THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA

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Trade and Investment News1, 24 November 2008Highlights National Jakarta considers new school, office times to reduce traffic loads Terrorism Government calls for access to Hambali on closure on Guantanamo Bay Security Government to establish independent coastguard service Defense and aerospace exhibition creates interest in sales, ventures Law & order Former Justice Minister questioned in graft case Corruption commission to examine payments to state banks Economy President calls on oil-rich states to assist with global financial crisis Government allots Rp60 trillion on short-term projects to boost economy Business briefs Macroeconomy Central bank reaffirms commitment to free capital flows 2008 Budget deficit to come in below target at 1.1% of GDPInvestment Malaysian firm and Banten government sign deal on water services European helicopter manufacturer Eurocopter opens Jakarta branch State concerns Electronic exports expected to slide in 2009, says industry minister Coffee exports from Sumatra nearly double in first 10 months SOEs Garuda Indonesia to spin off Citilink as independent operator Private sector Lion Air to buy 20 ATR 72-500 aircraft for its Wings Air subsidiary Banks Holland’s Royal Bank to enter Indonesia Working capital credits expand by 54% in September Power State utility PLN to proceed with smaller bond issue Oil & gas Government confirms gradual move to scrap fuel subsidiesMining Metal firms to build copper smelters in Sulawesi, Kalimantan

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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NATIONALJakarta considers rearranging school, office hoursSchoolchildren may have to start their days earlier next year, with the city administration considering rearranging school and office hours to reduce traffic congestion, reported The Jakarta Post.

A new regulation could see schoolchildren commence classes at 6:30 AM. Most schools in Jakarta now start classes at 7:00 AM.

Under the scheme, private offices’ working hours would be determined by zones. Offices located in North and Central Jakarta would start at 7:30 AM, those in West and East Jakarta at 8 AM, and those in South Jakarta at 9 AM.

Working hours for civil servants would remain unchanged at 7:30 AM.

Deputy Governor Prijanto said Friday the proposed regulation is aimed at reducing traffic snarls, cutting fuel consumption and travel times and at the same time “improving quality of life”.

“I will propose the regulation to the governor. If he agrees, the regulation for schoolchildren will take effect on January 1, 2009. As for the offices, we will ask for their cooperation,” he said.

Edie Toet Hendratno, chairman of the Jakarta Transportation Council, said he supported the policy, provided the city administration took precautions to ensure its enforcement.

“The administration should publicize the policy to schoolchildren and office workers at least a month beforehand,” he said.

To reduce congestion, Hendratno said, the administration must monitor schools in elite areas where students often drive their own cars to school.

“The administration should also improve transportation for schoolchildren and get school buses up and running again,” he said.

TERRORISMGovernment wants access to HambaliThe Foreign Ministry said Friday that the government will seek access to Southeast Asian terror chief Hambali after the US closes its prison at Guantanamo Bay, The Associated Press reported.

Hambali, also known as Riduan Isamuddin, has been accused of heading the al Qaeda-linked Jemaah Islamiyah (JI) militant group blamed for a string of bombings in Indonesia, including a 2002 attack in Bali that killed 202 people.

He allegedly also had ties to two of the hijackers in the September 11, 2001, attacks in the US, but has denied any role in terrorist activities.

The government has asked many times to meet Hambali since his US-led arrest in 2003, saying he has valuable information about JI, but the answer was always no, said Teuku Faizasyah, a Foreign Ministry spokesman.

"What we want now is consular access," he said, commending US President-elect Barack Obama's pledge to shut the US detention center in Guantanamo Bay, Cuba, a move that will result in some detainees being released and others being charged in US courts. "We hope with the incoming administration, we'll get it."

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The US government said earlier it wanted to try Hambali, but has not charged him with any crime.

It argued that granting Indonesia access could hamper the US investigation into his activities, which reportedly included a plan to recruit new pilots for another wave of suicide hijackings in the US.

SECURITYGovt. to establish coastguard The Indonesian government will establish an independent body, the Indonesia Sea and Coast Guard (KLKP) by 2009, a minister said, reported Tempo.

The establishment is based on Law No 17/2008 and aims to strengthen security in Indonesian waters.

Transportation Minister Jusman Syafii Djamal said that the roles of the Indonesia Maritime Security Coordinating Board will be combined with the KLKP in the coming year.

"With a Sea Transportation Director General, we can better comprehend and communicate easier with the military," Djamal said after he installed Sunaryo as the new Sea Transportation Director General at the Transportation Ministry on Monday.

Foreign buyers eye Indonesia's weaponryForeign delegations attending the Indo Defense and Aerospace (IDA) Expo and Forum have declared interest in buying Indonesian-made weaponry as well as forging co-operation with state strategic enterprises to produce arms, Adnkronos International reported Friday.

"I just met with the Vice Defense Minister of Brunei Darussalam and he was considering buying Sea Rider speed boats," secretary general of the Defense Ministry Lt. Gen. Sjafrie Sjamsuddin said on the sidelines of the IDA event in Jakarta on Thursday, The Jakarta Post reported.

Sjamsuddin said foreign companies like Daewoo of South Korea and Franco-German EADS had spoken of the possibility of production cooperation with ammunition and weapon maker PT Pindad.

Director General for Defense Facilities Rear Marshal Eris Heryanto said he had received a representative from Eurosatory — the French Biannual Defense Exhibition — who offered Indonesia a special pavilion to show off its strategic industry products in France in June 2010.

"They said upon seeing the capability of Indonesia's defense industry that we could introduce our products to the world through Eurosatory," he said. "I think it is a positive sign for us (that we could) benefit from this offer because we rarely show off our defense products at world defense exhibitions."

Indonesian state-owned strategic enterprises, grouped under the acronym BUMNIS, have produced competitive defense products and supply the military with quality armaments.

Pindad, for instance, supplies assault rifles and ammunition to the TNI as well as to the National Police and is currently fulfilling a contract to produce 150 6X6 armored personnel carriers for the Army.

Aircraft maker PT Dirgantara Indonesia has produced light and medium aircraft for the TNI, including the NBO-105 helicopter and the CN-235 maritime patrol aircraft.

Shipyard PT PAL produces patrol boats under a German license and is constructing the country's fourth landing platform dock vessel under South Korean supervision.

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LAW & ORDERFormer justice minister questioned over graftFormer justice and human rights minister Hamid Awaludin was summoned to a questioning at the Attorney General's Office (AGO) on Friday morning, The Jakarta Post reported.

The current Indonesian Ambassador to Russia, who succeeded former Justice Minister Yusril Ihza Mahendra, was called to speak on an alleged corruption scandal at the Justice and Human Rights Ministry.

"I was summoned in relation to a public administration scandal," Awaludin said, adding that he was questioned in relation to his previous appointment as minister.

The AGO is questioning several top ministry officials to explain an internal distribution of funds embezzled from an online service system, which allegedly caused Rp400 billion in state losses.

Mahendra is implicated in the scandal that centers on a website, www.sisminbakum.com, run by the ministry's directorate general of public law administration.

The website had since 2001 allowed legal entities to register for permits and nominate notaries, with services ranging in price from Rp250,000 to Rp1 million.

The AGO said the revenue from the legal administration website, amounting to Rp9 billion per month, should have gone to state coffers as non-tax revenue.

KPK to investigate larger sum of BLBI moneyThe Corruption Eradication Commission (KPK) on Wednesday announced it would investigate Rp456 trillion ($38.3 billion) in Indonesian Banking Liquidity Assistance (BLBI) funds that went to state-owned banks, reported The Jakarta Post.

"Our data shows that around Rp144 trillion went to private banks, while a larger amount went to state-owned banks," KPK chairman Antasari Azhar said.

Azhar said the KPK was expecting Bank Indonesia (BI) and the Finance Ministry to produce data about the funds within one week.

The BLBI funds were intended as a rescue net extended by the central bank to help the ailing banking sector after the 1997-1998 regional financial crises.

ECONOMYPresident calls on oil states to aid crisis Oil-rich states and companies that reaped unprecedented gains when prices skyrocketed have a moral duty to ease the world's economic crisis, Indonesian President Susilo Bambang Yudhoyono said Friday, Agence France-Presse reported.

Speaking ahead of the Asia-Pacific Economic Cooperation (APEC) summit in Lima, he warned that the crisis stemming from financial turmoil would send more people into poverty as nations plunged into recession.

"At the height of the recent oil crisis, we witnessed what was said to be the greatest transfer of wealth from one set of nations to another in history, involving some $2.3 trillion annually, enjoyed by petro-states and oil companies," Yudhoyono said. "With this great wealth should also comes a moral duty," he said.

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"The strong have to help the weak, and . . . great fortunes should also be utilized for the greater good in the spirit of compassion and human solidarity."

He said worsening poverty levels could snowball into a security crisis. "A poor community is an angry community. Three billion people worldwide, living on two dollars a day or less, are three billion resentful people.

"Seven hundred million people suffering from chronic malnutrition are seven hundred million disenchanted citizens," he said. "To tackle poverty is to prevent political instability and safeguard our collective future."

Earlier, the president told executives from Asia and the Americas that Indonesia intends to turn to its large domestic market to maintain growth amid crisis, Reuters reported.

“With global markets weakening and soft prices for the commodities Indonesia exports, sources of growth will come more from our large domestic market," he told an APEC meeting.

He did not give figures for new spending, but said the government would boost growth with infrastructure projects like power plants, and fight poverty with greater spending on education and health care.

The Central Bureau of Statistics announced that on a year-on-year basis, growth in the third quarter stood at 6.1%, after growing 6.4% in the preceding three months. The third quarter rise was higher than that predicted by most economists but nevertheless showed that the global economic crisis is already beginning to bite.

BUSINESS BRIEFS MACROECONOMYBI pledges free capital movementThe central bank remains committed to free capital movement, Bank Indonesia (BI) Governor Boediono said on Friday, seeking to plug seeping investor confidence as the embattled rupiah hit a new decade low, Reuters reported.

Boediono's remarks came after the central bank tightened foreign exchange rules and the country's oil and gas regulator, BP Migas, said on Thursday it would order contractors to use local banks to deposit the billions of dollars earmarked for energy.

"We will remain in the market and we will use our ammunition," Boediono said, adding that reserves stood at a "comfortable" $50.4 billion.

On Tuesday, Boediono said BI would steer the rupiah towards realistic levels and would not let markets make the exchange rate irrational. However, he said that the central bank "won't operate against the market."

On Wednesday, Finance Minister Sri Mulyani Indrawati said the rupiah's recent depreciation against the dollar is still reasonable and expected its weakness to be temporary.

Kalla also played down the rupiah's fall and said the exchange rate is still tolerable. "The rupiah exchange rate will find a new equilibrium," Kalla told reporters.

2008 budget deficit likely lower than targeted Indonesia's 2008 budget deficit is likely to be a lower-than-targeted 1.1% of gross domestic product (GDP) due to higher tax revenue and improved cost efficiency, a top finance ministry official said on Thursday, Reuters reported. The finance ministry had previously forecast a deficit of 1.3%.

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"The overall spending is expected to reach 90% of the target. We project tax revenue will be 105% of the target," Anggito Abimanyu, the finance ministry's head of fiscal policy, said.

"We project a budget deficit at 1.1% of GDP, or around Rp51 trillion," Abimanyu said, adding that the lower-than-expected budget spending was the result of enhanced efficiency in government.

"Our revenue has exceeded target so far. Even though there is a mild slowdown in the economy, our revenue is good."

The ministry targeted Rp895 trillion of revenue in its revised 2008 budget, with revenue from tax expected to reach Rp609.2 trillion.

The ministry regularly holds debt auctions every month to finance its budget deficit but in October had said it might cancel its planned domestic debt auctions this year due to turmoil in financial markets.

The ministry had bought back Rp41 billion ($3.37 million) worth of bonds and the central bank bought Rp333 billion worth of bonds in the secondary market as part of the authorities' measures to restore investor confidence and stabilize financial markets.

Economy grows by 6.1% y-o-y in Q3The economy grew by 6.1% on a year-on-year basis in the third quarter of 2008, with 3.5% growth during the quarter with agriculture putting on the strongest growth at 6.7% during the quarter, according to figures released by the Central Bureau of Statistics (BPS).

Without the contribution from the oil and gas sector, growth during the quarter was 3.7%.

Trading, hotels and restaurants put on the second strongest level of growth per sector at 4.6%, transport and communications by 4.2%, while manufacturing grew by a surprising 3.2% to take fourth position. Services was the slowest sector with growth of 0.9%.

The Business Tendency Index, based on a survey of 2,500 large and medium companies during the quarter, showed a continuing improvement in conditions over the second quarter of the year. All sectors showed improvement except mining, which experienced a slight fall.

INVESTMENTMalaysian firm, Banten govt. sign water deal Malaysian firm Puncak Niaga Holdings Bhd is to expand to Indonesia to venture into the water supply and distribution industry under an investment collaboration with the Banten provincial government, Bernama reported.

"We've been invited by the Banten provincial government to look at potential investment prospects for water supply in the province. And today's memorandum of understanding (MoU) signing between Puncak Niaga and the Banten provincial government will be a platform for us to make inroads into other parts of Indonesia," Puncak Niaga (Malaysia) Sdn Bhd general manager Ahmad Marzuki Rahim told reporters after the signing in Kuala Lumpur.

The MoU to establish mutually beneficial investment cooperation in the water industry was signed by Puncak Niaga executive director Tan Sri Rozali Ismail and Banten governor Ratu Atut Chosiyah. Deputy Prime Minister Datuk Seri Najib Tun Razak witnessed the signing.

The MoU is effective for one year from the date of signing with an option for extension by mutual consent between the two parties.

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Marzuki said they would set up a team to conduct a feasibility study in the next three to six months to look into technical, financial and legal aspects of the project, which has been approved by the Indonesian central government.

Puncak Niaga is Malaysia's largest public-listed water services company. The group operates 29 water treatment plants in Selangor, Kuala Lumpur and Putrajaya, with a combined capacity of 1.93 billion liters a day, and supplies water to more than 1.5 million people in the Klang Valley and Putrajaya.

Eurocopter opens Indonesian subsidiary European civil and military helicopter manufacturer Eurocopter opened a subsidiary company in Indonesia on Wednesday, Kompas reported.

The Jakarta-based Eurocopter Indonesia is expected to employ between 70 and 100 workers by the end of 2009.

The local office will cooperate with state-owned aircraft maker PT Dirgantara Indonesia (PTDI) in providing sales and after-sales services to its local customers including government agencies.

On October 21, Eurocopter and PTDI signed a new deal to develop an assembly factory for Super Puma MK helicopters. The two companies have been cooperating for the past 30 years when Eurocopter secured a production permit for 118 BO 105 series choppers.

IFC to invest $20M in coffee training World Bank investment arm the International Finance Corporation (IFC) is to invest $20 million in setting up coffee farmer training centers in North Sumatra, Banda Aceh, Lampung and Bali over the next four years to enable farmers to produce coffee of international standards, an IFC executive said.

Antara reported that the investment would be made through an IFC subsidiary, Indo Cafco Indonesia Ltd., a member of ECOM Agroindustrial Corporation Ltd. based in Switzerland which is engaged in commodity supplies. Indo Cafco, a local unit of Swedish trading company ECOM Agroindustrial Corporation, is the supplier to Starbucks and Nestle’s Nespresso.

"About 4,500 farmers will get training to improve the quality and increase the quantity of their coffee production. After the training, they will receive certificates that will enable them to get premium prices for the coffee they produce," IFC vice president Rachel Kyte said on Wednesday..Kyte also said the company has an internal system that would ensure the farmers' coffee cultivation activities would not happen at the expense of forests.

ECOM managing director Andrew Falconer said the targeted premium price of this program was 7%-10% of the market price. He added that the company managed approximately 3,500 hectares of coffee plantations at present.

Falconer explained that global demand seemed to show no decline from the impact of the economic slowdown but there was a difference in the quality of coffee which was consumed.

"Indonesia is still a large market with 150,000 tons of coffee demand per year, India with 80,000 tons and China 20,000 tons. These countries still indicate rising demand," he said.

Jakarta to stop all business charges: Official The Jakarta administration will soon erase all fees and charges on business to help companies deal with the financial crisis, the head of the Jakarta Small and Medium Enterprises and Cooperatives Agency, Ade Harsono, said Thursday, Kompas reported.

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According to Harsono Jakarta Governor Fauzi Bowo has already approved the initiative.

"Businesses will still need to apply for operating permits, but no fee is incurred," he said, adding that once a business is running, it will be taxed instead.

Harsono said the initiative has also been suggested to the State Minister for Small-Medium Enterprises and Cooperatives.

He said the total retribution generated to date from fees and charges, around Rp15 billion, was negligible.

Apart from a business charge holiday, various expos in Jakarta and in six foreign countries will be held to support the development of small and medium enterprises, Harsono added.

STATE CONCERNSElectronic exports to stagnate in 2009: Minister Industry Minister Fahmi Idris said on Tuesday the country’s exports of electronic goods are expected to stagnate in 2009, Antara reported.

“The figure will be the same as in 2008. We will just have to wait for an increase in demand," Idris said at the commissioning of an Electro Magnetic Compatibility (EMC) laboratory owned by PT Indonesia Epson Industry (IEI).

The minister said electronic exports reached a value of $3 billion in 2007 while the figure for 2008 was expected to be up by 5%.

Rachmat Gobel, Indonesian Chamber of Commerce and Industry (Kadin) vice chairman for technological, industrial and maritime affairs, agreed that Indonesia`s exports of electronic products would decline in 2009.

Gobel said the government needed to boost the development of supporting facilities to smooth the flow of goods from industrial centers to ports.

He hoped economic stimuli given by the government would not be discriminative in order to attract more investors to Indonesia.

Gobel said it was time for the government to set environmentally-sound product standards which would make Indonesia no longer a potential "waste" market for non-green products.

Sumatra coffee 10-month exports up 90% Coffee bean exports from Indonesia's main growing area of Sumatra nearly doubled in the first 10 months of 2008 supported by bumper harvests, but overseas sales are likely to slow until the end of the year as the main harvest has ended, Reuters reported.

Sumatran coffee bean exports for the January-October period surged to 259,770.67 tons, up 90.23% from 136,556.06 tons a year ago, trade data showed on Monday.

Exports in October rose to 21,798.78 tons from 18,669.01 tons in the same period last year.

The main robusta harvest in Sumatra normally starts from March and peaks in August. Robusta accounts for 85% of Indonesia's coffee bean output, while aromatic, higher-value arabica makes up the rest.

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"October exports fell about 52% from 45,760.28 tons in September due to the Idul Fitri holidays," Suherman Harsono, chairman of the Lampung chapter of the Indonesia Coffee Exporters' Association, said.

Lampung, South Sumatra and Bengkulu provinces are Indonesia's main coffee-growing areas and account for three-quarters of the country's coffee bean output. The beans are sold via Panjang port in Lampung.

Bulog rice procurement reaches 2.72M tons The National Logistics Agency (Bulog) up to November this year purchased 2.72 million tons of rice, Bulog director for public services Abdul Waris said, Antara reported.

Bulog’s procurement was still dominated by rice while its purchase of unhulled rice was recorded at only 375,152 tons, he said on Monday.

Bulog president director Mustafa Abubakar had earlier said the agency was able to purchase as much as 8,000 to 10,000 tons of rice every day and distribute the same amount daily.

He said Bulog had achieved its target of procuring three million tons of rice in 2008 so that he was optimistic that the logistics agency would be able to achieve its target of 3.8 million to 4 million tons in 2009 in order to remove any need for imports.

SOEsGaruda’s Citilink to be independent carrier in 2011 Citilink, a division of the nation's flag carrier Garuda Indonesia, said it is set to startserving regional flights to a number of cities in Southeast Asia and Australia in 2011 as an independent airline, Bisnis Indonesia reported.

Garuda is expected to complete the process of spinning off Citilink to become an independent airline in March, 2009, maintaining its low-cost carrier concept.

Citilink senior manager Taviana Dewi Kushermawati said that domestic flight expansion had also begun.

Meanwhile, Garuda president director Emirsyah Satar said on Thursday that the airline will incur higher operational costs following the continued depreciation of rupiah, Antara reported.

Speaking to reporters on the sidelines of an "Asia Pacific Aviation Safety" seminar, Satar said aircraft leasing rates payable in US dollars would be more expensive but he added that Garuda could still manage because half of its income came from payments in foreign currencies.

The Transport Ministry said it expects the number of domestic flight passengers this year will drop as the number only reached 23 million as of September.

"We think the drop in passengers was caused by the increase in the world crude oil price which, when it exceeded $100 a barrel, passengers had to bear a fuel surcharge burden," air transportation director Tri Sunoko said.

He said that the government set a target of a 10% increase in domestic flights for the Idul Fitri holiday. However, it turned out to be 17% down on the previous year's holiday season.

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PRIVATE SECTOR Lion Air to buy 20 ATR aircraft Lion Air is poised to buy up to 20 ATR 72-500 aircraft for its Wings Air subsidiary after signing a memorandum of understanding with French manufacturer ATR, Air Transport Intelligence reported on Wednesday.

Lion Air inked a deal covering 10 ATR 72-500s plus 10 options during the Indodefense air show in Jakarta.

"The reason we want these aircraft is for our feeder services to support our Boeing 737-900ER operations. With our brand new fleet of ATR 72-500s, we will be able to develop a strong low-cost network, feeding Lion Air's major hubs," Lion Air president director Rusdi Kirana said.

ATR values the total contract at around $380 million and says deliveries of the aircraft are scheduled to begin next year. It added that the aircraft will be the first new ATR 72-500s to fly the Indonesian skies.

Lion Air operates 37 aircraft. Its network includes domestic flights within Indonesia, as well as international links with Singapore, Penang, Kuala Lumpur and Ho Chi Minh City.

Sampoerna Agro to expand palm oil plantations Publicly listed agribusiness company PT Sampoerna Agro said it is set to expand cultivation of its oil palm plantations to 15,000 hectares this year, Antara reported on Friday.

Sampoerna Agro finance director, Sie Eddy Kurniawan, said by September this year cultivation covered only 9,000 hectares of its 112,499 hectares of lands in Sumatra and Kalimantan.

The company reported sales valued at Rp1.85 trillion in the first nine months of this year or up 117.1% with net profit up 399% to Rp399.53 billion, according to Bisnis Indonesia.

Earlier, Sampoerna Agro reported to the Indonesian Stock Exchange (IDX) that it has bought back its stocks from the public, Tempo Interactive reported.

In a written report to the IDX, Sampoerna said it bought back 66.98 million of its shares from November 10 to 14 at a cost of Rp70.17 billion.

The company announced in October that it would prepare Rp475 billion for the buy-back, leaving a surplus of Rp404.83 billion.

It also operates four palm oil processing plants in Sumatra and one in Kalimantan.

In September, the company reported 117.1% rise in sales to Rp1.85 trillion so far for 2008 with net profit soaring 400% to Rp80.06 billion.

Motorcycle production projected to drop in 2009 The Association of Indonesian Motorcycle Industries (AISI) said motorcycle production in 2009 is projected at four million units or 33.3% lower than the figure for 2008 of around six million, Antara reported on Thursday.

"The figure for 2009 is indeed lower than for 2008 but it is a temporary projection. We hope it will increase in the second semester of 2009," AISI Chairman Gunadi Sindhuwinata said, adding that the production decrease was caused by a downturn in market demand.

As there had been high sales growth in 2008, layoffs would not be necessary, Sindhuwinata said. Industries could prevent the need for layoffs by reducing work shifts and overtime work.

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Until November 2008, producers had not lowered their outputs as they had to meet previously made delivery commitments. The November production figure would even be 44% higher than that for October, he said.

"The year-on-year sales growth figure will definitely rise, namely by 6% from October to November," Sindhuwinata said.

BANKSHolland's Royal Bank to enter Indonesia The Royal Bank, the oldest financial institution in the Netherlands, said it intends to enter the Indonesian market after observing high banking market growth in the retail and commercial sectors, Antara reported on Thursday.

Head of global banking and markets for Southeast Asia and Pakistan, Muhammad Aurangzeb, said the Royal Bank would have many opportunities in the Indonesian market. "We hope to offer a superior joint product to our clients," he said.

The Royal Bank of Scotland (RBS) meanwhile this week launched a re-branding of ABN AMRO branches following its takeover of the Dutch bank.

The launching of the RBS brand in Indonesia is part of an integration process for ABN-AMRO's wholesale, retail and commercial businesses as part of a consortium acquisition led by RBS of the Dutch bank at the end of 2007.

"RBS will also inherit an advanced wealth management and consumer finance network run by ABN-AMRO. With the integration RBS will have Indonesia's widest branch offices, with 20 branch offices in 10 different cities," RBS Asia retail and commercial market CEO Jim Brown said.

September working capital credits increase 54.2% The year-on-year amount of credits extended to the working capital sector in September this year increased 54.2% to Rp656.832 trillion from Rp425.814 trillion in the same period a year earlier, according to Bank Indonesia (BI), Antara reported.

The increase in working capital credits was fueled by high demand and low risks in the sector, according to state-owned PT Bank Rakyat Indonesia economist Djoko Retnadi on Monday.

BI’s statistics also showed that general bank credits provided to the working capital sector also rose to 54%.

The increase in credit provision was mainly in the past three months where the extension of credits in June was recorded at Rp606.896 trillion, Rp610.309 in July and Rp634.450 trillion in August.

Retnadi said that the upward trend in the provision of working capital credits was better than last year's trend.

However, the provision of working capital credits does not cover most businesses so that its impact on the real sector had not yet been significantly felt.

"The state has to play its role in boosting real sector development through various infrastructure projects. Banks only play a small part, particularly in the financing sector," he said.

He predicted however that credit extension next year would undergo a downturn.

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Retnadi estimated that credit extension in 2009 would grow by only 25% and mainly consist of working capital credits. This was because banks would still face liquidity scarcity so that the risks of long-term credits, including housing ownership credits, would be avoided.

In the BI statistics, it was also indicated that year-on-year credits which were extended to the investment sector grew 34.9% from Rp172.462 trillion in September 2007 to Rp232.678 trillion in September 2008.

In the meantime credits for the consumption sector grew 34.2% from Rp265.674 trillion to Rp356.636 trillion. The growth had taken place since June when it stood at Rp328.118 trillion, Rp378.288 trillion in July and Rp346.073 trillion in August.

BTN to reinforce capital through restructuring State-owned bank BTN will restructure its assets next year in an effort to reinforce its capital while waiting for the opportunity to divest its shares through an initial public offering (IPO), its president director Iqbal Latanro said, Antara reported on Tuesday.

"We will restructure our assets through PT Sarana Multigriya Finansial (SMF)," Latanro said.

BTN, Latanro said, would continue to make preparations for the IPO, including preparing an issuance guarantor company.

Latanro said that BTN projected the IPO would be carried out when capital market conditions had recovered.

He did not mention the amount of BTN`s assets it would restructure but estimates suggested it would involve some Rp500 billion.

BTN`s assets in the third quarter of 2008 increased 22.7% from Rp8 trillion in the same quarter in 2007 to Rp42.8 trillion. Its credit extension in the third quarter of 2008 reached Rp12.1 trillion, exceeding its annual target of Rp10.04 trillion.

The bank`s capital adequacy ratio (CAR) reached 16.8%, non-performing loan (NPL) 3.2%, return on asset (ROA) 1.73%, return on equity (ROE) 19.4% and net interest margin (NIM) 5.5%.

POWERPLN to push ahead with bond plan State power company, PT PLN, will push ahead with its plan to issue bonds in the local market later this year, despite the current financial market turmoil, president director Fahmi Mochtar said Tuesday, Dow Jones reported.

PLN, however, will halve the planned bond size to Rp1.5 trillion ($125 million), with Rp500 billion in shariah bonds (sukuk), Mochtar said.

The company originally planned to issue rupiah-denominated bonds worth Rp3 trillion and dollar-denominated bonds worth $1 billion (about Rp13 trillion) this year.

PLN has named PT Trimegah Securities, PT Indopremier Sekuritas and PT Danareksa Sekuritas as co-lead underwriters.

It will use the proceeds to help finance construction of several power plants in cooperation with various investors.

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Analysts said PLN will likely target local institutional investors, such as state-owned pension funds, to sell the bond.

"I think there will still be buyers for the bond as PLN has a good track record in honoring its obligations to bond holders," a bond analyst with a local securities company said. But investors may ask for high yields, the analyst said.

PLN is seeking loans to finance its ongoing massive effort to complete a 10,000-MW power plant program to meet the increasing demand for electricity in the country.

About 6800 MW of this capacity is to be located in Java and Bali, provided by 10 new power plants, while the rest is located outside the Java-Bali system and will be generated by about 20 smaller power plants.

To complete the program, PLN needs $4.4 billion and Rp17.33 trillion to build power stations and $934 million and Rp13.15 trillion for transmission systems.

As of October, the company had secured $1.5 billion and Rp13 trillion from both local and foreign banks.

Meanwhile, the Indonesian Chamber of Commerce and Industry (Kadin) has called on national banks to provide financial support for the program.

"The electricity supply in the country only covers about 64% of the population. This means that there is still 36% of the population who do not yet enjoy electricity supply," Kadin chairman for energy and mineral resources affairs, Dito Ganinduto, said on Tuesday.

"Kadin is also proposing to the government to optimize the use of gas and coal, whose reserves are still large, as fuel for power generators," he said.

Investment in the energy and mineral resources sector in 2007 stood at Rp14.754 trillion, consisting of Rp10.08 trillion for oil and gas, Rp3.32 trillion for electricity and Rp1.35 trillion for coal and geothermal. Total 2008 investment is estimated at $21.7 billion.

OIL & GASMove to gradually scrap fuel subsidies The finance ministry's head of fiscal policy, Anggito Abimanyu, said Monday the government may entirely stop subsidizing fuel prices next year by adjusting subsidized prices to market prices, but up to a certain limit, The Jakarta Post reported.

"In the future, we expect (subsidized fuels) to follow (the market prices) automatically up to certain ceilings," Abimanyu, told reporters, adding the government would start subsidizing fuels if the prices surpassed these limits.

Abimanyu said if the government could cut the subsidy for premium gasoline and diesel, then it could shift its focus to subsidizing kerosene, which was more important for supporting the living costs of low-income people.

He said the government could not cut the price of subsidized diesel as the current price was far below the market price.

The government early this month announced it would cut the price of subsidized premium gasoline by Rp500 per liter to Rp5,500 starting December 1 as this now reflected the market price.

It is likely the government may further cut fuel prices next year to include kerosene and diesel fuel as well.

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The House of Representatives has suggested the government cap the subsidies for fuel at a certain amount, while leaving them fluctuating based on the market prices. Such an approach, the House said, would relieve the burden of the cost of the subsidies upon the government.

Sempra to start importing LNG from Tangguh mid-2009 San Diego-based Sempra Energy will buy 3.7 million tons of liquefied natural gas (LNG) worth $1.1 billion annually from Tangguh project in Papua, Bisnis Indonesia reported.

Sempra will import LNG for supply to the US and Mexican market, Energy and Mineral Resources Minister Purnomo Yusgiantoro said in Mexico over the weekend.

The first shipment will be made in the second half of 2009 to Costa Azul in California, Yusgiantoro said after accompanying President Susilo Bambang Yudhoyono in a meeting with Sempra management in Mexico.

Last week, state oil and gas regulator BP Migas deputy chief Djoko Harsono said the Tangguh LNG project will be delayed until the second quarter of next year.

"It will come on stream in the second quarter of next year," Harsono told reporters on the sidelines of a gas conference, without giving a reason for the delay.

In Mexico, President Yudhoyono also met with a consortium of local companies proposing to take part in the construction of LNG receiving terminals in Banten and Gresik in Java.

A consortium of state companies - Pertamina, Perusahaan Gas Negara and PLN plan to build the LNG terminals to facilitate gas distribution in Java.

Pertamina may participate in $1.9B DME plant State oil and gas company Pertamina may participate in an-estimated $1.9-billion dimethyl ether (DME) project that will be built by a private domestic firm, a senior company official said on Tuesday, Reuters reported.

PT Arrtu Mega Energie will build the DME plant in Riau province. It will have a capacity of 1.2 million tons a year.

Construction is expected to start in 2010 and the plant, Indonesia's first such facility, will be commercially operational in 2013.

"This is business. If the project is good and economically okay, why not participate? We will discuss at the board of directors meeting," Pertamina marketing director Achmad Faisal told reporters.

Faisal said Pertamina was interested in buying the DME if the price is competitive.

"We need cleaner energy for the future. Indonesia needs DME and it can be blended with liquefied petroleum gas (LPG)," he said.

Christoforus Richard, PT Arrtu Mega president director, said the company will seek a loan from foreign and domestic banks to finance 70% of the investment. The rest will come from internal funds.

He said the project will need about 5-6 million tons of coal a year as feedstock and will source the coal from PT Bukit Asam.

"We don't have to worry about coal because Indonesia has big coal reserves," Richard told reporters.

DME is a methanol derivative with properties similar to LPG, although it is said to be cleaner burning.

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MININGTwo metal firms to build copper smeltersMetal firm PT Indosmelt plans to build a copper smelter in Maros, South Sulawesi with an investment of around $500 million, Natsir Mansur, the company's president director, said on Friday, Reuters reported.

The smelter plans to process 250,000 tons of copper concentrate each year and plans to secure concentrate supply from local copper producers such as PT Freeport Indonesia, a unit of US mining group Freeport-McMoRan Copper & Gold, he said.

"If we can't secure the concentrate (locally), we plan to import it," Mansur said.

Development of the smelter will start in 2010 and operations are expected to start in 2013, he said, adding that the firm has talked with Australian firm Ausmelt about using the firm's smelting technology to develop the copper smelter.

Another metal firm, PT Nusantara Smelting Corp, has also said it plans to build a copper smelter in Bontang, East Kalimantan with an annual production of 200,000 tons of copper cathode.

Currently, there is only one copper smelter -- PT Smelting's smelter in Gresik, East Java which is 60.5%-owned by Japan's Mitsubishi Materials Corp. PT Freeport Indonesia owns 25% while the rest is owned by other Japanese investors.

Interest in metal processing has been growing in line with the government's plan to require miners to process raw ore into metal domestically. The requirement will be included in a new mining and coal law, which has been in the works for several years and is being held up by a parliamentary committee. It will require miners to turn raw ore into metal by setting up smelters or team up with a smelting firm.

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