billion), which had been disbursed by the Suharto government to a number of private banks to keep them solvent during the 1997-1998 economic crisis, was embezzled by bankers.

Govt. to Sell Remaining Bank Shares

The government is planning to sell its remaining stakes in Bank Internasional Indonesia (BII) and Bank Permata, respectively the country's 6th and 7th largest lenders, this year if the market is good.

Vice president of state-owned asset management company PT PPA, Raden Pardede, said the asset sales are part of his company’s work plan this year, Antara reported on Monday (13/2/06).

The government still has a 5.24% stake in BII and a 20.8% stake in Bank Permata, respectively controlled by a consortium of South Korea's Kookmin Bank and Singapore's Temasek Holding Ltd and a consortium of Standard Chartered Bank and Astra International.

The stake in BII will likely be divested through market placement and the stake in Bank Permata through market placement or strategic sales, a PPA official has said.


Exxon, Pertamina Told to Fix Cepu

ExxonMobil Corp and Indonesia's state oil company, PT Pertamina, will be summoned to explain their failure to file a development plan for the country's biggest untapped oil field as the government said it will push for a settlement within weeks, Bloomberg reported on Wednesday (15/2/06).

The Upstream Oil and Gas Regulatory Body (BP Migas) was slated to meet with Exxon and

Pertamina late last week to seek the submission of a plan for the Cepu oil field, BP Migas chairman Kardaya Warnika said. The companies had failed to meet a December 31 deadline.

"If there's no working proposal, there will be no work done nor production on Cepu," Warnika said. "They have to start doing some work on the field this year. That's what we want."

Meanwhile Vice President Jusuf Kalla said the government was appointing two ministers to oversee the talks.

State Enterprises Minister Sugiharto and Minister for Energy and Mineral Resources Purnomo Yusgiantoro will mediate the talks, Kalla said Saturday during a visit to the field in Central Java.

The government wanted some resolution "in a few weeks time," he said.

"Before I came here, the president instructed me that the project should be started next week, this month," Kalla said. "We don't want this to be prolonged. The sooner the issue is resolved, the better for the interests of the country."

The dispute between Exxon and Pertamina over which company will operate the Cepu field has stalled its development for more than four years.

Sugiharto said on Monday (13/2/06) the government is drafting a joint operator agreement between the two companies on the development of Cepu, but it could take time to formulate details, reported Reuters.

Meanwhile Maman Budiman, vice president of public affairs at ExxonMobil Oil Indonesia Inc, said ExxonMobil has submitted bids for two new offshore oil and gas blocks, among several blocks that the government had offered to investors in December.

"We have submitted a bid for two offshore blocks, Pasangkayu and Surumana, in Makassar Straits," he was quoted as saying by Reuters. "We believe there is still potential to find hydrocarbon in those areas."

Santos Drills 3rd Oil Well at Jeruk

Australian oil and gas producer Santos Ltd is drilling a third oil well at the Jeruk field in East Java to determine oil reserves but any production will not come on stream this year, a company spokesman said on Tuesday (14/2/06), according to Reuters.

"We are drilling the third well at Jeruk 3 to determine oil reserves. Output from Jeruk is still a long way to go because there is much work to do," Santos spokesman Arie Nauvel said.

"It is impossible Jeruk will come on stream this year," he said, without giving a target start date. Jeruk, majority-owned by Santos, will have an estimated production rate of 50,000 barrels per day (bpd), although officials have said it could ultimately pump two or three times that much.

Nauvel said Santos expects to produce between 10,000 and 20,000 bpd of oil from the nearby Oyong field at the end of March.
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