Trade and Investment News, 27 February 2006

Written by Mahendra Siregar/ Hari S.noegroho

Tuesday, 28 February 2006



• Three members of a hard-line group arrested over violent demonstration on the US embassy
• North Korea calls on Jakarta to mediate on its behalf Regions
• The government gives an unequivocal statement that Aceh will not be split up
• The new province of West Irian Jaya backed by Constitutional Court
• Ambon’s business community to get back to work

• Government intends to fulfill its promises, the chief economics minister says
• Optimism that interest rates will come down by year-end
• International Monetary Fund says Indonesia’s direction positive

Business briefs


• Unspent funds from 2005 to boost economic activity

• More details of new investment package revealed
• Infrastructure projects offered to investors
• Foreign investment realization improves State concerns
• Bird flu eradication to cost $320 million
• Indonesia likely to become world's largest crude palm oil producer this year

• Interest in Merpati Nusantara
• Cement sales up 7% in January, says PT Semen Gresik

Private sector
• Private operator Adam Air to buy more planes

• Credit expands by 22.7% in 2005
• Danamon seeks loans to restructure finances

• No electricity rate rise until audit completed

Oil & gas
• Vice President Jusuf Kalla points to joint venture company on Cepu
• Iran's foreign minister confirms plans to invest $1.5 billion in oil refinery
• Gas distributor PGN expects 2005 net profit to increase more than 15%
• Germany's Oiltanking Group to build first deep water storage terminal
• Italy’s Eni to get higher split for Aceh gas field

• Inco to invest $151 million on expansion


Arrests over Violent Demonstration in front of Embassy

Police arrested three members of the hard-line Islam Defenders Front (FPI) following a violent demonstration in front of the US Embassy on February 19. One of the suspects will be charged with violating Article 170 of the Criminal Code for intentionally damaging private property, Jakarta Police spokesman Sr. Comr. Ketut Untung Yoga Ana said on Monday.

"The police have looked into the incident and studied the evidence,” he said. “There is strong evidence to suggest that one of the members violated the law. The other two are under investigation.” The man who will be charged was arrested during the height of the attack. The two other suspects were picked up later.

National Police Chief Gen. Sutanto has given assurances legal action will be taken, with or without an official complaint from the embassy.

About 400 FPI protesters attacked the mission’s front entrance, demanding the removal of a stone sculpture created in 1930 that depicts the Prophet Muhammad as well as other great religious figures.

The group hurled rotten eggs, stones and traffic cones at the windows of security posts outside the compound's gates. Others set fire to a US flag and posters of President George W. Bush.

Foreign Ministry spokesman Yuri Thamrin said the ministry would work with the police to tighten security around the embassy. "We appreciate freedom of expression in Indonesia, but protesters must also respect international principles," he said.

US Ambassador Lynn B. Pascoe described the protestors as “thugs” and said the protest was orchestrated by those who wished to destroy the good relationship between the US and Indonesia.


Aceh Won’t be Partitioned

The government has no intention of partitioning Aceh because it would violate the Helsinki peace agreement signed by Indonesia and the Free Aceh Movement (GAM) last year, Information and Communications Minister Sofyan Djalil says.

"We agreed that Aceh would not be partitioned," Sofyan said at a meeting about the peace agreement in Banda Aceh on February 17. "We should focus more on the peace process."

The meeting was attended by GAM spokesman Bakhtiar Abdullah, Aceh provincial legislative council speaker Said Fuad Zakaria and religious leaders.

Djalil said Aceh's partitioning would not only amount to a violation of the peace accord but would also not benefit locals.

Several Acehnese officials have called for Aceh to be split into two provinces: Aceh Leuser Antara, which would consist of the Central Aceh, Southeast Aceh, Gayo Lues, Mener Meriah and Aceh Singkil districts, and Southwest Aceh province, made up of West Aceh, South Aceh, Southwest Aceh, Nagan Raya, Aceh Jaya and Simeule.

Meanwhile the House special committee on the Aceh governance legislation is to take evidence from a variety of parties before sitting down to deal with the fine points of the bill on March 15. Golkar legislator Ferry Mursyidan Baldan, who was elected the committee chairman, said processing of the 206-article bill must strictly follow procedures to avoid potential legal hitches.

"We have agreed to move fast," he said after the hearing. The government was to be invited to present its view of the bill to the committee on Friday, followed by a visit to Aceh this week and then submissions by party factions.

West Irian to Stay as Province

The Constitutional Court has reaffirmed the status of West Irian Jaya as a province, saying it only lacks a legal operational basis to regulate government activities there.

West Irian Jaya Legislative Council chief Jimmy Demianus Itjie and West Irian Jaya caretaker governor Timbul Pudjianto were part of a delegation that met on Tuesday (21/2/06) with Constitutional Court Chief Justice Jimly Asshiddiqie and Justice Achmad Rustandi to ask about the legal status of the province.

In 2004, the Constitutional Court was asked to rule on the validity of West Irian Jaya province, established in 1999, following the enactment of the 2001 Papua Special Autonomy Law.

The law stipulates that any partitioning of Papua province would require the approval of the Papua People's Assembly (MRP). The court ruled the 2001 law could not be applied retroactively because West Irian Jaya was already established as a province.

"Establishment of a gubernatorial government is an act of law which cannot be rescinded," Asshidiqie said. His comment drew cheers from the delegation.

He noted that under the Constitutional Court's ruling, the government needed to establish a legal basis regulating operational matters for its activities there, not a legal basis for the province itself.

Asshidiqie reiterated that because West Irian Jaya was established by the 1999 law and legitimized by the court in 2004, the special autonomy law of 2001 was not pertinent.

He added that he believed every party involved in the issue understood the 2004 Constitutional Court's decision. "It is just a matter of determination from the government," he said. "The Constitutional Court cannot dictate to the government what to do."

West Irian Jaya leaders were pressing the government to hold elections for governor and deputy governor on March 10, the same date as Papua will hold its elections.

Campaigning for the regional election in Papua began on Tuesday and will end on March 6. The five sets of candidates and their supports snarled Jayapura in traffic jams on Wednesday with parades through the streets.

Five candidate pairs are campaigning: Constan Karma/Donatus Mote; Dirk Henk Wabiser/SP Inaury; Lucas Enembe/H Arobi Ahmad Aituarauw; Barnabas Suebu/Aleks Hasgem; and, John Ibo/Paskalis Kossy.


Govt. Plans Investment Reform Package

The government is finalizing a reform package that will include a revision of various laws and regulations which hamper investment, in an effort to woo overseas money and boost growth, chief economic minister Boediono said on Wednesday (22/2/06).

"We will deliver this package very soon, so that in the second semester, we can see a positive improvement in the area of private investment," he was quoted as saying by The Jakarta Post.

The reform package, he said, aims to remove barriers to investment, and would include a review of investment, taxation and labor legislation, and the reform of the customs service.

On taxation, Boediono said the government has noted the concerns of investors, especially regarding the powers of the tax service and the rights of taxpayers.

On manpower, he said the government is reviewing the country's labor legislation to accommodate investor concerns, especially in the areas of severance pay and outsourcing. In addition to the reform package, the government would facilitate the implementation of large and strategic projects, especially in the infrastructure, oil and gas sectors. The final measure to be taken by the government would be to facilitate access to reliable and affordable financing sources, especially for domestic investors.

Toward that end, the government plans to create an infrastructure fund and a guarantee fund to help domestic investors play a role in the development of infrastructure projects.

Boediono explained that the infrastructure fund would target long-term money held by pension funds and insurance firms, which is invested in time deposits on a short-term basis. He said the government would help reduce the cost of financing for domestic investors by improving the efficiency of banks and working to reduce lending rates.

"Foreign investors do not face this problem of financing, but domestic investors do. So, the government will play its part in lowering the cost of financing for domestic investors," he said.

Lowering the cost of financing would, however, be possible only after lending rates begin to fall, and this would be feasible only after single-digit inflation is achieved. Thus, the government would work closely with Bank Indonesia (BI) to ensure single-digit inflation this year, probably within a range of 8% to 9, he said.

Based on these three measures, Boediono said he feels confident the government would be able to reverse the deceleration in growth that had been apparent since the first quarter of last year.

Investors Sought for Infrastructure Projects

Indonesia is seeking investors to help finance the development of 25 major infrastructure projects this year, a government report said on Tuesday (21/2/06).

The projects include 12 toll roads in Java and Sumatra, seven power generation plants, three gas pipelines and four water projects this year, according to Reuters.

Indonesia has said it needs some $130 billion to finance major infrastructure projects in the next five years.

Meanwhile, officials have announced a number of plans to give effect to the government's role in ensuring the availability of financing for essential infrastructure projects, including the setting up of an infrastructure fund management board by mid-year.

"We are currently working on the policy papers for the establishment of a special infrastructure fund management board, as well as a revolving fund to facilitate land acquisition, and hope that these will be completed in June," chairman of the National Committee for Accelerated Infrastructure Provision (KKPPI), Suyono Dikun, was quoted as saying by The Jakarta Post on Tuesday.

Dikun explained that the infrastructure fund management body, which would obtain its investment funds from the domestic capital market and other non-bank financial institutions, would extend funding support to commercially viable projects.

Aside from the infrastructure fund, the government would also establish a guarantee fund, which would be closely supervised by the Finance Department.

A guarantee fund is a government deposit fund that is used to cover losses arising in cases where investors experience lower-than-expected returns due to policy, political or social changes.

Finance Minister Sri Mulyani Indrawati said the size of the guarantees afforded to investors would depend on an assessment of individual projects by her department. "They will be treated on a case-by-case basis, and not all projects will be guaranteed. We will also see what the maximum levels of guarantee are that we can afford," she said, adding that the necessary funds could be derived from the state budget or bonds.

Besides the two new funds, the government would also set up a body to manage a revolving fund to facilitate land acquisition.

The new body -- either an independent body or one under the auspices of the National Land Agency -- would provide funding to ensure that the land needed for essential projects could be immediately acquired.

The government plans to set aside Rp600 billion as initial capital for the revolving fund, Dikun said.

FDI Approvals Drop, Realizations Up

The Investment Coordinating Board (BKPM) announced on Wednesday (22/2/06) that foreign direct investment (FDI) approvals for the first month of the year amounted to $463.2 million (112 projects), down on the $872 million (1,226 projects) recorded during the same month of 2005, The Jakarta Pos reported.

A similar downward trend was also evident in domestic investment figures, with proposed investments declining to Rp359.8 billion ($38.7 million) involving only eight projects, compared to Rp1.89 trillion for 15 projects last year.

Foreign investors mostly applied for investment licenses in the construction sector (3 projects valued at $288.9 million), and the commercial sector (42 at $31.9 million), with one application worth $27.2 million in the food processing industry.

Local investors, meanwhile, were primarily interested in the transportation, warehousing, communications, chemical, pharmaceutical, and timber processing industries.

But actual FDI realizations in January amounted to $1.31 billion (91 projects), compared to $118.4 million (57 projects) for the same month last year.

Meanwhile, realized domestic investments tripled in value to Rp2.58 trillion (27 projects), from Rp783.4 billion (17 projects) in January last year.

In total, realized foreign and domestic investments provided employment for 42,782 workers, compared to 8,172 workers in the same period last year.

The government is hoping that realized foreign and domestic investments would grow by 11.1% this year from last year's combined value of Rp113.5 trillion.

Zhen Hua May Bid for Bojonegara Port

Hong Kong’s Zhen Hua Engineering Co Ltd plans to bid for the construction and operation of the Rp1.9 trillion Bojonegara port in Banten province, Bisnis Indonesia quoted a Transportation Department official as saying.

Zhen Hua wants to turn Bojonegara into one of the biggest ports in Southeast Asia, Director General for Sea Transportation Hastjarja Harijogi said.

The project aims to ease the congestion at the country's main port of Tanjung Priok in North Jakarta and reduce dependence on ports in Singapore and Malaysia.

Zhen Hua is the fourth investor interested in the project, the other three being France's Maritime d'Affretement, Denmark’s Maersk, and Stevedoring Services of America.


Bird Flu Culls Could Cost $321m: Minister

The culling of poultry to halt the spread of the bird flu virus may cost Indonesia up to Rp3 trillion ($321.08 million) on Java alone, Finance Minister Sri Mulyani Indrawati said Thursday (23/2/06). "We estimate Rp1.8 trillion to Rp3 trillion for affected areas in Java only," Indrawati told a gathering of foreign journalists, referring to the cost of the culls taking place as Indonesia's human bird flu fatalities rise. "It will definitely increase our deficit," she said when asked about the impact of the fight on the government's budget. She also said the government would have to revise the budget to include bird flu's impact.

Indonesia is offering farmers Rp10,000 ($1.08) for each bird culled. The government has said that it will cull birds within a radius of 1 km around where any infected bird is found, and vaccinate other birds within a radius of 3 km.

Indonesia to Take CPO Export Lead

Indonesia is likely to overtake Malaysia to become the world's largest crude palm oil (CPO) producer this year, with an estimated production of 15.2 million to 15.4 million tons, the Malaysian newspaper The Star reported on Saturday (25/2/06). Malaysia's CPO output this year is targeted to remain stagnant at last year's level of 15 million tons.

The CPO price would be determined by factors such as increasing demand for palm-based biodiesel and biofuel, India's budget announcement on Tuesday (28/2/06) to slash palm oil import tariffs, and demand overtaking supply due to anticipated lower world CPO output.

Other contributing factors are the La Nina dry weather phenomenon, and the switch to sugar cane and wheat in existing soybean acreage in South America due to growing ethanol demand.

Malaysian Palm Oil Promotion Council chief executive officer Tan Sri Yusof Basiron said being number one or two is irrelevant.

He said both countries must instead focus on producing good quality palm oil for the world market.


Foreign Firms Eye Tie-Ups with Merpati

Ten foreign and local firms have expressed interest in collaborating with state-owned Merpati Nusantara Airlines by using its domestic and international landing rights to tap into a growing market. Merpati corporate planner Hariadi Soepangkat told The Jakarta Post on Wednesday (22/2/06) that four of the firms are ready to enter into negotiations with Merpati.

They are Tiger Airways of Singapore, MAJ (Air) of Singapore, Nikihaka Business Consultants of Indonesia (the local agent for an international fund manager), and a Kuwaiti investor whom Soepangkat refused to identify.

The 10 firms, three foreign and seven domestic enterprises, had responded to Merpati’s advertisements a few weeks ago inviting expressions of interest for joint operations. The potential investors would be expected to provide aircraft and working capital based on a revenue-sharing scheme, while Merpati would provide landing rights, flight operation, ground and engineering support, IT and financial backup, reservation facilities and access to its sales network.

Another Merpati corporate planner, Debat Soewagyo, said the airline would use the money injected by the investors to cover operating costs and repay some of its debts. In January, Merpati received Rp75 billion ($8.1 million) in fresh funds from the government for the reopening of 40 domestic routes in the first quarter, the refurbishment of its fleet and the purchase of new aircraft.

Semen Gresik January Sales Up 7%

Indonesia's largest cement maker, PT Semen Gresik, sold 1.12 million tons of cement in January, up 7% from the same month a year ago, the Indonesian Cement Association said, according to AFX.

Semen Gresik sold 1.02 million tons of cement in the local market during the month, up from 966,927 tons a year earlier, and exported 94,783 tons, against 76,938 tons in the same month in 2005, the industry group said in a report.

Semen Gresik's cement sales grew a modest 4.5% to 16.34 million tons in 2005 from 15.64 million tons in the previous year as strong domestic sales offset weaker exports.

The association said domestic cement consumption reached 2.24 million tons in January, flat from a year ago, while exports fell 16.4% year-on-year to 209,554 tons.

Meanwhile, Semen Gresik’s chief financial officer Cholil Hasan told Dow Jones Newswires the state-owned company expects sales this year to rise on the back of an expected surge in national infrastructure investment.

"We hope our sales this year will hit around Rp8 trillion, compared with an estimate of Rp7.5 trillion in 2005," Hasan said.

The company has a net profit target for 2006 of more than Rp1 trillion, which would mark an 11% increase from estimated earnings of Rp900 billion in 2005. It will announce its 2005 results in March.

"(This year) is a challenging year, but there's still room for growth," he said.

Hasan said improved infrastructure, including roads and an expanded electrical power grid, would inspire investors to build housing complexes, factories, and industrial zones which could in turn increase the demand for cement.

Dirgantara Hopes to Sell to Thailand

State-owned aircraft maker PT Dirgantara Indonesia hopes to sell up to 12 airplanes to Thailand in a deal worth Rp2 trillion ($216 million), State Minister for State Enterprises Sugiharto said on Friday (24/2/06).

About half the airplanes would be for Thailand's military, he was quoted as saying by Antara. "Hopefully in 2006, they will get approval from their parliament to buy 10-12 aircraft . the total value would be Rp2 trillion," he said, adding negotiations would open this week.

Any deal would help Dirgantara, which has been saddled with financial difficulties, he said. PRIVATE SECTOR

Adam Air to Buy 30 Airbus Aircraft

Private Indonesian airline Adam Air said it will buy 30 Airbus A-320S aircraft to strengthen its fleet, Antara reported.

Six aircraft are to be delivered in 2007 and the rest will follow in phases over five years, Adam Air president Adam Adhitya Suherman said after the signing of the $2.1 billion deal at the Asian Aerospace 2006 exhibition in Singapore on Thursday (23/2/06).

He said the airline chose the A-320S because the aircraft is suitable for Indonesia's geographical conditions and are fuel-efficient.

Adam Air also is reported to be studying the possible purchase of the latest generation of Boeing aircraft to expand its domestic and international services, the newspaper Kompas reported.


Bank Credits Up 22.7% in 2005

The central bank, Bank Indonesia (BI), recorded bank credits as reaching their projected 22.7% increase in 2005.

"The credits, including their channeling, had increased by 22.7% as projected," BI Governor Burhanuddin Abdullah said during a hearing with the House of Representatives’ commission on finance on Monday (20/2/06).

In terms of bank intermediation, credit development until the end of 2005 showed that some 82% of public funds were channeled as credits.

Credits for small and medium scale enterprises have reached 50.7% of the total credits under the government's policy to improve the role of SMEs.

Abdullah said funds from third parties in 2005 had increased by 15%, thus the loan-to-deposit ratio (LDR) could increase by 65%.

Total assets of the banking industry in 2005 increased by 12%, while its profitability increased from 2.6% to 2.8%.

Interest revenues increased from Rp5.9 trillion ($639 million) to Rp6.2 trillion.

"With the improving profitability and not too much credits, capital adequacy ratio (CAR) has increased from 19.4% to 19.6%, the highest rate among other Asian countries," Abdullah said.

He said the improving performance of the banking industry in 2005 was the result of BI's policy to focus on efforts to strengthen the stability of the financial system and encourage banks to carry out their intermediary function.

Danamon Seeks Rp2t-Rp3t in Loans

Bank Danamon, Indonesia's fifth largest lender, plans to seek Rp2 trillion to Rp3 trillion ($216 million to $324 million) in loans, some of which could come from issuing rupiah bonds in the second half of the year, Bisnis Indonesia reported on Friday (24/2/06).

Danamon president director Sebastian Parades told the paper the bank has been negotiating with the International Finance Corp and two overseas banks to borrow from them directly, Reuters reported.

He did not elaborate how much money the lender would seek to raise through the bond issue. Danamon, controlled by a consortium of Deutsche Bank and Singapore state investment arm Temasek Holdings, is looking for a longer-term source of funds as most of its deposits are shortterm.

"The majority of public funds in our bank are in short-term deposits. We are trying to fix this by seeking longer-term loans," Parades said.

Based on Danamon's third quarter results to end-September 2005, time deposits, which normally carry high interest rates, made up about two-thirds of its third party funds.

Risk Managers Should be Certified by 2010

Bank Indonesia (BI) has told commercial banks to make plans to ensure all their risk managers are certified by 2010.

"We're urging banks to set a target of how many employees can be certified a year," the central bank’s Deputy Governor Maman H Somantri was quoted as saying by The Jakarta Post on February 18.

Speaking at the opening of a risk management certification test held by the Risk Management Certification Agency (BSMR) at the Jakarta Fairground, he said all bank officials in charge of risk management should be certified by the end of 2010.

As many as 1,972 bank officials took part in the test. The first test was held in Jakarta on December 17 last year, with 1,675 participants, 73% of whom passed. Of about 50,000 bankers throughout the country, only 1,400 have so far been certified by the Risk Management Certification Agency.

The central bank issued a regulation last August requiring all bank officials in charge of risk management to obtain certification. The requirement was issued following the closure of several

banks, believed to have been caused mainly by poor risk awareness and a lack of good corporate governance.

Somantri said the certification drive would let the public know which banks have good risk management and which do not.

He added that sanctions would be imposed on banks which fail to comply to the certification requirement by the end of 2010.


Govt. Must Wait for Audit Before Rate Hike

The government has to wait for the results of the audit on state electricity company PT PLN before it sets a power rate increase, Coordinating Minister for Economy Boediono said on Thursday (23/2/06).

The State Audit Board (BPK) is conducting an audit of PLN's basic production costs and its result would be used to calculate by how much the basic electricity rate should be raised, Boediono was quoted as saying by Antara.

Asked about the report that the government has decided to hike the power rates by 15% to 20%, he said, "It is one of the options. The government is still studying many options. A new option is made each time there is a new input."

He asked the people and businesses to be patient with the government plan to increase electricity rates.

Manpower Minister Erman Suparno said on Wednesday (22/2/06) that the government is considering imposing a 15% to 20% increase in electricity rates for consumers who use more than 1,300 volt amperes, and none for small users.

"Small- and medium-sized industries will not be affected by this hike," Suparno was quoted as saying by XFN-Asia after a government meeting to discuss the increase.


VP Suggests Scheme to End Cepu Deadlock

Vice President Jusuf Kalla on Friday (24/2/06) suggested that state oil and gas firm PT Pertamina and US oil giant ExxonMobil Corp set up a joint venture to operate the disputed Cepu oil block.

"There is a misperception here over the operatorship debacle. Neither Pertamina nor ExxonMobil will be the sole operator. A new company, with an equal share from both companies, will act as the operator," Kalla was quoted as saying by The Jakarta Post.

He added that the only problem is deciding which party would act as the "general manager" of the joint venture.

"Since the project will be very expensive, and requires advanced technology, ExxonMobil wants to hold the post," he said.

Kalla reiterated that the government would intervene and issue a final decision on the Cepu block this week, if Pertamina and Exxon fail to settle their five-month dispute over who will operate the field.

The president has appointed State Minister for State Enterprises Sugiharto and Mines and Energy Minister Purnomo Yusgiantoro to issue a final decision on the issue.

Exxon spokesman Maman Budiman said Exxon would study the government's proposal. "If it does not steer away from the preliminary agreement, its okay," he said, referring to a memorandum of understanding signed with a government negotiating team last year, which stated Exxon would be the sole operator of the block.

Iran to Build Oil Refinery

Iran's foreign minister, on a visit to Jakarta, has confirmed his country's plan to invest $1.5 billion to build an oil refinery in Indonesia.

Indonesian Foreign Affairs Minister Hassan Wirayuda told reporters on Thursday (23/2/06) that Indonesia’s mines and energy minister would soon visit Tehran to follow up on the proposal, Xinhua reported.

Wirayuda said a meeting between Iranian Foreign Affairs Minister Manouchehr Mottaki and President Susilo Bambang Yudhoyono had focused on the refinery project.

The plan was proposed by Iran and first discussed between the two countries' presidents at the United Nations in New York, he said.

Mottaki said his country is ready to invest between $1.5 billion and $2 billion on the energy project in Indonesia.

The oil refinery is expected to be built in East Java and 70% of the output would be exported, said a Pertamina official who declined to be identified.

Indonesia has nine oil refineries scattered across the archipelago with a total combined capacity of about 1 million bpd.

PGN’s 2005 Net Profit Likely Up 15%

State-owned gas distributor PT PGN expects its 2005 net profit to increase more than 15% on year mostly due to higher gas prices, its president WMP Simanjuntak said.

He said the company last year also benefited from the stronger rupiah, which pushed down its cost of foreign debt services, Dow Jones reported on Monday (20/2/06). He did not elaborate.

In 2004, PGN's full-year net profit was Rp474 billion ($50.96 million).

Analysts said the company has a solid outlook and will benefit from structural changes in Indonesia's primary energy consumption, which is likely to see increasing use of natural gas following the removal of oil subsidies, which caused a rise in cost of fuel oil. The government owns 60.12% of PGN.

Oiltanking to Build Deep Water Oil Terminal

Germany's Oiltanking Group said it would build Indonesia's first deep water storage terminal for petroleum products and gases.

The $120 million terminal, to be built in Banten province, will have a capacity of 600,000 cubic m and will be able to handle a full range of petroleum products, a company statement said on Wednesday (22/2/06), according to Agence France-Presse.

The terminal, which will be able to berth ships of up to 100,000 DWT, will serve as a distribution terminal to the greater Jakarta market, it said.

The first phase of the terminal is planned to be operational by the second half of next year, with an initial capacity of 200,000 cubic m.

Oiltanking, a division of German Marquard and Bahls, owns and operates 71 terminals in 19 countries.

Incentive Plan for Eni

Indonesia plans to give Italy's Eni a higher split in sharing natural gas production from a field off Aceh province, the upstream oil and gas regulator BP Migas said on Friday (24/2/06).

Indonesia's standard gas production sharing contract is 70% for the government and 30% for contractors, and foreign investors have said the level is too low to be attractive.

"Eni has found natural gas in the Krueng Mane block but to produce gas from the block is very costly," BP Migas chairman Kardaya Warnika was quoted as saying by Reuters.

"It is logical for the government to give incentives to Eni, because we need the gas to supplydomestic fertilizer firms," he said, echoing comments made by a BP Migas official last year that the Italian firm is seeking incentives from the Indonesian government to develop the offshore gas field.

Gas reserves in Krueng Mane, offshore Aceh, have been estimated at about 200 billion cubic ft (5.7 billion cu m).


Inco to Spend $151m to Develop Business

PT International Nickel Indonesia (Inco) plans to spend about $151 million this year to develop its business, its president Bing Tobing said in a document obtained by Dow Jones Newswires on Monday (20/2/06).

The investment will include the nickel miner's plans to optimize its nickel plant and to sustain working capital to finance the cost of environmental health and safety, and coal conversion.

Last year, the company spent $106 million on capital expenditure, Tobing said.

Inco expects its nickel output this year to hit 167 million pounds, compared with 168.4 million pounds of nickel in 2005.

"Production of 168 million pounds of nickel-in-matte in 2005 was the highest in our history and we are targeting an equally strong 167 million pounds for 2006," he was quoted as saying by Platts Commodity News.

He further said the company plans to raise its capacity by 33% from the current level to 200 million pounds per year of nickel-in-matte by 2009.

"Power availability is the bottleneck in our operations," he said. "Currently, the lakes feeding our generators are above 2005's highest levels. The historically best rain period is yet to come this year and we will do cloud seeding. While that is good news, in the long-term we need the previously announced new dam and power generating facility at Karebbe on the Larona River."

Tobing said he is optimistic that the company will receive the necessary approvals to continue the groundwork.

However, any delay would affect the overall project timing and the company's ability to reach 200 million pounds per year, he said.

"We've ordered turbines and generators and continue to aim for a 2008 power generation startup," he added. "The new dam and power plant is expected to give us another 90 megawatts per year of hydropower and allow us to raise production, lower annual cash costs and cut energy supply risk."

Canada's Inco Ltd owns a 60.8% stake in Inco Indonesia, which began exploration operations in Indonesia in 1968. Inco has a nickel mining license covering 218,000 hectares on the island of Sulawesi.

Austindo Reports Gold-Bearing Areas

Austindo Resources Corp has reported that several potential gold-bearing areas have been delineated in the first stage of exploration at its Trenggalek gold project in Indonesia.

Three of the prospects -- the Dalang Turu, Sentul and Paces prospects -- have been followed up with surface outcrops mapped and sampled, the RWE Australian Business News reported on Monday (20/2/06).

The next stage of exploration will involve detailed field mapping of the three prospects with a view to planning the first stage of diamond drilling, which will commence middle of this year.
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