THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRSREPUBLIC OF INDONESIA

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Trade and Investment News1, 11 May 2009

Highlights

National Oceans conference to get underway with hopes of new directions Politics General Election Commission announces results Terrorism Singapore confirms arrest of regional militant leader Law & order Indonesian police arrest suspected illegal people smuggler Health Three false alarms over swine flu virus Economy Stock market hits record for the year, 37% up Business briefs Macroeconomy President tells ADB conference opening growth could hit 4.5% Bank Indonesia cuts benchmark rate to 7.25% Investment Volkswagen confirms it will build $47 million assembly plant State concerns Government to restructure fertilizer subsidy system SOEs Sales at PT Krakatau Steel drop 25% in first quarter Private sector Two more palm oil firms get green certification Banks Banks predicted to cut lending rates after July presidential poll Bank Indonesia expects 15% loan growth in 2009 Power East Java to bring power to isolated villages with micro-hydro plants Oil & gas President Yudhoyono calls on sector operators to boost output Mining Weda Bay consortium to go ahead with $4.6 billion nickel project in Halmahera

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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NATIONAL Oceans conference to get underway Ministers and officials from 70 nations gather in Indonesia on Monday for talks on protecting the world's oceans and to help set the stage for climate change talks in December, Agence France-Presse reported.

The five-day World Ocean Conference in Manado, North Sulawesi, is being touted as a first-of-a-kind meeting on the oceans' role in mitigating climate change and on the consequences of higher temperatures such as rising seas, extinctions and food shortages.

Environment, fisheries and resources ministers are expected to agree a declaration aimed at influencing the direction of the Copenhagen talks scheduled for year end, where nations will gather to hammer out the successor to the expiring Kyoto protocol.

Organizers say they hope to expand the scope of any future climate change agreement to encompass marine environments, on which hundreds of millions of people rely.

"The conference will be non-binding but it is the highest political level ocean conference done so far," said Indroyono Soesilo, the Indonesian official in charge of organizing the event.

"If we are able to put oceans into world climate change policies it will be a success for us because it has never happened before. Because of global warming we will have sea level rises that will make some island nations disappear, so let's do something about that."

The sidelines of the conference will also see the launch of an international plan to save the Coral Triangle, an underwater ecosystem in Southeast Asia that is half the size of the United States and has been compared to the Amazon rainforest in its biodiversity.

Leaders from the six Coral Triangle Initiative nations -- Indonesia, the Philippines, Malaysia, East Timor, Papua New Guinea and the Solomon Islands -- will sign a joint plan to protect the region, home to more than half the world's coral reefs.

But while organizers express optimism over the meeting, scientists say knowledge about the oceans is so limited that not much is known about how they will behave under the influence of climate change or the role they can play in absorbing carbon.

The boosting of ocean research and agreements on international sharing of data are expected to be a part of any conference declaration.

"If you talk about marine carbon issues it's still a long way to go," The Nature Conservancy's Coral Triangle Centre head Abdul Halim said. "Unless you have at least basic scientific evidence to support your argument it's really difficult for people to argue about."

Jakarta ‘most vulnerable’ to climate changeAmong all the cities in Southeast Asia, Jakarta is the most vulnerable to climate change, according to a study by the International Development Research Center’s Economic and Environmental Program for Southeast Asia (IDRC- EEPSEA), Antara reported.

Jakarta was vulnerable to climate-related disasters among other factors because of its high population density, said EEPSEA director Herminia Fansisco, who spearheaded the study with Dr Arief Yusuf, EEPSEA's senior economist.

The disasters included floods, drought, sea-level rise and landslides, she said. Indonesian Environmental Affairs Minister Rahmat Witoelar added that a change in use of the city was needed, with people using it as a transit area rather than a permanent home.

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EEPSEA ranked Central, North and West Jakarta at the top of a list of administrative regions prone to climate change, followed by Mondol Kiri province in Cambodia and East Jakarta.

Other vulnerable areas in Indonesia include West Sumatra and South Sumatra, the study says.

The study also reveals that all regions in the Philippines, Vietnam's Mekong River Delta, Cambodia, North and East Laos and Bangkok are vulnerable.

Thailand and Malaysia are the most capable of adapting to the impacts of climate change, according to the report.

POLITICS Abstentions at 49.6 million: KPU The General Election Commission (KPU) confirmed on Saturday night that the Democratic Party of President Susilo Bambang Yudhoyono took the largest number of votes in the April 9 polls, but that abstentions reached 49.6 million, outpacing any of the parties.

The abstentions represented 29.01% of the total number of registered voters, while another 17,488,581 votes were classified as invalid, leaving a total valid vote count of 60.78% compared with the 2004 valid vote level of 76.66%, Kompas reported.

The KPU announced the final vote despite the fact that disputes in a number of areas – notably North Sumatra and Papua – leave a few thousand votes still awaited.

The winner of the poll was Yudhoyono’s Democrats, with 20.8% of the vote, giving it 148 seats in the new House of Representatives. It was followed by the Golkar Party with 14.5% (108 seats) and the Indonesian Democratic Party of Struggle (PDI-P) with 14% (93 seats).

Then came the Prosperous Justice Party (PKS) with 7.9% (59 seats), National Mandate Party (PAN) with 7.5% (42 seats), United Development Party (PPP) with 6.96% (39 seats), the Great Indonesia Movement (Gerindra) with 5.36% (30 seats), the National Awakening Party (PKB) with 4.64% (26 seats) and the People’s Conscience Party (Hanura) with 2.68% (15 seats).

Another 29 parties that contested the national-level polls failed to meet the 2.5% electoral threshold and failed to gain seats in the House.

The results were consistent with predictions made by various pollsters hours after Indonesians cast their ballots.

Parties, or coalitions of parties, that win at least 20% of seats in the 560-member House of Representatives, or 25% of the popular vote, may nominate candidates for the presidential election.

With a popularity rating at above 60%, Yudhoyono could win the first round with a clear majority and avoid a run-off. A run-off would be scheduled in September if no candidate wins more than 50% of the vote.

Yudhoyono is expected to face off against his current vice president and Golkar Party chairman Jusuf Kalla and PDI-P's Megawati Sukarnoputri.

Democrats to announce SBY’s running mate The Democratic Party is to announce the running mate of its presidential candidate Susilo Bambang Yudhoyono (SBY) in Bandung, West Java, early next week, a party official said, Antara reported.

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"God willing, it will be announced in Bandung on Friday, May 15. In 2004, Yudhoyono declared his presidential nomination in Surabaya, East Java, and this year the declaration will be made in Bandung and not necessarily in Jakarta," said Andi Malaranggeng, the Democratic Party associate chairman for human resources.

He said Yudhoyono wanted to announce his running mate after the General Election Commission (KPU) had completed counting the ballots in the April 9 legislative election.

"President Yudhoyono wants to follow good political ethics. He will let the KPU announce the results of the legislative election first before announcing his running mate," Malaranggeng said.

Asked who would probably be Yudhoyono`s running mate, Malaranggeng refused to mention any name.

One possible vice presidential candidate for Yudhoyono, State Secretary Hatta Radjasa, denied media reports saying he had rejected his nomination as the incumbent’s running mate, The Jakarta Post reported.

The National Mandate Party (PAN) official refused to declare his readiness to contest the election.

It was Yudhoyono's sole authority to pick his running mate, he said, adding that other parties seeking a coalition with the president's Democratic Party should not insist on proposing candidates.

TERRORISM Singapore confirms arrest of fugitive militant leader Mas Selamat Kastari, the alleged leader of the Singapore wing of terrorist organization Jemaah Islamiyah (JI), accused of plotting to crash an airliner into the city state's Changi AIrport,  has been arrested in Malaysia after more than a year on the run, Agence France-Presse reported.

“Kastari has been arrested by the Malaysian Special Branch in a joint operation between the MSB and (Singapore’s) Internal Security Department,” Singapore's Home Affairs Ministry said.

Kastari was caught on April 1 in the Malaysian state of Johor, which sits just across the causeway from Singapore and has been held in custody by Malaysian authorities, The Straits Times reported.

Singapore Home Affairs Minister Wong Kan Seng said Singaporeans must maintain vigilance and not let their guard down following Kastari's arrest as the terror threat is real and Singapore is a prime target.

Kastari will be sent back to the Whitley Road Detention Center when he is brought back to Singapore, Wong added.

Kastari is said to be the head of the Singapore cell of Jemaah Islamiyah (JI). Singapore officials have alleged he was part of a plot to hijack an airliner in Bangkok and crash it into Changi airport in 2001 following the September 11 attacks in the United States.

On February 27 last year, Kastari escaped from his high-security detention center in Singapore after squeezing through a toilet window that had no bars and climbing over a fence.

Al Qaeda funds coordinator in Malaysia arrestedA suspected al Qaeda operative, working undercover in Malaysia for more than four years and who is believed to have acted as coordinator for the transfer of its funds, has been arrested.

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The 31-year-old suspect, a German national of Turkish descent, was arrested in Germany with media reports saying the arrest could be the "tip of the iceberg."

Though the authorities in Malaysia were tight-lipped on the arrest, it is learnt that checks revealed that the suspect moved funds to al Qaeda, Jemaah Islamiyah (JI) and the Liberation Tigers of Tamil Eelam (LTTE), the New Straits Times daily said.

Malaysian authorities were informed and checks revealed that the person arrested in Germany was an engineer at a car manufacturing plant in Pahang state.

The daily, quoting unnamed sources, said that the suspect held a valid work permit and was employed on contract basis at the manufacturing plant. At the time of the arrest, he was still employed with the company as an engineer at its vehicle paint shop.

He is believed to have been working at the plant since it began operations in early 2005. His employment was arranged by another foreigner working for the plant.

"This is not something new. There have been cases of foreign terror suspects working here. Many of them, however, have been nabbed," the source told the newspaper.

LAW & ORDERNotorious immigrant smuggler held The biggest single flood of asylum seekers to Australia’s Christmas Island in seven years was under way last week as Indonesia confirmed that Ali Cobra, alias Labasa Ali, the country's alleged people-smuggling mastermind, would be questioned over the recent deaths of 14 illegal immigrants, The Australian reported.

Indonesian police acknowledged that Cobra, who was arrested on Monday night in a raid in Makassar, South Sulawesi, could serve less than five years' jail if convicted over a failed January operation.

The voyage, which set out from Kupang, in West Timor, on January 12, was allegedly organized by Cobra. He was caught as he was allegedly arranging to send 10 Afghan boatpeople into Australian waters.

The arrest was part of a joint operation between Indonesian authorities and the Australian Federal Police, which included mobile phone detection technology provided by the Australians.

According to a Kupang detective, Indonesian authorities had six separate mobile phone numbers for Cobra, accused of being one of the leaders of Indonesia's people-smuggling racket, and had been tracking him since the Kupang voyage using the Australian technology.

HEALTHThree false alarms over swine flu Three suspected cases of swine flu, in Jakarta, Surabaya and Bali, proved to be false alarms after tests found no trace of the disease.

Health Minister Siti Fadillah Supari announced on Wednesday night that tests found no trace of swine flu in samples from the suspect in Jakarta, 56-year-old Australian national, John McBright, Koran Tempo reported.

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An earlier case in Surabaya involving a migrant worker who arrived from Taiwan, also was a false alarm. Supari announced on Saturday that a third suspected case, a foreign journalist in Bali, had also tested negative.

The government tightened up its defenses against the entry of the disease by stating that any swine flu suspect who refuses isolation procedures will be imprisoned based on laws on health and disaster mitigation, Detikcom reported.

The Indonesian Health Ministry has taken a number of steps to combat the H1N1 swine flu virus, particularly by screening tourists in airports and ports. Thermal scanners have been installed in airports and ports.

ECONOMYBI ‘comfortable’ as rupiah strengthens Bank Indonesia said Thursday it was happy with the rupiah’s solid rise, despite concern expressed by some analysts that a sudden reversal of capital inflows could create severe instability in the currency.

The rupiah reached a six-month high against the US dollar on Thursday, touching 10,325, making it the second-best performer in Asia after being the region’s second-worst only three months ago, The Jakarta Globe reported.

The currency has strengthened 4.52% this year and ended the week slightly weaker at 10,375, compared with the week-before level of 10,610.

BI deputy governor Hartadi Sarwono said the central bank was comfortable with the rupiah’s exchange rate. “As long as (the fluctuation) remains consistent with economic fundamentals, just let it be,” he said, adding that the central bank would guard against volatility so the rupiah would neither appreciate nor depreciate too quickly.

BI is forecasting economic growth of 3% to 4% this year, and in a speech to the opening of the Asian Development Bank conference in Bali, President Susilo Bambang Yudhoyono said the government believed it could add as much as 4.5%.

Sarwono said the latest export data showed prices for several commodities including copper, coal and palm oil were increasing, helping the nation’s balance of payments to post a surplus in the first quarter. Early signs of recovery in China, India and to some extent Korea and Taiwan were helping boost confidence, he said.

Bank Indonesia said balance of payments reached a surplus of $3.5 billion in the first quarter, also helped by capital inflows from portfolio investments. Indonesia’s foreign exchange reserves were boosted by the surplus, increasing to $56.57 billion at the end of April compared with $54.84 billion in the month before.

Some analysts were not convinced. “Recent gains in the rupiah were mainly caused by hot money flowing back into the country,” said Farial Anwar, a Jakarta-based money market analyst. “That means it can leave as fast as it came, creating volatility.” But, he added, “It’s not impossible that the rupiah might go below Rp10,000 again.”

Anton Gunawan, an economist at PT Bank Danamon, said the strengthening rupiah was an indication of positive sentiment in the economy. “Imported raw materials for infrastructure development will be cheaper. A strengthening rupiah will also decrease the derivatives burden,” he said.

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Despite the overall positive perception of the economy, the Investment Coordinating Board (BKPM) cut its growth forecast for both foreign and local direct investment this year to 9%, down from 10.7 to 11.2% in its previous forecast.

According to BKPM’s latest data, the country posted minus 4.1% in growth of FDI in April based on a year-on-year calculation. According to data, actual FDI for April was recorded at $1.4 billion compared with $1.46 billion in the same period last year. Transportation, warehousing and communications contributed $1.21 billion to the total investment in April.

On the sidelines of the ADB’s annual meeting, BKPM chairman Muhammad Lutfi said it cut its forecast after it saw that the actual inflow of foreign direct investment (FDI) in April was low compared with the same period a year ago.

Lutfi said that despite slow FDI realization in April, Indonesia had secured $7 billion worth of FDI investment commitments in mining and the oil and gas sector this year, which he said would be realized between 2011 and 2012.

The commitments include one from one of the largest European nickel firms, which is investing as much as $4.6 billion in North Maluku, and the Senoro-Donggi liquefied natural gas project, which has secured FDI commitment of about $1.8 billion although it is having trouble getting regulatory approval. The rest would be from investors who plan to build a power plant in North Sumatra.

In a bid to make investment in the energy and the mining sectors more attractive, Lutfi said BKPM had recommended to the government that investors in these sectors be given tax holiday incentives and offered some offtake agreements, or agreements in which the government would buy industrial output. In addition, guarantees for project financing were also needed, he said.

The Indonesia Stock Exchange continued to reflect the generally buoyant mood, with the composite index closing for the week at 1,862.53 compared with the previous week’s close of 1,729.58.

The close represented a new record high for 2009, with the index adding 37% so far this year.

BUSINESS BRIEFSMACROECONOMYSBY sees 4-4.5% economic growth President Susilo Bambang Yudhoyono said on Monday that the country is expected to post economic growth of between 4-4.5% this year, which he said 'looks good', Reuters reported.

That is more optimistic than the central bank, which has forecast growth of 3-4% in 2009, a sharp slowdown from 6.1% last year as demand for exports slump.

“Here in Indonesia our prospects look good. We are expected to record gross domestic product growth in 2009 of 4-4.5%,” Yudhoyono said in an opening address to the annual meeting of the Asian Development Bank (ADB) in Nusa Dua, Bali.

The government has launched a fiscal stimulus package aimed at boosting growth including more spending for infrastructure projects and tax incentives.

Yudhoyono said that apart from the growth rates, the quality of economic growth was also important for political and social stability in the country.

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“This is significant because it means we have been able to marry democracy with stability, not an easy thing among countries undergoing transition. And we expect this trend of democratic stability to continue,” he said.

The ADB has forecast that the region's economies are likely to grow just 3.4% in 2009, the slowest pace since the Asian financial crisis a decade ago. It sees growth recovering to 6.3% next year if demand rebounds.

Finance ministers from 13 East and Southeast Asian countries met in Bali to set up a $120 billion emergency fund aimed at countering capital flight of the type that hit during the 1997/98 Asian financial crisis.

BI cuts benchmark rate to 7.25% Bank Indonesia (BI) lowered its benchmark interest rate for a sixth straight month to help sustain consumer spending as inflation slows, Bloomberg reported.

BI Governor Boediono reduced the key rate to 7.25% from 7.50%, according to a statement on Tuesday. The rate is the lowest since the bank introduced liquidity-tightening measures in July 2005.

BI has cut its benchmark rate by a total of 2.25 percentage points since December.

Indonesia’s economy probably grew between 4.3% and 4.8% in the first quarter of this year, the slowest pace in a decade, as exports slumped and commodity prices plunged from record levels, according to Finance Minister Sri Mulyani Indrawati.

Indonesia needs to rely on domestic consumption to rekindle growth as shipments and investment fall, Indrawati said.

April consumer confidence jumps on peaceful election Consumer confidence in April reached the highest level since December 2007, a Bank Indonesia (BI) survey showed on Tuesday, in the wake of peaceful legislative elections, Reuters reported.

The survey of 4,600 households in 18 cities across Indonesia showed that the consumer confidence index rose to 102.5 in April, from a reading of 98.6 in March.

It marked the first time the index had crossed the 100 level -- which indicates that consumers are optimistic -- since December 2007. A reading below 100 reflects consumer pessimism.

“Relatively peaceful and conducive social and political conditions up to the legislative elections likely boosted consumer confidence on the economic condition,” BI said on its website.

INVESTMENTVolkswagen to open Indonesia plant Volkswagen AG plans to open a new assembly plant in Indonesia with an initial investment of about $47 million, the Wall Street Journal reported.

The planned facility will begin assembling the Touran, a compact multipurpose vehicle, and could eventually employ between 2,000 and 4,000 people, said a person with knowledge of the discussions.

The Wolfsburg, Germany-based company plans to initially invest in assembly and paint operations and may later begin full manufacturing at the factory, its first facility in East Asia outside China, the person said.

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Christoph Adomat, a spokesman for Volkswagen, confirmed the assembly facility would initially produce several hundred passenger cars starting in the summer, with output being steadily increased thereafter.

"This local vehicle assembly is to be set up as Volkswagen's first step toward the long-term development of ASEAN markets," Adomat said. He declined to comment on the potential size of the investment.

The investment comes after Volkswagen failed to reach an agreement in 2007 over an alliance with Proton Holdings Bhd., Malaysia's state-owned car maker. That deal would have potentially given the German auto maker access to Proton's manufacturing facilities.

Lonsum to spend $28.5M for expansion Publicly listed PT PP Sumatra London Indonesia (Lonsum), a unit of food giant PT Indofood Sukses Makmur, will spend Rp300 billion ($28.5 million) in capital expenditure this year for business expansion, The Jakarta Post reported.

Lonsum director Emanuel Loe Soei Kim said after a shareholders' meeting on Tuesday that the company would expand its plantation areas to South Sumatra and Kalimantan.

Kim also said the capital expenditure would be financed from the company's reserve funds from last year's net profit.

Part of the funds, Kim said, would be used to add to the capacity of existing plants by 395 tons per hour from 350 tons per hour.

Last year, Lonsum's net profit soared 64% to Rp928 billion. The company's total sales grew 31% from Rp2.9 trillion in 2007 to Rp3.8 trillion in 2008.

Bond transactions up 16.6% in April: IDX The Indonesia Stock Exchange (IDX) announced Wednesday that bond transactions went up by 16.6% in April as foreign investors returned to the market, following signs of economic recovery, The Jakarta Post reported.

"The economy is doing well and keeps growing, while the market is on the right track," IDX director for fixed income and derivatives trading Guntur T. Pasaribu said, adding the solid economic conditions would increase the appetite of foreign investors to put their money into the country's bond market.

Citing the latest IDX data, Pasaribu said the level of foreign participation in the bond market rose by 15% in April, back to the level before the market crash last October.

Pasaribu said bond transactions were Rp61.1 trillion in April, up from Rp52.8 trillion in March as foreign investors, who retreated in the October 2008 market collapse, returned.

The bond market has a total value of Rp630 trillion, of which Rp550 trillion is in government bonds and the remaining Rp80 trillion is in corporate bonds.

Pasaribu said the situation was conducive to investment, "Fifteen companies are now in the pipe line to issue bonds worth a total of almost Rp15 trillion in the first semester of this year."

STATE CONCERNSGovt. to cut fertilizer subsidies, restructure system The government is seeking a change in the agricultural subsidy system by reducing the subsidies for fertilizers to 20% of their market price and plans to channel the funds to agricultural infrastructure development, The Jakarta Post reported.

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"The planned 20% subsidy will be implemented for all types of fertilizers," Agriculture Minister Anton Apriyantono said Wednesday, adding that negotiations regarding the plan were ongoing and that there could be changes to the details.

Apriyantono said the current subsidy system mostly benefited larger farmers using more fertilizer and was of less help to small farmers who used only small amounts of fertilizer.

"The planned reduction of the fertilizer subsidy will benefit farmers in general because the government will be able to allocate more funds for agricultural infrastructure," he said.

According to Apriyantono, the government will be able to save Rp10 trillion from the subsidy and allocate it to improved irrigation and the construction of small organic fertilizer factories which can employ a significant number of local workers.

"The government only needs some Rp350 million to build a small organic fertilizer factory plus 30 cows. So with that money we can build up to 10,000 organic factories and buy 300,000 cows, that will employ 10,000 workers," he added.

SOEsKrakatau Steel Q1 sales drop 25% Steel maker PT Krakatau Steel said Tuesday its sales fell up to 25% to 320,000 tons in the first three months of this year because of slowing demand, Reuters reported.

"Global economic weakness has affected steel demand in the domestic market," said Fazwar Bujang, Krakatau Steel's president director, "but we see demand is improving after March as some government infrastructure projects have started."

The government projects include the construction of an oil pipeline in Sulawesi worth $40 million and the construction of three fertilizer factories at PT Petrokimia Gresik in East Java valued at $60 million.

Krakatau Steel has said it expects sales of Rp15.8 trillion ($1.51 billion) in 2009, down from Rp19 trillion in 2008.

Krakatau Steel has said it will focus its sales on steel products which are needed in government and private sector infrastructure projects, as well as meeting demand from the defense industry and gas-cylinder manufacturers.

It is one of six firms earmarked for privatization through an initial public offering either this year or next. The sale would help raise funds to plug a budget deficit and improve the firm's performance.

PRIVATE SECTOR Bakrie Telecom net profit plunges 79% in Q1 PT Bakrie Telecom – the operator of CDMA brand Esia and wireless telecommunications services Wifone and Wimode – said its net profit dropped by 79% in the first quarter of this year as the company booked higher foreign exchange losses on a weaker rupiah, The Jakarta Post reported.

Net profit plunged to Rp5.7 billion ($535,800) in the first quarter compared to Rp27.4 billion in the same period last year, a statement issued by the company stated.

The drop in net profit was attributable to foreign exchange losses of Rp14.2 billion, recorded by the company as of March 2009 against a profit of Rp25.9 billion last year.

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However, the company saw a significant jump in the number of its subscribers, rising to 8 million in the first three months of this year from 4.5 million in the same period last year.

Two more palm oil firms get green certification Two more local palm oil plantation companies — PT London Sumatra Plantation and PT Hindoli — have secured environmental certification from the Roundtable on Sustainable Palm Oil (RSPO), The Jakarta Globe reported.

This means three of the 10 major palm oil producers in the country have now received the RSPO stamp of approval. PT Musim Mas was the first in Indonesia to receive an RSPO certificate in February.

“Besides the three companies, there are a number of others that are also on the waiting list for RSPO certification,” Achmad Mangga Barani, the Ministry of Agriculture’s Director General of Plantations, told a media conference on Wednesday.

“We are hoping that 10 companies will have RSPO certificates by the end of the year.”

The firms hold concessions extending to more than 2.9 million hectares around the country.

Hero Supermarket reports rise in net profit Retailer Hero Supermarket posted a 22.5% profit rise in the first quarter of this year, the company said in a press release Monday, Tempo Interaktif reported.

It said net profit rose to Rp 2.06 billion, with net sales up 13.1% from Rp1.35 trillion in first quarter 2008 to Rp1.53 trillion.

Operational profit surged 31.7% to Rp47.8 billion, enough to cover interest cost which sky-rocketed 14 times from Rp243 million in the first quarter last year to Rp3.6 billion this year.

BANKSBanks likely to cut lending rates after presidential polls Banks are likely to begin cutting their lending rates after the July 8 presidential elections, Minister for State Enterprises Sofyan Djalil said, Antara reported. "Bank Indonesia (BI) has lowered its benchmark rate, risk condition has been improved while interest rates in the world have also been going down so that the lowering of banks` lending rate could be realized," Djalil said at his office on Friday.

He said that there is now enough spread between the central bank`s benchmark and banks` interest rates, yet banks had not responded to the BI rate cut.

Djalil said banks still saw that risks might still be high but the recent smooth legislative elections had been responded to positively by the stock market.

"The stock market has been very good. It means that investors have judged what the market is going to be with regard to the upcoming presidential elections," the minister said.

However, Djalil said, he would let banks interest rates develop based on the market mechanism. State banks could not dictate their will on interest rates to the market. Banks to see 15% loan growth in 2009: BI

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Indonesia's banking loan growth is expected to be 15% this year, Bank Indonesia (BI) said on Thursday, Reuters reported.

"Loan growth (is expected) to be 15% -- that's based on the business plans of the banks submitted to BI," said Muliaman Hadad, a deputy governor of the central bank.

Hadad said that BI will continue to review whether further monetary easing is still needed.

BNI Islamic unit to get $500M from IDB Islamic Development Bank (IDB) plans to invest as much as $500 million in PT Bank Negara Indonesia’s (BNI) shariah banking unit to help it expand in Asia, Bloomberg reported.

A unit of IDB, the Islamic Corporation for the Development of the Private Sector, will help the venture buy banks and expand in Indonesia, Southern Thailand and Malaysia, Gatot Suwondo, president director of BNI, said in an interview in Jakarta late Thursday.

The investment will be made in stages and the unit may be spun off as an independent business this year, he said, without providing further details.

BNI’s Islamic unit has total assets of $300 million, Suwondo said.

BNI’s profit rose 36% to Rp1.2 trillion last year from Rp898 billion a year earlier. Net interest income rose 33% to Rp9.9 trillion.

BEI to offer $192M in bonds State-controlled Bank Export Indonesia (BEI) will offer bonds worth up to Rp2 trillion ($192 million) in June, The Jakarta Post reported.

BEI president director Arifin Indra Sulistyanto said Thursday that the company would use the proceeds for financing.

The bank will start offering the bonds on June 4, 5 and 8. The bonds have been given a rating of triple A from Indonesia rating agency Pefindo.

BEI has appointed PT Trimegah Securities and PT Danareksa Sekuritas as underwriters.

The bonds will be divided into four packages with fixed interest rates that will be paid every three months.

Those packages are series A with a maturity period of 370 days and rates at the same value as the government bond FR0010 plus between 87.5 and 187.5 basis points. Series B with maturity period of three years and rates at the same value as the government bond FR0023 plus between 87.5 and 187.5 basis points.

Sulistyanto said BEI targeted this year's lending would grow by 26% to Rp12 trillion.

POWERPLN, China banks in $1.06B credit pact State power company PT PLN said Monday it signed credit facilities worth a combined $1.061 billion with the Bank of China and the Export-Import Bank of China to build eight power plants, Dow Jones reported.

China Exim will provide $481 million credit to PLN to build three 350 MW power plants in West Java, and $124 million for two plants of 110 MW capacity each in Aceh.

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Bank of China will loan the firm $455 million to build three plants, each of 315 MW capacity in Banten.

The credit facilities with the Chinese lenders will provide 85% of the US dollar portion of funding for the plants, with the remainder of US dollar funding to be sourced from local banks, PLN said.

Finance Minister Sri Mulyani Indrawati said at the signing ceremony for the credit facilities that the Indonesian government will fully guarantee the loans.

Mitsubishi, Wika power plant project launched Japan's Mitsubishi Corporation and state-owned construction firm PT Wijaya Karya (Wika) are to start constructing a gas-fueled power plant with a total capacity of 740 MW at Tanjung Priok, North Jakarta, The Jakarta Post reported.

The project was launched by Energy and Mineral Resources Minister Purnomo Yusgiantoro on Wednesday morning in Jakarta.

Wika said in a press statement that Mitsubishi Corporation will be the main contractor for the project, while Wika was appointed by Mitsubishi to carry out civil construction work with a total value of Rp387 billion.

The project will be funded by Japan International Cooperation Agency (JICA) and is expected to be completed in 32.5 months.

The gas for the power plant will be supplied by South Sumatra's gas pipeline.

E. Java to develop micro hydropower plants The East Java provincial administration will develop micro hydroelectric power plants (PLTMH) with capacity of less than 500 kilowatt-hours (kWh) to help thousands of people in rural areas meet their daily power needs, The Jakarta Post reported on Friday. "Apart from that, the technology is also easy to learn for the local community," East Java Governor Soekarwo said Thursday as he officially launched the development of a PLTMH in Seloliman sub-district, Trawas district, Mojokerto.

To realize the plan, Soekarwo said, his administration would establish a regional guarantor institution tasked with providing guarantees to both investors investing in the development of PLTMH and banks providing loans for the projects.

"We will offer the projects to banks to help sub-district administrations develop PLTMH in the province," he said.

The PLTMH in Seloliman, with investment of Rp450 million, produces 14.7 kW to help economically challenged families in the region that had so far remained untouched by PLN.

OIL & GASPresident urges oil firms to boost production President Susilo Bambang Yudhoyono on Tuesday urged oil contractors working in the country to intensify exploration and boost production, Reuters reported.

"We are determined to boost our oil production. This means that we will expand and intensify exploration. We have many basins yet to be explored," Yudhoyono told the opening of the Indonesian Petroleum Association (IPA) convention.

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"We have developed a package of investment incentives and established a prudent fiscal policy. We are formulating ways to overcome tax problems in oil and gas resources investment," he said.

Oil and gas, Yudhoyono said, play strategic roles as critical sources of energy and fuel for industries in the domestic market. “The export of oil and gas continues to be an important source of revenue for the state,” he added.

Both industries remain pillars of Indonesia’s economy, contributing about 21% of the nation’s exports and 32% of state revenue.

Indonesia is hoping to attract $16.6 billion in oil and gas sector investment in 2009, a 28.6% increase from last year’s $12.9 billion, President Yudhoyono said.

He also said Indonesia will maintain liquefied natural gas (LNG) exports despite pressure on domestic needs.

"We will not stop exporting, of course...We have major gas development projects that are expected to secure a steady supply of natural gas for domestic and export needs," Yudhoyono said.

The president also witnessed the signing of 20 energy contracts worth $1.4 billion, including 12 upstream oil and gas contracts worth $219 million, five gas sales agreements worth $1.15 billion and three coal-bed methane (CBM) contracts worth $26.9 million.

The largest oil and gas deal was a $45 million, three-year contract for the Cendrawasih block in Papua, which involves Black Gold Cendrawasih, ExxonMobil Exploration and Production Indonesia Cendrawasih. The biggest CBM contract signed was for a block in Sangatta, East Kalimantan, worth $11.03 million for the first three years.

Govt. offers 24 new oil, gas blocks The government is offering 24 new oil and gas blocks for bids in an effort to boost the country's declining output, the Energy and Mineral Resources Ministry said Thursday, Dow Jones reported.

The ministry said seven blocks are being offered through a "direct offer mechanism through joint study." They are the Kubu Block, North East Ogan Komering Block, Offshore West Java Block, Blora Block, North Makassar Block, East Simenggaris Block and Digul Block.

The government is opening 17 blocks for regular tender in the eastern part of the country, namely the Tomina Basin and Bone Bay.

It set July 30 as the deadline for investors to bid on the seven blocks, and October 13 for the 17 blocks, the ministry said.

Pertamina plans to invest $2B in 2009 State-owned oil and gas company PT Pertamina plans to increase its investment by 25% to Rp22 trillion ($2 billion) this year, 65% of which will be used to finance upstream projects, according to deputy president director Omar S. Anwar, The Jakarta Post reported.

"The future of the oil and gas industry is in the upstream sector, and we don't want to be left behind; we have to focus on that sector as well," Anwar said on the sidelines of the Asian Development Bank's (ADB) annual general meeting over the weekend.

The company plans to double its investment budget to Rp41 trillion by 2012, again with a focus on upstream projects.

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He added the upstream sector offered higher returns than the downstream sector, which is more competitive.

Pertamina's returns from its downstream operation average between 5 and 10%, while returns from the upstream industry reach 50%.

Medco seeks funding for Libyan oil field Energy firm PT Medco Energi Internasional needs to borrow as much as $250 million to finance the development of its Libyan oil project, senior executives at the firm said on Friday, Reuters reported.

Medco Energi and Canadian partner Verenex have a 13.7% interest in a production-sharing agreement in area 47 with Libya's National Oil Corporation (NOC), which holds the remainder.

Medco's project director, Lukman Mahfoedz, said development of the oil project in Libya will cost about $1.1 billion.

“Medco will have to pay 25% of the total amount,” Mahfoedz said, adding that oil reserves in the area 47 are estimated at about 307 million barrels.

He said the field is expected to begin producing oil at the end of 2010 at about 50,000 barrels per day (bpd).

Donggi reserves may be lifted by new wells: Medco PT Medco Energi Internasional, a member of the Donggi-Senoro LNG consortium, said on Tuesday that the company was drilling two more wells to add some 600 billion cubic feet to estimated gas reserves, The Jakarta Globe reported.

“We’ll continue exploring to find more gas. We are drilling two more wells and expect them to add 600 billion cubic feet (bcf),” Lukman Mahfoedz, president director of Medco E&P, said on the sidelines of the 33rd Indonesia Petroleum Association convention.

The block’s reserves are regularly estimated, he said, adding that the more wells were drilled, the bigger the gas reserves the company would find.

The consortium, which consists of state-owned oil and gas company PT Pertamina, Japan’s Mitsubishi and Medco E&P, a unit of Medco Energi, is expected to produce as much as 2 million tons of LNG a year from the Matindok and Senoro fields.

MININGWeda Bay to develop $4.6B nickel project Weda Bay Minerals, a consortium of Japanese and French companies, and state nickel and gold miner PT Aneka Tambang (Antam) are expected to invest $4.6 billion to develop a nickel mine in Weda Bay on Halmahera Island, North Maluku, The Jakarta Globe reported.

Alwin Syah Lubis, Antam’s president director, said Paris-based Eramet, the operator of the world’s biggest ferronickel plant, and Mitsubishi were joining the project.

Lubis said a feasibility study on the project was scheduled for completion by early 2010.

“We sincerely hope Antam will be made the operator of the project,” Lubis said, adding that the anticipated $4.6 billion investment could also include a seaport, nickel smelter and refinery.

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Eramet said in 2007 that it would spend about $2 billion to begin mining at Weda Bay, which is scheduled to start actual production by the end of 2012 or early in 2013. In early February, the French company, which owns 90% of Weda Bay Minerals through Strand Minerals (Indonesia), sold 33% of Strand to Mitsubishi for $145 million.

An Eramet study has forecast output of 60,000 metric tons of nickel a year from an ore body of more than 500 million tons.

Speaking separately, Muhammad Lutfi, the chairman of the Investment Coordinating Board (BKPM), said the project was expected to help boost foreign direct investment in the oil, gas and mining sector this year to $7 billion.

The consortium, Lutfi said, is in the final stages of closing the financing although he disclosed few details beyond saying the Japan Bank for International Corporation will be involved in financing part of the investment.

Govt. to take priority in Newmont share purchase The government would have the first priority to purchase PT Newmont Nusa Tenggara (NNT) shares, State Minister for State Enterprises Sofyan Djalil said on Wednesday, Antara reported. "Yes, the first priority to purchase NNT shares is given to the government and the second priority to state-owned companies," he said after attending a seminar held by the Indonesia Petroleum Association.

Djalil did not disclose when exactly the government would purchase the shares. "What is clear is that the government will buy them but when it will be done has not yet been determined as it is all still being discussed," he said.

When asked if local governments would also be given part of the shares he said "yes", adding that the purchase was still being coordinated.

President director of state-owned mining company PT Aneka Tambang, Alwinsyah Lubis, said on Wednesday that his company was ready to buy the shares to be divested by NNT, if the government would allow it to do so.

Several state-owned companies have expressed interest in buying the shares.

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