THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA

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Trade and Investment News1, 8 September 2008National The government to push direct development of villages in Papua’s Paniai regency Companies to face sanctions for ignoring high building safety codes Politics The General Election Commission says migrant workers need information on polls The Constitutional Court begins a judicial review of the Election Law Anti-Terrorism Police forces in Philippines, Indonesia boost cooperation following collapse of peace talksHealth Government hopes agreement reached on bird flu virus-sharing formula by November Security Police boost preparations for annual Idul Fitri exodus from cities Law & order Prosecutors say case against former intelligence official should proceed Economy Bank Indonesia governor reassures markets following rupiah slip Analysts say Indonesia in good position to ride out global storm Business briefs Macro economy Bank Indonesia raises benchmark rate to 9.25% Tourism arrivals maintain growth above 10%Investment Government commits to Rp70.89 trillion for public-private infrastructure work Delegation from China’s Guangdong provinces promises deals, stronger cooperationState concerns Business-friendly tax amendments passed by House Private sector Bakrie Brothers sees net profit jump Cement producers raise annual growth projection to 15% from 6%Banks Bank Indonesia predicts credit growth between 20% and 25% in 2009 Power Sumitomo looks to spend $1.5 billion on Tanjung Jati B expansion PT Adhi Karya looks to power plant programs worth $800 million Oil & gas Regulatory chief says INPEX to spend $14 billion of floating plant for Timor Sea gas block Chevron wins rights to five gas blocks in Makassar StraitMining Astra Group looks to acquire five coal mines in next five years Indian firms close to deal on coal mine purchase

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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NATIONALGovt. pledges aid for remote Papua regions The government will earmark Rp138 billion in aid to build housing complexes in isolated areas of Paniai regency in Papua, said Maj. Gen. (ret) Suadiatma, special staff at the Coordinating Ministry for People's Welfare, Antara reported.

"A special team will survey the area in October and the result will be reported to the President so the people in Paniai will soon receive the aid," said Suadiatma, adding that the isolation is caused by geographic conditions in an area consisting mostly of mountains, valleys and canyons.

Houses, clean water, electricity, agricultural tools, schools and community health centers will be developed as part of the government's effort to improve welfare and prosperity for Papuans by short-circuiting the region’s bureaucracy. Last week, head of the ministry's planning bureau, Hazwan, handed over Rp98 billion in aid to Bintang Mountains regent Welington Lod Wenda and Rp40 billion to the Lany Jaya regency government. In Bintang Mountains, the aid will be used to build 100 houses in Batom, Yumakot and Tarub districts while 50 houses will be built in Walakubun district. Meanwhile, Rp40 billion in aid for Lany Jaya regency is earmarked for 100 new houses in Balingga, Koyawage and Melanegeri districts and the construction of a new 25-km-long road from Pirime to Balingga.

Meanwhile, a repatriation program for 708 Papuan refugees living in Papua New Guinea will begin early next year, Papua provincial government spokesman Fred Menufandu said on Wednesday.

According to Menufandu, the program is part of bilateral relations between the two countries.

Menufandu said Papua Province Governor Barnabas Suebu hoped however that the two governments would not treat the repatriates in any special manner as it might cause social jealousy.

Companies to face sanctions over safety violations The Manpower and Transmigration Ministry said it will impose sanctions on companies located in multi-story buildings that do not comply with safety requirements, Tempo reported.

“We will conduct thorough inspections and will reject any equipment that is found to violate safety standards,” Director General of Labor Development and Supervision I Gusti Made Arke said on Thursday.

Arke said the ministry will also check equipment that is used for cleaning multi-story buildings, such as gondolas, and offenders will face legal charges for lapses.

In Jakarta, the inspections will be conducted by a joint team from the Manpower and Transmigration Ministry and Jakarta Manpower Agency, he said.

Dredging for Jakarta waterways The Jakarta government will start dredging the city's main flood channels early in October with equipment donated by the Dutch government, Republika reported.

According to Jakarta Governor Fauzi Bowo, the channel dredging will also be conducted for some rivers which are considered too narrow.

"At the moment, the equipment is on its way here. I have asked that the administrative process be finished soon so the equipment will not be held up in Customs," Bowo added.

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Aceh tsunami refugees to return home in stagesA Foreign Ministry spokesman said on Friday the repatriation of 24,000 Acehnese tsunami refugees from Malaysia will be conducted in stages until the end of this year, Antara reported.

"The Malaysian government extended the refugees’ stay permits until August 2008, but the Aceh administration asked for an extension to prepare for the large number of refugees returning," spokesman Teuku Faizasyah said.

Earlier, Aceh governor Irwandi Yusuf asked the Malaysian authorities to extend the stay permits until 2010. The Aceh provincial administration is not ready to receive and accommodate them in a rush, he said.

The Aceh provincial administration will continue contacting the relevant Malaysian authorities to make them understand that the economy in Aceh has not fully recovered from the impact of the 2004 tsunami, Yusuf said.

"The Malaysian government did not give a specific answer, but it seems the Malaysian government remains firm on its decision to extend the stay permits until the end of this year," Yusuf said, adding the Indonesian embassy in Kuala Lumpur has prepared passports for the refugees.

Malaysia had earlier ordered the refugees to leave by January 5, 2009, or face deportation.

Thousands of Acehnese have returned home since 2005, but officials estimate there are still 25,593 remaining in Malaysia, working mainly in low-paying jobs at construction sites and plantations.

POLITICSKPU defends overseas visit scheduleA member of the General Election Commission (KPU), Sri Nuryanti, has defended the KPU’s decision to visit 14 countries, visits which the body says is needed to train and inaugurate overseas election commissions (PPLN), Detikcom reported.

The PPLN are required to must record and register all migrant workers in every country where there is an embassy to ensure that illegal migrant workers who live overseas will not lose their voting rights in the upcoming 2009 general election.

The planned overseas KPU trip sparked criticism from the Election Supervisory Body (Bawaslu).

Nuryanti said the KPU regarded the rights of overseas workers as an important factor in preparing next year’s elections.

Migrants workers will be allowed to cast their votes after showing citizenship papers, such as identification cards, passports or other related documents, she said.

Nuryanti also called on political parties participating in the election which have overseas representatives to assist respective PPLN in collecting voter data.

Judicial review of Presidential Election Law begins The Constitutional Court on Wednesday began a judicial review of Presidential Election Law no. 23/2003 forwarded by activists who want to see several articles lifted, Kompas reported

The appeal was filed by Independent Candidates National Movement chairman Fadjroel Rachman, Jurnal Perempuan women’s group executive director Mariana Amiruddin and Muhammadiyah youth activist Bob Febrian.

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Rachman, who has been campaigning with the slogan "A republic of the young, a republic of hope" through free internet social networks such as Youtube, Facebook and Friendster, said the current law is unconstitutional as it does not allow individuals to contest the 2009 presidential election unless they are nominated by a political party or a coalition.

The other two activists are demanding the election law allow residents to vote for any candidate of their choice, including independents.

Meanwhile, the chairman of the House of Representatives special committee tasked with revising the general election law, Ferry Mursyidan Baldan, said the committee will complete the revision by the end of September, Antara reported

"Revisions will be made on certain articles which all House factions agreed need to be changed," Baldan said without giving details.

ANTI-TERRORISMPhilippine, Indonesian police up ties as threats increasePhilippine and Indonesian police forces have joined efforts in the campaign against terrorists and other criminals operating in the two countries, including members of the al Qaeda-linked Jemaah Islamiyah (JI) international terrorist network, The Star reported.

Meanwhile the Indonesian Navy has deployed eight warships in waters between the two countries in a bid to stop any terrorists leaving the Philippines for Indonesia, a senior officer was quoted as stating by Antara.

Indonesian police Brig. Gen. Bekto Suprapto, chief of the North Sulawesi police command, said strengthening of the existing cooperation between the two countries’ police forces was needed, particularly between the adjacent areas of North Sulawesi and Southern Mindanao.

Suprapto led a delegation of Indonesian police officials that arrived in the Philippines last week for a joint conference.

Southern Mindanao regional police director Chief Superintendent Andres Caro II said the cooperation is vital, adding that Suprapto’s visit forms part of implementation of the existing agreement forged between Indonesia and the Philippines.

Prior to Suprapto's Davao City trip, Indonesian and Philippine police officials met in Cebu City in July for talks on a joint training exchange program as well as joint operational cooperation standard operating procedures.

Suprapto said that aside from terrorism, the crimes targeted by the two police departments include arms smuggling, illegal border crossing, illegal drugs, illegal fishing and fake immigration documents.

The increased cooperation comes as peace talks between the Philippine government and Muslim rebels in Mindanao fall apart, with analysts warning violence will escalate and could spill over into neighboring countries, including Indonesia.

President Gloria Arroyo last week scrapped the government panel handling the negotiations, a move analysts say ended any hopes of settling the four-decades-old Muslim insurgency, before she leaves office in 2010.

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They fear the Moro Islamic Liberation Front (MILF), which had been negotiating for a Muslim homeland on the revolt-hit Mindanao, may now splinter into smaller and more radical groups, some of which could align themselves with regional terrorist networks such as JI.

One Filipino government security analyst who did not want to be named said Malaysia, Indonesia and Brunei had expressed fears the MILF renegades could slip into their territories with the help of JI's vast network.

He said there were already reports of armed groups trying to enter Malaysia's Sabah state. "You can expect more attacks, not only in the Philippines but elsewhere in the region" once the JI cements its ties with the MILF, the official added.

Arroyo's decision to disband the peace panel came as the military mounted a huge offensive against the forces of Umbra Kato and Abdurahman Macapaar, also known as Commander Bravo, two senior MILF members.

Now on the run, Kato and Bravo and their men could seek help from JI militants who are keen to establish a stronger presence on Mindanao, analysts said.

A report by the International Crisis Group early this year said Kato's ties to the JI and other terrorist groups were "well documented."

HEALTHGovt. optimistic bird-flu dispute settled by NovemberThe government said it hopes negotiations on a material transfer agreement for bird-flu specimens will be finished in an inter-governmental meeting of WHO members in November, Antara reported.

Health minister Siti Fadillah Supari said on Thursday that Indonesia hoped the agreement could be made simple and able to accommodate the interests of developing countries.

"We wish our property rights to virus samples will receive recognition and we receive access to information on where the samples have been taken and how they are being handled," she said.

She said the agreement must also cover deals on benefit sharing both financially or otherwise that come from the result of research on Indonesian specimens.

"In the case of non-financial benefits such as technology transfer and access distribution an agreement has been reached, but in terms of financial benefits such as profit sharing, negotiations are still continuing," she said, adding hopefully all points will be settled in November.

Talks on avian flu virus sharing started early in 2007 after the Indonesian government protested what it said were unfair mechanisms for virus sharing and exchange in the Global Influenza Surveillance Network (GISN).

Since then, rounds of meeting have been held by members of the World Health Organization affected by the H5N1 virus aimed at formulating the framework for fair, transparent and equal virus sharing mechanisms.

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SECURITYPolice prepare for Idul Fitri exodus National Police last week said 43,700 personnel will be deployed for 'Operation Ketupat' to ensure security during the Idul Fitri holiday from September 22 to October 9, National Police spokesman Sr. Comm. Bambang Kuncoko said on Monday, Investor Daily reported.

“The officers will be stationed at houses of worship, shopping centers, recreation places, terminals, stations, airports and ports” said Kuncoko, adding police will also cooperate with related agencies such as the Transport Ministry in cracking down on ticket scalpers.

Kuncoko said that around 18,000 officers have been deployed since the first day of Ramadhan to confiscate illegal fireworks, liquor and to stop gambling.

Police have also prepared snipers to secure a number of high-risk areas for the upcoming holiday, National Police public relations chief Insp. Gen. Abubakar Nataprawira said on Tuesday.

Nataprawira said the snipers will be stationed in areas prone to crime and disturbances to ensure the safety of holiday makers.

Aside from the snipers, police said they will also ban the use of open vehicles as a means of transportation to avoid overcrowding and accidents.

LAW AND ORDERProsecutors seek continuation of ex-BIN deputy murder trialState prosecutors on Thursday defended their charges of premeditated murder of Munir Said Thalib against former State Intelligent Agency (BIN) deputy chief Muchdi Purwopranjono, asking the court to push ahead with the trial, The Jakarta Post reported.

Prosecutor Cirus Sinaga said his team had noted Purwopranjono's plea on several issues, including reported international and national pressure on the trial, conflicting crime scenes, the testimony of BIN agent Budi Santoso, and the authority of the South Jakarta District Court to try the high-profile case.

"Our Constitution and laws say law enforcement in the context of human rights must be respected, honored, promoted, preserved and carried out, primarily by the government. Therefore, accusing this trial of coming under local and international intervention does not make sense," Sinaga told the court.

Prosecutors asked the court to continue trying the case, despite objections from defense lawyers insisting the authority to try the case belonged to the Central Jakarta District Court, because Munir died outside Indonesia.

Munir died of arsenic poisoning on September 7, 2004.

The court will hold its next session on September 9, when the judges will decide whether to continue with the case or drop it.

Bali: Officials looking to crackdown on residence abuseThe large number of expatriates living in Bali with temporary stay permits (Kitas) could cause an increase in the number of permit violations, head of Ngurah Rai Airport's immigration office Jusuf Hadi has said, The Jakarta Post reported.

"The number of expatriates with Kitas is very high -- in my opinion, too high," Hadi said Wednesday.

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In the airport immigration office's jurisdiction alone -- which covers Kuta, South Kuta and North Kuta -- there are at least 3,000 foreigners a year holding Kitas, he said.

The three districts constituted the area most favored by foreigners due to their abundant tourist facilities, including hotels and villas, where most foreigners work, he added.

A large number of Kitas holders in Bali have led to violations, especially by those running illegal private businesses, he said.

"This has raised the number of illegal businesses operated by foreigners. As they are illegal, they don't pay taxes and this causes the state to suffer huge losses," Hadi added.

Despite this, the immigration office cannot do much to control the problem because it only issues permits based on recommendations from related institutions, such as the Manpower and Transmigration Ministry and the Education Ministry, he said.

Travel bans imposed for failure to pay taxThe Directorate General of Tax has placed 700 individuals on the travel ban list for failing to pay taxes within a period that spans from January 2005 until September this year, Tempo reported on Thursday.

According to Director General of Tax Darmin Nasution, 153 tax payers defaulted in 2005, 353 in 2006, 151 in 2007 and 43 so far this year. Nasution said the travel ban is necessary for investigation of tax fraud cases involving the individuals. Nasution also cited the travel ban imposed on directors of palm oil company Asian Agri Group, owned by tycoon Sukanto Tanoto, is a bid to investigate an alleged tax embezzlement committed by the company. “The travel ban can be revoked it they pay their taxes,” Nasution said, adding that the travel ban can also be imposed on foreign workers at managerial levels.

Imposing a travel ban, Nasution said, is allowed by the laws if the offenders have been notified and reminded to pay their taxes but they fail to do so.

ECONOMYBoediono reassures markets Bank Indonesia (BI) Governor Boediono moved to reassure markets on Friday after the rupiah fell to 9,395 to the US dollar, underlining that the slide was the result of global trends, Agence France-Presse reported.

"This is a movement of the market. There is no issue with fundamentals," he said, adding that the dollar had been strengthening against other currencies in the world.

"We are today experiencing weakness that is somewhat greater in comparison to other countries as, in reality, for the last few weeks the rupiah has been strengthening," he said.

Asked if the rupiah could bounce back, he said examination of the fundamentals showed that the currency was at levels that are in line with other currencies in the region.

"We are of course monitoring currency movements including in the region. We, of course, cannot go against the flow, we will not target any specific levels," he said, adding that the central bank would continue to protect the exchange rate against excessive volatility.

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The slide came as Indonesia posted a second-quarter current account deficit, its first in almost three years, although analysts were confident economic fundamentals remained sound.

The economy recorded a current account deficit of $1.5 billion, swinging from a surplus of $2.3 billion in the first quarter, BI said in a statement.

The deficit was the first since the third quarter of 2005 when Indonesia recorded a $1.2 billion shortfall.

Several economists had expected Indonesia to record a deficit due to the 51% year-on-year rise in imports, which outpaced export growth of 28% during the quarter.

Bank Danamon chief economist Anton Gunawan maintained his forecast that the country will record a surplus for the year, helped by falling oil prices.

Lehman Brothers said the current account deficit could undermine the rupiah further, but the underlying economy was strong.

"Bank Indonesia has proven perhaps the most determined central bank in Asia, issuing a series of hikes and hawkish policy statements, backed by a relatively strong performing local economy," it said.

Foreign exchange reserves fell to $58.36 billion on August 29 from $60.56 billion on July 31 due to interventions to help bolster the currency and repay offshore debts.

There were hopes that the trade deficit in July was a temporary trend, with analysts saying crude palm oil exporters had been withholding stocks from the market while waiting for the government to drop export taxes from 20% to 15% on lower international prices. The longer term view was benign. Chevron was awarded five gas blocks in the Makassar Strait, while Priyono, head of upstream oil and gas regulatory body BP Migas, said Japan’s INPEX had agreed to a $14 billion float liquefied natural gas plant to tap the Masela block in the Timor Sea.

Japan’s Sumitomo and state-owned PT Adhi Karya were contemplating power projects worth a total of $2.3 billion. Cement producers hiked their forecasts for 2008 sales growth to 15% from 6% as demand continued high.

The passage of an amended tax bill by the House of Representatives brought better conditions for business and an improved competitive investment position against neighboring countries.

Indicators:

  June July July 08/July 07

Cumulative 2008

Total exports $12.9 billion $12.55 billion -2.65% $83.03 billionNon-oil & gas exports $9.91 billion $9.68 billion -2.38% $64.07 billion  July

(y-o-y)July

(m-o-m)August (y-oy)

August(m-o-m)

Inflation 11.09% 1.37% 11.85% 0.51%  Full year 2005 Full year 2006 Full year

2007First half 2008

GDP growth 5.60% 5.5% 6.3% 6.4%Tourist arrivals June July Growth/loss (m-

o-m)Growth/loss

(y-o-y)529,100 567,400 7.24% 10.24%

Source: Central Statistics Agency

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BUSINESS BRIEFS MACROECONOMYBI raises benchmark rateBank Indonesia on Thursday raised its benchmark rate 25 basis points to 9.25% as it expects inflation to stay high for the rest of the year, Dow Jones reported.

The central bank said it also raised its lending facility rate - raising the lower interest rate level for the interbank lending market.

"Bank Indonesia sees domestic inflationary pressures are still strong due to fast-growing domestic demand," the central bank said after a monthly rate-setting meeting.

Although inflation eased slightly in August to 11.85% on year from 11.90% in July, and to 0.51% on month from 1.37%, the move was widely expected.

The economy grew 6.4% on year during the second quarter, with consumer spending still one of the main growth drivers.

Bank Indonesia said inflationary pressures from energy, food and commodity prices are abating.

Thursday's rate increase is the fifth consecutive 25-basis point hike since May.

Inflation in August was largely driven by higher education costs with the start of the new school year, as well as pricier food ahead of the Ramadhan fasting month.

The Central Bureau of Statistics (BPS) said education costs rose 1.36% on year, healthcare costs rose 0.56%, and housing and energy prices were up 0.53%. Processed food costs were up 0.59% and raw food prices up 0.94% ahead of Ramadhan.

Telecommunications and transport prices fell 0.61%, as lower world oil prices eased local fuel prices, while clothing costs, which include jewelry prices, also fell 0.53% as gold prices eased.

The central bank delayed its weekly debt auction by a day last week, to synchronize the bank’s monthly meeting on interest rates and the auction of central bank paper (SBI), Reuters reported.

The central bank auctions of SBI are usually held every Wednesday, while the central bank monthly policy meetings are usually held on either a Tuesday or Thursday.

A central bank official, who declined to be quoted by name, said that in the future, when the central bank holds its monthly policy meeting on a Thursday, the SBI auction would also be held on the same day instead of on Wednesday.

He added that the monetary authorities expected the changes in auction schedule would result in SBI rates that better reflect the latest benchmark rate.

Tourism arrivals maintain growthForeign tourist arrivals in Indonesia rose 10.24% in July from a year ago as the country's tourism industry continues to expand, Reuters reported.

Data from the Central Statistics Bureau showed the number of foreign tourists rose 11.43% in the first seven months to 3.47 million, driven by arrivals to Bali.

In July alone, 567,364 foreign tourists visited Indonesia compared to 514,600 a year ago, and 529,064 in June.

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Retail bond results below targetThe government’s fifth retail bonds offering -- series OR1005 -- failed to reach its sales target on Monday with analysts stating that the lack of interest was caused by high competition from other investment instruments, including some bank security deposits, Reuters reported.

The government sold Rp2.71 trillion ($295.7 million) worth of bonds to individual investors, less than the targeted Rp6.23 trillion, the Finance Ministry's director of government bonds Bimantara Widyajala said.

Widyajala said the government set the yield of the five-year notes at 11.45%, slightly lower than some bank deposit interest rates, which hover between 11.75% and 12.5%.

The yield of the government's previously offered FR0049 series bonds -- which were used as the benchmark for the ORI005 series -- was raised to 11.83% from 11.4%.

None of the 18 appointed sellers managed to achieve their sales target, with Bank Mandiri, Bank Central Asia and Danareksa Sekuritas the only sellers to achieve more than 80% of their targets. Bank Danamon and Bank Mega sold less than 10% of their allotments.

INVESTMENT Govt. infrastructure investment in 2009 to reach Rp70.89TThe government has set itself a new infrastructure investment target of Rp70.89 trillion in 2009 to be carried out under a government-private cooperation scheme, an official said, Antara reported.

Dedy Supriadi, deputy to the minister for the National Development Planning Ministry, said the government's investment under the cooperation scheme would increase further to Rp112.24 trillion in 2010 and Rp128.56 trillion in 2011.

He said infrastructure to be built under the scheme included power plants, clean water facilities, toll roads, seaports, airports, trains and residential complexes.

"Many project proposals have been submitted and we will see the criteria of their readiness to be included in the cooperation’s bluebook. Then, we will offer the projects to be financed by the government in cooperation with private companies," he said.

The Kualanamu airport toll road in North Sumatra linking Medan with a new airport and the Depok-Antasari toll road in southern Jakarta were among the projected toll roads.

Under the scheme, about Rp19.16 trillion will be allocated for the construction of toll roads, Rp14.95 trillion for power plants, and Rp14.90 trillion for residential complexes.

Pupuk Kaltim to build new $740M urea plantState-owned fertilizer company PT Pupuk Kaltim (PKT) plans to build a new urea fertilizer plant at a cost of $740 million, Asia Pulse reported.

The construction of its fifth urea fertilizer plant would start in mid-2009 and be completed in 2011, Bisnis Indonesia said.

The new facility would increase production capacity to 3.5 million tons from 2.2 million tons at present, its president Hidayat Nyakman told the paper.

Hidayat said the company would put up to $190 million of the total cost and that bank loans and bond funds would cover the rest.

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Chinese firms sign $600M in contracts Indonesian and Chinese business leaders on Thursday signed 20 trade and investment cooperation contracts covering 30 projects worth $597 million, Asia Pulse reported.

The contracts include electronic products trade, cooperation in exploration of minerals including coal, development of the electricity sector and hotel construction.

The Chinese business leaders were part of a 200-member delegation led by secretary of the Guangdong Communist Party, Wang Yang.

Trade Minister Mari Elka Pangestu said she hopes the Chinese will also invest in textiles, garments and furniture industries in the country.

The delegation was received by President Susilo Bambang Yudhoyono, who said Indonesia and Guandong province would work together to boost trade.

Presidential spokesman Dino Patti Djalal said the Chinese province is a potential market for Indonesian products.

"The president … stated that the target of trade between Indonesia and China could reach $30 billion in 2010. Up to July 2008, the trade value between the two countries has reached $19 billion," Djalal said.

"Meanwhile, Mr. Wan Yang has expressed his commitment to increasing import of electronic products from Indonesia," he added.

Sugar Group to invest $700M in Jambi PT Multi Subur Sejahtera, a subsidiary of the Sugar Group, will invest Rp6.54 trillion ($700 million) in a sugar factory and plantation in Jambi, Asia Pulse reported on Friday.

The sugar factory will cost around Rp3.6 trillion and will be built in the regency of Muarajambi in cooperation with the provincial administration, Asnovidal, head of the Jambi district agriculture office said, according to Investor Daily.

PT Multi Subur Sejahtera has been licensed to open 50 hectares of sugar plantation in the sub-district of Sungai Gelam.

Sugar Group president Gunawan Yusuf said the sugar plantation will be expanded to 100,000 hectares in 2009.

Jababeka in container terminal venture PT Kawasan Industri Jababeka, the operator of the Jababeka industrial estate in Cibitung, hopes to establish a joint venture company with a Japanese partner to build a container terminal in the industrial estate this year, Asia Pulse reported on Friday.

Corporate secretary Mulyadi Suganda told the newspaper Investor Daily feasibility study is being finalized.

Suganda said Jababeka has signed a memorandum of understanding with the unnamed Japanese partner.

He said the company will also cooperate with state-owned railway company PT Kereta Api in the procurement of carriages.

The company has provided 6 hectares of land for railway track to be built to link the industrial estates with Jakarta's port of Tanjung Priok.

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Investors seek loans for copper smelterThree foreign investors are studying a possible loan of $595 million to finance the construction of a copper smelter planned by Nusantara Smelting Corp. (NSC) in Bontang, East Kalimantan, Asia Pulse reported.

Ayer Logistic from the United States, Deutsche Bank and United Bank of Switzerland are negotiating a loan proposal with NSC needed to build the smelter, NSC director Juangga Mangasi said.

The three investors are expected to provide 70% of the fund needed for the $850 million project, announced last week, Mangasi told the newspaper Investor Daily.

He said Ayer has agreed to provide a 13-year loan with a flat interest rate of 5%.

Ayer is willing to provide the entire fund of $850 million and working capital of $190 million if it is given a 30% share in the project, he said.

Construction of the project is expected to start in the first half of 2009 and will be operational in 2011.

Mangasi said his company has held talks with Freeport McMoran and Newmont Mining Corp, US companies with major copper mines in Indonesia.

STATE CONCERNS Business-friendly tax bill endorsed The House of Representatives enacted on Wednesday a much-awaited amendment to the income tax law aimed at spurring economic activities by providing lower rates and more incentives to businesses, The Jakarta Post reported.

Income tax for corporations will be set at 28% flat next year, replacing the current progressive system, and will be further reduced to 25% at the start of 2010.

The new arrangement will not only benefit firms with high earnings, but also micro, small and medium businesses (MSME), which will have their income tax slashed by 50% from those of corporations. Companies that earn less than Rp50 billion a year are included in the MSME category.

"We pledge the tax amendment will be very supportive and friendly to all levels of business, but at the same time very stiff on any violations," said Dradjad Wibowo, a member of the House's Commission XI, which oversees financial affairs.

The new law will take effect next year, with the government estimating it will suffer some Rp40 trillion ($4.34 billion) in potential losses from tax revenue during the first year of implementation.

It provides incentives to encourage companies to go public. Companies that list at least 40% of their shares on the Indonesia Stock Exchange will see their tax rate cut by 5% compared to those of ordinary corporations.

Tax from the receipt of dividend payments will also be cut, on a progressive basis, to 10% from the current 35%.

The incentives are aimed at boosting investment in the country and encouraging companies to pay out dividends.

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For individuals, the law raises the taxable income threshold to Rp15.84 million per year from Rp13.2 million per year, with the highest rate set at 30%, down from the current 35%.

Income tax rates for individuals will be divided into four categories: those earning up to Rp50 million per year will pay 5% tax, those earning between Rp50 million and Rp250 million will pay 15%, those earning between Rp250 million and Rp500 million will pay 25% and those earning more than Rp500 million will pay 30%.

The Directorate General of Taxation will also eliminate the overseas exit tax of Rp1 million effective next year for registered taxpayers. The tax will be fully eliminated in 2011.

Steel imports soar on robust demandSteel imports reached a record high during the first seven months of the year due to limited production capacity and soaring demand driven by government-sponsored infrastructure projects, The Jakarta Post reported.

Imports of iron and steel were higher in the period than in the whole of last year, leading analysts to predict total imports this year will double last year's level.

According to the Central Statistics Agency (BPS), imports of iron and steel and their products in the seven-month period reached almost $7 billion, or equivalent to 7.5 million tons, up by 127% from $3.08 billion, or 3.5 million tons, in the same period last year.

The figure for this year's period is about 1.5 million tons more than the six million tons received in the whole of 2007.

The Industry Ministry's Director General for Metal, Textile and Miscellaneous Industries, Ansari Bukhari, said the jump in imports might have been prompted by numerous government-initiated infrastructure programs.

He cited the on-going construction of 1,000 subsidized apartment tower blocks. "These programs require a huge volume of steel," Bukhari said.

Automotive, shipyard and electronics sectors may also have contributed to higher demand, he said, adding that demand was likely to remain strong in the next few years.

Local steel producers only have the capacity to produce between four million and 4.5 million tons annually compared to an estimated demand of 12 million tons this year.

Indonesia, Chile to set up joint economic commissionThe governments of Indonesia and Chile have agreed to set up a joint technical economic commission as a forum for increasing their bilateral ties and exploring new cooperation opportunities, Asia Pulse reported.

The Foreign Ministry said in a statement that the agreement was contained in a memorandum of understanding (MoU) signed in Santiago, Chile, this week by Director General for American and European Affairs of the Ministry of Foreign Affairs, Retno LP Marsudi, and the Director General for Foreign Affairs of Chile, Juan Pablo Lira, in Santiago.

The establishment of the joint economic commission is one of the results of a bilateral consultation by delegations of the two countries held in Santiago on September 1-2, 2008.

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So far, the two nations have established good cooperation in the fields of economy, education, fisheries and maritime issues. Both sides are committed to increasing cooperation in the trade, air communications and energy fields.

As part of the efforts to boost Indonesia's exports to Chile, Indonesia was also to organize a solo trade exhibition in Mall Plaza Oeste, Santiago, on September 3-7, with about 25 Indonesian businesses taking part.

PRIVATE SECTOR Bakrie Brothers reports rise in net profit Widely diversified corporation PT Bakrie & Brothers reported a 600% increase in net profit to Rp590 billion ($65.5 million) in the first half of this year from Rp85.8 billion in the same period last year, Asia Pulse reported.

All subsidiaries posted profit contributing to the surge in the net profit of the parent company, company president Nalinkant Rathod said in a statement.

The income of the company, which has units operating in various sectors including coal mining, property, energy, plantations and financial sectors, rose by 95% to Rp3.9 trillion from Rp2 trillion.

Operating profit rose by 120% to Rp610 billion, Investor Daily said.

The statement said coal mining subsidiary PT Bumi Resources was the largest contributor to income.

Sales of publicly-traded plantation company PT Bakrie Sumatera Plantations shot up by 142% to Rp1.56 trillion ($170 million) in the first half, from Rp657.4 billion in the same period last year.

The surge in sales was attributable mainly to business in crude palm oil (CPO) and rubber, the company said in a financial report.

Earnings rose by 184% to Rp1.2 trillion from the sales of CPO and 66% to Rp234.3 billion from the sales of rubber.

Meanwhile real estate unit PT Bakrieland Development has agreed to cooperate with Suntech Power in creating environment-friendly buildings using solar energy systems in all its projects.

Cement consumption up, sales target raised Cement consumption has continued to rise during the year, prompting producers to revise their sales growth target to 15% from 6%, Asia Pulse reported.

Domestic consumption rose 19.4% to 22.31 million tons in the first seven months of this year from 18.68 million tons in the same period last year, the Association of Cement Producers (ASI) said.

Growth was expected to slow in the last quarter of this year because of the long Muslim and Christian holidays, Bisnis Indonesia said, quoting ASI.

ASI chairman Urip Timuryono said consumption this year is forecast to grow to 36 million tons from 32.06 million tons last year.

August vehicle sales likely up 40%Vehicle sales are estimated to have grown 39.9% year-on-year in August, slower than the increase a month earlier due to power disruptions, a senior industry executive said, Reuters reported.

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Jodjana Jody, head of sales at PT Toyota Astra Motor, said Toyota sold 18,770 vehicles last month, up 39.1% from 13,492 units in the year-ago period, while he predicted total sales from all manufacturers reached around 58,000 last month.

The strong sales growth came despite the government decision to raise subsidized fuel prices in May to help reduce the ballooning fuel subsidy bill in the state budget.

Last month a senior Toyota Astra official said annual vehicle sales are expected to touch a historic high of between 575,000-600,000 units despite the fuel price hike.

Sales of motorcycles rose 4.13% to 608,359 units in August compared to the previous month. The sales figure was up 43% on the same month a year earlier, the Association of Motorcycle Industries (AISI) said.

Tri Polyta reports 80% rise in net profit Petrochemical company PT Tri Polyta chalked up a 80% increase in net profit to Rp127.64 billion ($14 million) in the first half of this year from Rp70.88 billion in the same period last year, Asia Pulse reported.

The company, which produces polypropylene, posted Rp2.64 trillion in net sales or an increase of 45% from Rp1.82 trillion, said corporate secretary Suryadi, who said part of the increase came from price hikes.

The company sold 170,302 tons of polypropylene in the first six months of this year, up from 145,522 tons in the same period last year. The company projects sales of 340,000 tons this year, Bisnis Indonesia said.

PT Metropolitan Land to IPO in NovemberProperty company PT Metropolitan Land said it will launch an initial public offering in the last quarter of 2008 hoping to raise Rp616 billion ($67 million) in fresh funds, Asia Pulse reported.

The company plans a listing in November, corporate public relations manager Wahyu Sulistio said, adding PT Danareksa Sekuritas has been named underwriter.

Sulistio said that the company will use the IPO funds to finance construction of new shopping mall, hotel and housing projects.

The company plans to build a new shopping mall called Mal Metropolitan II in Cileungsi, a hotel in East Jakarta and a housing project called Puri Metropolitan in Jakarta.

Trada Maritime launches $54M IPOShipping company PT Trada Maritime launched an initial public offering (IPO) hoping to raise Rp500 billion ($54.5 million) in proceeds, The Jakarta Post reported.

The company said in a statement it has named PT HD Capital and PT Danatama Makmur as the underwriters for the sale of 45.81% of its shares.

Proceeds from the IPO will be used to finance the purchase of three dry bulk vessels for coal transport with capacities of 75,000 to 86,000 tons, the statement said.

The vessels will cost a total of $160 million, and the company will therefore require bank loans.

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BANKSLoan growth at 20-25% in 2009: BI headLoan growth is likely to reach 20-25% in 2009, central bank governor Boediono told parliament, Reuters reported.

He also said annual inflation is likely to fall to 6.5-7.5% starting mid-2009 and may fall below 6.5% by the end of next year.

POWERSumitomo to invest $1.5 billion at Tanjung Jati B Japan’s Sumitomo Corporation may spend up to $1.5 billion to build two additional generators at Tanjung Jati B coal-fired power plant in Jepara, Central Java, The Jakarta Post reported.

The Director General for Electricity and Energy at the Mines and Energy Ministry, J. Purwono, said Friday that Sumitomo would build two generator units with a combined capacity of 1320 MW to double output at the plant.

"Construction is to start in early 2009. Three years later the new units will go on-line," he said after a meeting with Sumitomo representatives, who were unavailable for comment.

Purwono said Sumitomo had received approval from the State Ministry for State Enterprises to employ the services of an independent power producer (IPP) and that it was awaiting final approval from the mines and energy minister.

Sumitomo would seek financial support for the project, mostly from the Japan Bank for International Cooperation (JBIC), he added.

"The total investment will be between $1.2 billion and $1.5 billion. The largest investment will come from JBIC. Sumitomo is still finalizing the financial scheme for this project. Local banks are invited to join if they are interested."

Purnomo said Sumitomo had promised to finalize its proposal by the end of the year and a purchase agreement between PT Central Java Power, a subsidiary of Sumitomo, and state power firm PT PLN, as the sole power distributor, will be signed in the coming week.

Under the agreement, PLN will buy electricity from the power plant for 23 years at a price of $0.4.3 per kilowatt per hour (kWh).

PLN vice president Rudiantara confirmed that the company was discussing terms and conditions with Sumitomo.

Adhi Karya eyes $800M in power projectsState-owned construction company Adhi Karya is keen to develop four steam power plants projects worth $800 million, according to Bisnis Indonesia.

Finance director Indradjaja Manopol was quoted as saying that the funds to finance the projects would be from a rights issue to be launched by the company.

"Now, we are conducting negotiations to get the projects," he said, adding that three of the projects are located in Java.

Manopol said he expected that the negotiations would be completed before the year end.

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State-Owned Enterprises Minister Sofyan Djalil said that the government was ready to purchase the shares released by Adhi Karya in order to maintain its majority ownership of the company.

Jasa Sarana to invest $229M in power plantsConstruction firm PT Jasa Sarana, which is 70% owned by the West Java administration, plans to build two geothermal power plants in the province, each with a capacity of 40 MW, Asia Pulse reported.

The two projects - in Cisolok-Sukarame in Sukabumi regency and Gunung Tampomas in Sumedang - will cost an estimated Rp2.1 trillion ($228.9 million), Jasa Sarana president Soko Sandi said.

A consortium of banks is expected to finance the construction of the two power plants with the company to invest up to Rp150 billion, Sandi told the newspaper Investor Daily.

He also said Jasa Sarana will team up with state-owned engineering company PT Rekayasa Industry to build the plant in Cisolok-Sukarame with a share split ratio of 55:45.

Its partner in the Gunung Tampomas project is state-owned construction company PT Wijaya Karya with a share split ratio of 40:60.

This news clarified the Jakarta Post report last week which quoted source from the Department of Energy and Mineral Resources. Director of geothermal utilization at the ministry Sugiharto Harsoprayitno was quoted by the Jakarta Post as saying Cisolok-Sukarame bidding winner is PT Indonesia Power.

Meanwhile, official announcement of the result of the bidding process from the Provincial Government’s office is not yet available up to now.

OIL & GAS Inpex to build $14B LNG plant: ReportThe government and Inpex Masela Ltd have agreed to develop gas from the Masela block in eastern Indonesia and build a floating liquefied natural gas (LNG) plant with a total investment of $14 billion, according to a report in Bisnis Indonesia quoted by Asia Pulse.

The plan of development (PoD) is to be signed in November and the project is expected to be operational early 2015 with annual LNG production capacity of 4.5 million tons, an official said.

Head of the Upstream Oil and Gas Regulatory Agency (BP Migas) R. Priyono said Inpex has agreed to change its previous PoD. Originally Inpex proposed to build the LNG plant in Darwin, Australia, but the proposal was rejected by the Australian government.

Inpex has no other visible choice but to build a floating plant off the island of Arafura, Bisnis Indonesia quoted Priyono as saying.

Chevron wins rights to develop 5 gas fields US-based oil and gas company Chevron Corp. will develop five gas blocks in deep sea areas of the Makassar Strait in eastern Indonesia at a cost of $6.97 billion, Bisnis Indonesia reported.

Evita Herawati, a senior official from the energy ministry, was quoted by the business daily as saying that the US company could begin exploration and exploitation after the signature of the agreement by the mines and energy minister on August 29.

The five blocks are Gendala, Sapi, Gehem, Ranggas and Gandang, with a total reserve of 800 million cubic feet.

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Drilling activities are expected to start next year with production of gas in 2016. However, it is not clear yet where the gas will be marketed, said the report.

President: LNG cooperation with China to continuePresident Susilo Bambang Yudhoyono said Indonesia still wanted to continue cooperation in LNG sale to Fujian, but because of a change in the situation, the country also wanted a price adjustment, Asia Pulse reported.

He made the comment in a meeting on Friday with a delegation from the Chinese province of Guandong, headed by the secretary of the province, Wan Yan.

Yudhoyono said Vice President M Jusuf Kalla had met with the Chinese Vice President to discuss the matter.

The Chinese delegation visited Indonesia to attend a conference on China and Indonesia Trade held last week. Joint venture deals valued at nearly $600 million were signed during the visit.

Vice President Jusuf Kalla, who late last month visited Beijing to convey Indonesia's intention to renegotiate the price, said Indonesia stands to lose over the contract period of 25 years if LNG is sold at the contracted price, because the deal was negotiated when oil prices were around $25 a barrel.

The government has appointed Coordinating Minister for the Economy Sri Mulyani Indrawati to head a team to renegotiate the LNG contract with China.

Under the current deal, which was signed during former President Megawati Sukarnoputri's administration, Indonesia will sell 2.6 million metric tons a year of LNG to China's Fujian LNG receiving terminal for 25 years from 2009.

Meanwhile the government and Tokyo Gas are in talks to supply 500,000 tons of LNG to the Japanese firm from Tangguh, an official at oil and gas watchdog BP Migas said, Reuters reported.

"We want the price of LNG that we negotiate with Tokyo Gas to be at least the same as the deal we have with South Korean firm KOGAS," Djoko Harsono, deputy chief of BP Migas, said.

"We hope the deal with Tokyo Gas can be reached as soon as possible."

In July, Indonesia reached an initial agreement to supply LNG to Korea Gas Corp (KOGAS) .

The LNG for Tokyo Gas and KOGAS will come from the Tangguh project as part of supplies diverted from US firm Sempra Energy.

Sempra has a 20-year contract to lift 3.6 million tpy of LNG from the 7.6 million-tpy Tangguh project, led by BP. It has the right to divert half its volumes to customers other than its own new terminal in Mexico.

Pertamina expects public company status by year endState oil and gas firm Pertamina expects the government regulation serving as a legal basis to turn it into a public company will be completed in December, Antara reported.

The change in Pertamina's status into a public company was aimed at making it more transparent so that it would become a reliable and world-class oil company, said corporate secretary Sudirman Said.

The government as a shareholder was studying three options to turn Pertamina into a public company, he said.

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The three options were an initial public offering (IPO), limited sales and as a non-listed company, he said. "It is likely that Pertamina will become a non-listed company because fluctuations in the capital market will have no impact on it," he said.

Both the Office of the State Enterprises Minister and the Finance Ministry were preparing the regulation serving as a legal basis for the change in the company's status, he said.

Pertamina booked a profit of Rp24 trillion last year. It is predicted to reach revenue of Rp500 trillion ($54.4 billion) this year, up from Rp390 trillion last year. In the first half of this year, the company had already posted Rp260 trillion in income, the corporate secretary told Investor Daily.

Profits were estimated to reach Rp30 trillion this year, he said. It was expected to be able to pay larger dividends to the government from Rp11 trillion last year or 50% of the total dividend of Rp22 trillion paid by all state companies, he said.

Elnusa eyes Tradewinds oil block Publicly-listed upstream oil and gas services company, PT Elnusa, plans to purchase two companies owned by US-based Tradewinds Oil and Gas International Ltd. in a bid to control an oil block, The Jakarta Post reported.

In a statement to the Indonesia Stock Exchange, Elnusa said its subsidiary PT Elnusa Patra Ritel would buy out PT Radiant Ramok Senabing and Gulfstream Resources Ramok Senabing Ltd., which operate the Ramok Senabing TAC Block in Prabumulih, South Sumatra.

With the acquisition, Elnusa will control 100% of the block's working interest and will become block operator.

Elnusa vice president and corporate secretary Heru Samodra said the company would significantly increase production to ensure sustainability.

"Thus far, our company is only involved in providing upstream services based on contractual business. With this acquisition, our company can receive a continuous income."

"We have yet to disclose the amount of the transaction. However, we will try to secure the funds from our internal cash flow. We will seek financing from banks if we lack the funds," Samodra said.

The acquisition is scheduled to be completed next month.

Elnusa recorded a net profit of Rp85.37 billion ($9.2 million) in the first half of the year from a consolidated revenue of Rp1.7 trillion.

This year, the company is targeting to post Rp199.8 billion in profit, compared to Rp110.3 billion last year, on revenue of Rp2.19 trillion, up from Rp2.11 trillion last year.

The company is 41.1% owned by state oil and gas company PT Pertamina.

MININGAstra Group to acquire more coal mines Widely diversified PT Astra International said it hopes to acquire five coal mines each with a reserve of 100 million tons in the next five years, Asia Pulse reported.

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The acquisition will be made by its heavy equipment subsidiary PT United Tractors (UT), said Arief Istanto, senior vice president of Astra International, best known as the country's largest automotive company.

The acquisition will be financed with fund raised by UT from funds it is expected to raise from a planned rights issue, he said.

UT hopes to raise Rp3.5 trillion ($388 million) from the rights issue expected to be launched this year with Astra International as the standby buyer.

Indian firms close to deal for coal mineIndia's engineering major L&T Ltd and Karnataka Power Corporation Ltd (KPCL) are on the verge of entering into a joint venture agreement for acquiring a coal mine in Indonesia, according to Indian newspaper The Hindu, while a second Indian company said it was keen to acquire an Indonesian coal mine.

KPCL is India's Karnataka state government-owned public sector power producer, with both thermal and hydro assets. KPCL's managing director, S.M. Jaamdar, confirmed the development.

He said, "We are still exploring the possibility and hope to arrive at an arrangement soon."

The financial modalities for the joint venture were still under discussion, he said. But indications are that it was likely to be on a 50:50 basis and would be leveraging on each other's core competencies.

KPCL is among the largest integrated power producers in India.

Meanwhile civil engineering and construction firm Patel Engineering Ltd is close to acquiring a mid-sized coal mine in Indonesia for 1 billion rupees, a newspaper report said on Friday, according to Reuters.

The mine will be used for Patel Engineering's proposed 1,200-MW power plant in Gujarat, the Economic Times report said.

"We have identified a few coal mines in Indonesia as buyout targets. Out of it, we will be acquiring one very soon," the paper quoted managing director Rupen Patel as saying.

The target mine in Indonesia has a 100-million-ton coal reserve, the report said.

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