Highlights
Politics
·         Prosecutors poised to prosecute Suhartos over alleged corruption
·         US Assistant Secretary of State to seek assistance on N. Korea, Myanmar
Regions
·         World Health Organization agrees to change flu sample sharing process
·         Government to help finance Jakarta multi-purpose deep tunnel project
Economy
·         Finance Minister points to growth of up to 7% in 2008
·         Vice President Kalla calls for Japanese manufacturing investment
Business Briefs
Macroeconomy
·         Benchmark rates may fall to 7.5% next year: central bank
·         Foreign exchange reserve hit an all-time high of $50.3 billion
Investment
·         Australia's BlueScope Steel to expand operations in Indonesia
·         Thailand's Charoen Pokphand Group to boost palm oil presence
State Concerns
·         Campaign starts against software piracy
·         Talks with US on bilateral trade, Doha Round
SOEs
·         Companies expect $10 billion in pre-tax profits this year
·         PT Telkom’s profits rise 38% in 2006
Private sector
·         Indosat first quarter net profit up 26%
·         Industry sector grows 5.83% in first quarter
Banks
·         TPG Capital to buy majority stake in pension bank
Power
·         Energi Mega Persada starts gas production for power generation
·         China's Dongfang Electric Corp, Shanghai Electric Corp to build three coal-fired plants
Oil & Gas
·         Pertamina plans 170 new oil exploration wells
·         Aabar Strikes Oil in Sumatra
Mining
·         Preliminary deal on $1.3-billion coal liquefaction plant
·         Indonesian coal contract market opened
 

POLITICS
Prosecutors Target the Suhartos
Government prosecutors are set to launch legal action to recover hundreds of millions stolen by former president Suharto's family after a British Guernsey Islands court froze a bank account of Hutomo Mandala “Tommy” Putra, the ex-president's 44-year-old son.

The court has agreed to freeze $48.3 million of Tommy’s funds in a Guernsey bank account, giving Indonesia three months to start a case against him in Jakarta and limited access to documents detailing the source of the funds, Melbourne’s The Age newspaper reported.

In its decision handed down on Thursday (24/5/07), the Guernsey court also ruled that Tommy's company, Garnet Investment Limited, must disclose the origin of money sitting in a Banque Nationale de Paris Paribas account.

Tommy will now face civil action for the recovery of that cash as well as a criminal prosecution over his alleged corrupt management of a national clove concession.

On Wednesday, Attorney General Hendarman Supandji announced plans to sue former president Suharto to recover millions of dollars from tax-free foundations which were taken from the coffers of state-owned businesses and from Chinese tycoons, ostensibly for charity purposes.

"The president has issued a special decree ordering prosecutors to file the civil lawsuit," Supandji said, adding that a team of investigators was still collecting evidence to support the case.

A civil suit was filed because criminal charges against Suharto of embezzling money from the foundations were thrown out of court in 2000 after doctors deemed him medically unfit to stand.

The Tommy Suharto investigation centers on a monopoly handed to him by his father in 1992, which gave him control over the lucrative trade in cloves used in cigarettes.

Salman Maryadi, a spokesman for the Attorney General's Office, said the monopoly fixed the purchase price of cloves at artificially low levels and hadn't yet repaid a loan it received from the central bank.

New inquiries are being conducted into the Rp94 billion fraud case at the State Logistics Agency (Bulog) in which Tommy’s conviction was overturned on appeal.
He is also being investigated over the controversial Timor national car project on which he failed to pay Rp3.2 trillion in taxes, and several other business scandals.

Extradition Talks with China
Indonesia and China are set to start talks on an extradition treaty between the two nations, chief Indonesian negotiator Arief Oegroseno said on Tuesday (22/5/07), Agence France-Presse reported.

"Indonesia and China will begin exchanging information on both countries' regulations ... and will start initial discussions at the end of June," he told reporters. "Only after this process can we start coining the substance (of the treaty).”

Indonesian business executives and officials are suspected of corruptly transferring millions of dollars from Indonesia to mainland China in recent years.

Indonesia last month signed an extradition treaty with Singapore, where executives have also allegedly hidden millions in state funds.

Oegroseno, the Foreign Ministry’s director of international and security treaties, said he thought the China treaty would be similar to the one with Singapore.

"Maybe there will be one different aspect in the treaty with China which is the option to extradite or prosecute (in China)," said pointed out. "We have to discuss with them the details of the prosecution option.”

He added that preparations were underway for similar talks on extradition treaties with the United States and Canada.

Senior US Official to Visit Jakarta
US Assistant Secretary of State Christopher Hill will meet with Indonesian Foreign Minister Hassan Wirayuda this week to discuss ways to enhance bilateral relations, bring an end to the North Korean nuclear row and push Myanmar toward democratization.

The Foreign Ministry’s director for North and Central America, Harry Purwanto, said on Wednesday (23/5/07) that Hill, who will be in Indonesia for one day on Tuesday, will also meet several other Indonesian officials and figures.

"The visit is part of his tour to several Southeast Asian countries and is aimed at enhancing bilateral relations and tackling regional issues," Purwanto told The Jakarta Post.

Hill, the chief US negotiator in talks on North Korean nuclear disarmament, passed through Vietnam and Thailand last week on his way to attend a Southeast Asian security forum in the Philippines.

Foreign Ministry secretary general Imron Cotan said Indonesia was prepared to discuss any regional issues with the US, but particularly those concerning North Korea and Myanmar.

"Regional issues like Myanmar and North Korea are likely to be discussed at the meeting and we are ready to float our ideas on these issues," he said.

On Myanmar, Indonesia and the US share a relatively similar stance, with both countries wanting to see a speedy democratization process take place in the military-ruled country and the unconditional release of Myanmar's democracy icon Aung San Suu Kyi from house arrest.

New Ambassador Outlines Goals
US Ambassador-designate to Indonesia Cameron Hume promised the US Senate on Tuesday (22/5/07) that he would work to win Indonesia's support for key US foreign policy goals involving Iran, the rest the Middle East and Myanmar.

Speaking before the Senate Committee on Foreign Relations, Hume said relations between the US and Indonesia are of vital importance.

"If confirmed, I will work to enhance Indonesia's support for our key foreign policy priorities, including ensuring Iran does not develop nuclear weapons, advancing the Middle East peace process and promoting a democratic transition in Burma (Myanmar)," he said in his speech, a copy of which was made available to The Jakarta Post.

Citing Indonesia's more assertive role on the world stage, he said its commitment of troops to UN forces in Lebanon and the recent vote for UN Security Council Resolution 1747 to impose  sanctions on Iran were examples of how important Jakarta has become to the US.

Hume said the US should continue to channel funds into Indonesian education, as well as assist in economic and justice sector reform to enable the country to attract more investment, provide more jobs and build institutions and respect for rule of law that "will provide Indonesia's democracy with a rock-solid foundation.”

Hume, a career diplomat, has undertaken four separate assignments as a member of
the US delegation to the United Nations and has also served as a political counsellor at the US embassies in Damascus and Beirut.

He was the ambassador to Algeria from 1997 to 2000 and ambassador to South Africa between 2001 and 2004. He was the State Department’s deputy inspector general in 2004-2005, before becoming charge d'affaires in Khartoum, Sudan.

REGIONS
WHO to Revamp Flu Virus Sharing System
The World Health Organization on Tuesday (22/5/07) agreed to demands from Indonesia and other developing countries to revamp its 50-year-old system for sharing influenza virus samples which are used to develop commercial vaccines, Reuters reported.
It agreed to set up a working group to revise the "terms of reference" for WHO laboratories which analyze samples -- including deadly H5N1 bird flu -- and draw up rules for sharing them with third parties such as researchers and drug companies.
Sharing samples is deemed vital to see if viruses have mutated, become drug resistant or grown more transmissible.
The WHO, a UN agency, will also work to ensure "fair and equitable distribution" of pandemic influenza vaccines at affordable prices, according to the agreed resolution. "We are here to listen to our member states' wishes. They've set up a mechanism now to develop the best ways we can work now on virus sharing and sharing in the benefits," David Heymann, WHO's top bird flu official, told Reuters.
In the meantime, countries are expected to continue "timely sharing" of virus samples with the WHO's labs to help track the virus and assess the risk of an influenza pandemic.
The consensus text, approved by a committee of the annual World Health Assembly, came after arduous negotiations. It is expected to be formally adopted by all 193 member states at the end of the 10-day session on Wednesday.
Viroj Tangcharoensathien of Thailand, who chaired the negotiations, said there had been "technical and political complexities" but a "spirit of compromise" had prevailed. "Trust has now gradually been regained in the work of the WHO's Global Influenza Surveillance Network, which is the backbone of influenza containment," he told the Geneva talks. "It is now 50 years old and needs to grow up further and bear fruits for all member states."
Developing countries led by Indonesian Health Minister Siti Fadillah Supari earlier demanded a fair share of commercial vaccines derived from H5N1 samples they provide. "We seek the way how the current mechanism could be improved so as to ensure fair and equitable sharing of benefits, especially to developing countries, as well to achieve our common ultimate goal -- global health security," Widjaja Lukito, an adviser to Supari, told the talks on Tuesday.
Indonesia and other developing countries stood "ready to participate constructively", he said.
The bird flu virus has killed more than 185 people, mainly in Southeast Asia, since it re-emerged in 2003. Although it remains mainly an animal disease, scientists fear that if it mutates into a disease easily spread amongst people, it could kill millions.
Supari last week announced that Indonesia had resumed sharing samples with WHO after a five-month hiatus.

Govt. May Finance Jakarta Tunnel Project
The central government has agreed to help finance the multi-purpose deep tunnel project (MPDT), pending a feasibility study, a state official said.
"The project is a good idea because it will overcome many problems in the city such as traffic congestion, water shortages, and poor sanitation," Public Works Minister Djoko Kirmanto told a press conference Thursday (24/5/07) after opening a seminar on the project.
He said the central government would not mind helping finance the project but it would first look at the result of a feasibility planned by the city administration this year. He suggested the feasibility study be paid for by the city administration. "We will see whether the project is financially and technically feasible," The Jakarta Post quoted him as saying.
The head of the Jakarta Water Regulatory Body, Achmad Lanti, said the body would need around $2 million to conduct a feasibility study and to make the grand design for the project. "It will take two years to finish the feasibility study and the design and if the project is not feasible, we will not make it happen," he said.
The 22-km tunnel will be constructed 15 meters below the West Flood Canal project with entrances in Balekambang, East Jakarta, and Manggarai, South Jakarta, and exits in Tanah Abang and Roxy in Central Jakarta and at the airport in Cengkareng, Tangerang. There will be two levels of roadway and waste water reservoirs in the tunnel with diameters of 12 meters. Above the roadways, the tunnel will be used as a utility duct.
It is estimated that the tunnel will generate around Rp2.2 trillion each year from the operation of the roadway as well as waste water treatment.

Govt. Urged to Speed Tsunami Warning System
The West Java provincial administration urged the central government through its National Search and Rescue Agency (Basarnas) Monday (21/5/07) to speed up the installation of an early warning system for tidal waves and tsunami along the southern coast of the province.
West Java Deputy Governor Nu'man Abdul Hakim said requests had been made after a tsunami hit West Java's coast last year, but the government gave priority to the installation of an early warning system in Sumatra.
"Based on last week's tidal waves, we're convinced that Basarnas has to speed up the installation of the early warning system facilities," The Jakarta Post quoted him as saying.
Nu'man, who is also head of West Java's disaster prevention coordination unit, explained the tidal waves destroyed more than 300 houses and dozens of fishing boats in Sukabumi, Cianjur and Garut between May 17 and 18, 2007.
As many as 864 people were displaced in Sukabumi and another 736 in Garut after their houses were flattened to the ground by waves of up to three and four meters high, he said, adding that no data of displaced victims was available for Cianjur.

ECONOMY
6.6%-7% Growth Target for 2008: Finance Minister
Finance Minister Sri Mulyani Indrawati said Tuesday (22/5/07) the economy would require a total of Rp1,296 trillion ($147 billion) in investment to meet the GDP growth target of 6.6% to 7% in 2008, The Jakarta Post reported.
She said the government was looking to commercial banks to contribute Rp210 trillion of the amount.
With the enactment of the new Investment Law, Indrawati said, 70% of 2006's approved domestic and foreign investments, worth about Rp314 trillion, should be realized next year.
State enterprises are expected to be able to spend Rp151 trillion on capital investment in 2008, she added.
In Tokyo, Vice President Jusuf Kalla was talking up the prospects of the Indonesian economy, telling industry leaders that the new investment law now guaranteed equal treatment with national firms.
He called for increased investment in the manufacturing industry to create more jobs and speed up economic growth, Antara reported.

"We hope Japan understands our aspirations and increases its investment in the manufacturing industry," Jusuf Kalla said after meeting Japanese businessmen on Wednesday.

"What we need (in economic cooperation) from Japan is mutual understanding. Okay, we could fulfill Japanese aspirations, but our aspirations include our wish that Japan would increase its investment in the manufacturing industry in Indonesia," he said.

Kalla laid down a tough message on the likelihood of Indonesia being prepared to supply natural gas, saying Indonesia wanted to be a beneficiary of its energy resources.
"Energy such as gas and coal has become Indonesia’s economic strength. So, we should not sell our energy cheaply," he said.

The head of the Japan External Trade Organization (JETRO) Yasuo Hayasi said he welcomed the Indonesian government’s implementation of a new investment law.

Hayasi said the new law will provide protection for Japanese investors in Indonesia, and would encourage them to boost their investment.
The Japan Bank for International Cooperation (JBIC) meanwhile offered loans to finance the construction of a number of strategic projects in Indonesia.

JBIC Governor Kyosuke Shinozawa said the bank has prepared a term loan scheme for strategic projects in Indonesia with low interest.

The loans will be available for infrastructure, manufacturing and energy sectors, Shinozawa said in Tokyo after a meeting with Kalla, who described the offer as very attractive and a demonstration that Japan still wants to expand cooperation with Indonesia.
The stock markets closed the week lower in line with falls on Wall Street and in regional markets. The Jakarta Stock Exchange’s composite index closed at 2,060.434, a loss of 3.33 points over the week. The rupiah was trading at 8,740/8,750 to the dollar.

BUSINESS BRIEFS

MACROECONOMY
BI Rate Seen at 7.5%-8% by End 2008
The benchmark Bank Indonesia (BI) rate is likely to fall to 7.5% to 8% by the end of next year, BI Governor Burhanuddin Abdullah said on Friday (25/5/07).
"The 7.5% to 8% rate can be achieved if there's no change in administered prices, and if global macroeconomic stability can be maintained," Abdullah was quoted as saying by Reuters.
The benchmark rate is down to 8.75% from a high of 12.75% last year, due to subsiding inflationary pressure and a stronger rupiah.  Analysts expect the bank to cut the rate one more time this year to 8.5%.
However, BI Deputy Governor Hartadi Sarwono said Monday (21/5/07) that it is “possible” for the BI rate to fall to 8% by the end of the year if inflation remains under control.  He said the central bank expects on-year inflation in May and June to continue to ease due to the rupiah's recent appreciation against the dollar, but expects inflation to “slightly pick up in the third or fourth quarter of the year”, Dow Jones Newswires reported.
The rupiah has gained strongly in recent weeks due to a surge in capital inflows, raising expectations of easing inflationary pressure due to lower prices of imported goods and giving room for the monetary authorities to further cut interest rates.
The rupiah was at three-year peaks at 8,640 earlier in the week but fell to 8,840 to the dollar on Friday, as a fall in equity markets dampened investor appetite for risk. 
Abdullah said a rupiah exchange rate of around 9,000 per dollar is "a good number".  "I think the rupiah can stay somewhere in the range of 9,000 per dollar. This is a good number," he said.
Sarwono earlier said the central bank will prevent the rupiah from rising too quickly.  Central bank officials have recently said that they won't tolerate a daily fluctuation of more than 2% in the currency's value.
A foreign exchange trader based in Jakarta said that foreign investors continue to find Indonesia attractive.  "The trend of capital inflows from outside the country will still continue, sentiment for Indonesia remains positive as foreign investors see economic prospects (are) good," the trader was quoted as saying by Reuters.

Forex Reserves Hit Record High
The country’s foreign exchange reserve hit an all time high of $50.3 billion in the first week of May, the central bank said Monday (21/5/07).
The figure, up from $47.2 billion at the end of the first quarter in March, was due to an improving balance of payments, Bank Indonesia (BI) Governor Burhanuddin Abdullah told a parliamentary hearing.
"This is the highest level ever reached by Indonesia," Abdullah was quoted as saying by financial online news portal Detik Finance.
He said Indonesia had a balance of payments surplus for the first quarter of $4.6 billion as non-oil and gas exports hit higher than expected levels.

Democracy Should Work in Favor of Economy - Analyst
The country's democratic, multiparty political system should enable the central bank to implement its monetary policies more independently for the good of the economy as a whole, a seminar was told Tuesday (22/5/07).
The government, meanwhile, could benefit from the current system of direct presidential elections to push forward much-needed economic reforms with a view to boosting investment.
Although the increasingly fractured party system might give the impression that it could circumscribe the independence of Bank Indonesia (BI), the opposite is actually the case, Lin Che Wei, head of finance house Danareksa, was quoted as saying by The Jakarta Post.
The 1999 Central Bank Law guarantees BI's independence.  This independence was tested in 2005, when the central bank showed its mettle by raising its BI rate to contain a spike in inflation resulting from fuel price increases, despite pressure from politicians not to do so to keep growth on track.
"The fractured party system has reduced pressure on BI's monetary policies," he said.

INVESTMENT
Australia's Bluescope to Expand
Australia's biggest steelmaker BlueScope Steel Ltd on Monday (21/5/07) announced it will spend $101 million to expand its operations in Indonesia, Dow Jones Newswires reported.
The Melbourne-based company plans to build a second metallic coating line at its Cilegon operation west of Jakarta.
Construction of the line, expected to be operational by the end of 2009, had previously been postponed as BlueScope focused on other developments already underway in Asia.
"We are delighted to recommence this investment given the continued strength of the Indonesian market and the high regard for BlueScope Steel product," chief executive Kirby Adams said in a statement.
BlueScope said the new line, which produces thin gauge steel used primarily in residential construction, will have a maximum bare metal coating capacity of 170,000 metric tons a year.
The line is expected to boost Cilegon's production by 130,000 tons of metal-coated output and 100,000 tons of painted output a year.

CP to Hike Oil Palm Investment
Thailand's Charoen Pokphand Group is increasing its oil palm plantation investments in Indonesia through its subsidiary PT Central Palma Plantation, as part of its plan to own up to 100,000 hectares of plantations in Indonesia by the end of the year, executive vice president Virachai Ratanabanchuen said Monday (21/5/07).
Thailand's largest agribusiness conglomerate thinks the palm oil business has bright prospects, Ratanabanchuen said, adding that Indonesia was chosen because its government is focusing on the palm oil industry.
Additionally, "investments required to acquire lands in Indonesia are relatively cheap, around 8,000 baht per hectare, while in Malaysia, the investments required can reach 123,000 baht per hectare," he said without indicating Charoen Pokphand's investment size.
"We're ready to acquire some plantations in, for example, Sumatra, like in Aceh," he said, according to Dow Jones Newswires.
Charoen Pokphand, via Central Palma, already owns 60,000 hectares in West Kalimantan.  Central Palma is expected to import at least 8 million tons of high-quality oil palm seeds from Costa Rica to sow the land.

Astra Eyes Expansion in Mining, Infrastructure
PT Astra International, the country’s largest automotive distribution company, is considering expanding its interests in mining and infrastructure, its chief said on Wednesday (23/5/07).
"Our core business will remain in automobiles, but it is possible for us this year to expand to other sectors such as mining and infrastructure or toll roads," Astra president director Michael D Ruslim was quoted as saying by Reuters.
He did not elaborate.  The company, controlled by Singapore's Jardine Cycle & Carriage Ltd, is also in businesses ranging from plantations to banking, financial institutions and heavy equipment. In infrastructure, it has interests in water, as well as a coal contractor company.
Ruslim also predicted a rebound in the automotive sector this year, following a substantial slowdown in 2006 on high inflation and interest rates.  "This year, we are hoping a 25% increase in (new) vehicle sales to 370,000 units, but with continuous improvement in economic conditions, sales can top 400,000 units," he said.

STATE CONCERNS
Campaign Against Software Piracy Launched
The Business Software Alliance (BSA), a non-profit anti-piracy organization funded by the software industry, has launched a nationwide campaign against software piracy by conducting a raid in collaboration with the police.
Police recently raided two Singaporean companies operating on Batam Island with the help of the BSA, whose members include the world's largest software makers.
BSA director for the Asia Pacific region, Jeffrey J Hardee, said Thursday (24/5/07) that during the May 8 raid, two shipping companies were found to have installed unlicensed Autodesk, Microsoft and Symantec software worth $500,000 on 145 personal computers.
"This proves that not only small firms and poor people use counterfeit software, but also multinational companies," Hardee was quoted as saying by The Jakarta Post.
The 2002 Copyright Law states that anyone who, without permission, deliberately reproduces a computer program for commercial purposes can be jailed for a maximum of five years and/or fined a maximum of Rp500 million ($51,500).
As part of the anti-software piracy campaign, the BSA inked a partnership agreement earlier this month with the East Java Police.  Under the agreement, signed on May 3, the BSA will provide the necessary information to help police investigations, and provide witnesses in copyright-violation cases when needed.
"The East Java police are moving ahead in the fight against piracy," said Hardee.  "Police in other regions have signaled their interest in working with us as well.  I believe this is a good sign for Indonesia, which is moving in the right direction."

Talks with US on Trade, Doha Round
The US and Indonesia agreed on Monday (21/5/07) to work on boosting trade in agriculture, services and other key areas as part of an ongoing initiative that could lead to free trade talks.
"We also discussed how we could work together to advance ASEAN integration and to help achieve a successful outcome to the ongoing WTO (World Trade Organization) Doha Round negotiations," US Trade Representative Susan Schwab said in a statement, according to Reuters.
Schwab and Indonesian Trade Minister Mari Pangestu met on Monday under the US-Indonesia Trade and Investment Framework Agreement, a bilateral forum that could eventually lead to formal free trade negotiations.
They agreed to establish working groups to deepen economic ties in four key areas:  intellectual property rights, agricultural and industrial goods, services, and investment.
After a speech to a business group, Pangestu told reporters Indonesia is still interested in pursuing free trade talks with the US when the time is right.  "Once you form these working groups, I think we begin to understand each other more," she said.
Pangestu told the US Chamber of Commerce it is hard to predict whether efforts to reach a deal this year in the Doha round of world trade talks would be successful.  Much depends on whether the G4 -- which includes the US, the European Union, India and Brazil -- can reach a breakthrough in the coming month, she said.
"I think a lot of the breakthrough is expected of the US," the minister said, referring to pressure on the US in the talks to make deeper farm subsidy cuts while scaling back its market access demands.
Pangestu also expressed concern the Doha round, which began in November 2001, could be delayed until after the 2008 US presidential election if there is no deal this year.

Trade with China Up 18.6% Annually
Indonesia's trade with China has increased at an annual average rate of 18.6% since 2001, deputy chief of mission at the Indonesian embassy in Beijing, Mohammad Oemar, said on Tuesday (22/5/07), Antara reported.
Indonesia exports chemical substances, timber products, pulp and paper, rubber and fertilizer to China, and imports semi-finished iron and steel products, spare parts, machines, electronics, data processing machines and various kinds of fruit from the country.
Oemar said China is the fifth biggest export destination of Indonesian goods and the third biggest source of Indonesian imports.
He said the value of Indonesian-Chinese trade reached $19.6 billion in 2006, marking a three-fold rise from $6.7 billion in 2001.
President Susilo Bambang Yudhoyono and his Chinese counterpart Hu Jiantao have agreed to increase bilateral trade to $20 billion in 2008 and $30 billion in 2010.

Import Duty on Auto Steel to Go: Minister
Steel used in the automotive industry that is not produced in Indonesia will be exempt from import duties under a new Economic Partnership Agreement (EPA) between Indonesia and
Japan, Trade Minister Mari Pangestu said in Tokyo on Friday (25/5/07).
Steel imports currently pay 15% duty, Pangestu said on the sidelines of meetings between Japanese officials and Vice President Jusuf Kalla, in Japan for a five-day visit, Antara reported.

Under the EPA agreement, 30% of imports from Japan will be exempt from import duty and the rest will be reduced in three to 15 years, Pangestu said.

Japan will provide free access for 90% of exports from Indonesia and reduce the import duty in three to 10 years for manufactured goods and 15 years for agricultural products.

Textiles and footwear are among Indonesian commodities to be exempted from import duty once the agreement is effective, expected in August this year.

SOEs
SOEs Expected to Book $10b in Pre-Tax Profit
State-owned enterprises are earmarked to book Rp88.7 trillion ($10 billion) in pre-tax profits this year, compared to Rp74 trillion last year, with some 65% of the figure expected to come from firms operating in the mines and energy and telecommunications sectors.
Ten state enterprises are expected to generate Rp58 trillion this year, up 20% from the Rp48.6 trillion they booked in 2006, secretary at the Office of the State Minister for State Enterprises, Said Didu, was quoted as saying by The Jakarta Post on Monday (21/5/07).
"We also want the SOEs in these three sectors to increase their capital expenditure by 300%," Didu said on the sidelines of a hearing with the House of Representatives' commission on state enterprises.
The government is hoping that firms in these sectors will allocate Rp86 trillion for capital expenditure, representing the lion's share of the anticipated total of Rp114 trillion in capital expenditure from all 139 SOEs.
Among the most profitable SOEs, oil and gas firm PT Pertamina and telecommunications company PT Telkom stand out from all the others.  Pertamina booked a profit of Rp23.7 trillion last year, 44% higher than the previous year, while Telkom's profit stood at Rp10.4 trillion, up from Rp8 trillion in 2005.
State banks, such as Bank Mandiri, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI), and state-owned financial firms are expected to generate Rp18.3 trillion in profit before tax, a 20% increase from last year's Rp15.2 trillion, Didu said.  "We also want them to be more aggressive in expanding their lending and reducing their non-performing-loan levels."
Meanwhile, the 24 SOEs operating in the agricultural and forestry sectors are expected to boost their profits in 2007 by 24% from Rp3.2 trillion last year.
Didu said the government would speed up its efforts to restructure the management and finances of ailing SOEs.  Besides state power firm PT PLN, major enterprises that are still in the red include flag carrier Garuda Indonesia, airline PT Merpati Nusantara, steelmaker PT Krakatau Steel, railway operator PT Kereta Api Indonesia, mail firm PT Pos Indonesia and ferry operator PT PELNI.
In total, SOEs suffered some Rp2.3 trillion in losses last year.
Didu said the government is hoping that SOEs’ profits would exceed Rp100 trillion in 2008, and that they would be able to set aside Rp150 trillion for capital expenditure.

Telkom’s 2006 Net Profit Up 38%
PT Telkom on Friday (25/5/07) reported a 38% rise in its 2006 net profit, owing to strong growth in the mobile phone sector, where its subsidiary PT Telkomsel is the market leader.
The company posted a net profit of Rp11 trillion ($1.26 billion) last year, while its revenue climbed 23% to Rp51.3 trillion as Telkomsel’s mobile phone users grew to 35 billion by the end of 2006 from just above 24 million the year before, Reuters reported.
Damping the full-year figure, Telkom also announced that it suffered a 23% fall in fourth quarter net profit, despite the strong performance of its mobile unit, Reuters reported.
Telkom did not elaborate the cause of the decline, but some analysts said higher operating costs and non-recurring items like early retirement costs hit the state-firm's bottom line.

PRIVATE SECTOR
Indosat's Q1 Net Profit Surges 26%
PT Indosat reported a 26% increase in net profit to Rp483.9 billion ($56 million) in the first quarter of the year from Rp383.9 billion in the same period last year, on the back of an increase in customers.
The number of Indosat's cellular subscribers increased by 39% to 18.02 million in the January to March period from 12.95 million in the same period last year, while the number of its fixed wireless subscribers surged by 81.9% to 434,217 in the first quarter of 2007 from 238,688 in the corresponding period last year, Indosat deputy president director Kaizad B Heerjee said Wednesday (23/5/07).
The sharp increase in the number of subscribers resulted in a 30.2% rise in the company's total revenues to Rp3.77 trillion from Rp2.89 trillion in the same period last year.
"The important message is that for the first time, all three lines of our business have been growing," Heerjee was quoted as saying by The Jakarta Post.
He said that cellular operating revenues grew by 33.5% from the same period last year, driven by the growth of new subscribers and increasing voice calls and text messages, while fixed voice and fixed data services revenues grew by 40.5% and 8.3% respectively in the first quarter of 2007 due to increased demand.
The cellular business makes up 77% of the company's total business, while its fixed voice and data services contribute about 10% and 13%, respectively.
The company's operating income increased by 22.8% to Rp1.04 trillion in the first quarter from Rp848 billion in the corresponding period last year.
Indosat finance director Wong Heang Tuck said the company would set aside $1 billion this year to finance expansion plans.  Some $300 million of the amount would come from the company's own funds, while the remaining $700 million would be financed by bank loans and the proceeds of bond sales.
Indosat issued bonds worth Rp3 trillion earlier this month to raise fresh funds for the expansion plan.
Heerjee said that most of the capital expenditure would go on the building of 3,500 to 4,000 new base transceiver stations (BTS) this year.
As of the end of March, the company had built 7,666 BTS, or a 28% increase compared to the 5,971 BTS in existence at the end of the first quarter last year.

Industry Grew 5.83% in Q1
The industrial sector grew 5.83% in the first quarter this year compared to 2.83% in the same period last year, Industry Minister Fahmi Idris said on Wednesday (23/5/07).
However, the growth was still below the country's economic growth of 5.97%, he was quoted as saying by Antara.
He said growth was recorded in almost in all industrial sub-sectors, except the textile and wood-based industries.
According to Industry Department data, wooden and forestry product industries shrank by 1.74% while textile, leather goods and footwear product industries only grew 0.68%.
"The growth of industries using wood as raw material, such as the furniture industry, slowed down following intensified operations against illegal logging.  The growth of the textile industry meanwhile has been hindered by external factors," he said.
The food, beverage and tobacco industries grew 9.84%, paper and printing product industries 12.47%, fertilizer, chemical and rubber-based industries 7.05%.  Other industries such as cement, non-metal mining industries grew 6.97%, basic iron and steel industry 2.11%, transport, machineries and equipment 3.98% and other goods 3.6%.

Minister Seeks Incentives for IPOs
The government will expedite the drafting of a taxation regulation that will provide incentives for companies willing to go public amid a surging inflow of capital to local capital markets, Finance Minister Sri Mulyani Indrawati said.
"We'll get it done as soon as possible.  I have asked the Director General for Taxation, Darmin Nasution, and Capital Market Supervisory Agency head Fuad Rahmany to discuss the possibility of introducing the incentive scheme by looking into current taxation laws," Indrawati was quoted as saying by The Jakarta Post.
Rahmany added that the incentive scheme might be issued through a government regulation or a ministerial decree and if so, would not have to wait for the enactment of tax bill packages currently under deliberation at the House of Representatives.
Having acknowledged rising capital inflow in local markets, Indrawati said the planned incentives would send a message to the private sector about the lucrative prospects of raising funds from capital markets.  "The gap between the amount of incoming capital and the availability of listed firms to invest is now widening.  This incentive will be a way to meet rising demands," she said.
According to Bank Indonesia (BI), as of May 10, foreign investors held up to Rp45.3 trillion of the total BI promissory notes of Rp257.6 trillion.  In January, they also held up to Rp71.2 trillion of a total Rp442 trillion in government bonds.
On the stock market, the net value of transactions made by foreign investors stood at Rp2.3 trillion as of March, up from Rp552 billion in January.
Indrawati said the government would also relax its regulations to encourage more local companies to go public.
"We will reduce the cost of becoming a public firm by easing existing regulations without overlooking their basic principles," she said, adding that capital market regulators should also create conducive market conditions for all players and simplify the listing process.
Erry Firmansyah, Jakarta Stock Exchange (JSX) president director, said many firms are still reluctant to be listed on the exchanges because they are unwilling to publicly disclose their finances.
"It is not the fee that hinders them from listing their firms on the bourse.  It's about transparency.  They are reluctant to reveal the problems of their companies to the public," he said.
The fees imposed by exchanges on listed companies range from Rp20 million to Rp100 million on average.
Firmansyah previously said that he expected between 8-10 firms to go public in the first half of the year.  As of April, five new firms listed as new members of the bourse.
State-owned toll operator PT Jasa Marga and contractor PT Wijaya Karya are also expected to launch their initial public offerings on the stock exchange as part of the government's privatization program.

United Tractors Sees 2007 Net Profit Up 34%
PT United Tractors, a unit of PT Astra International, said it expects its net profit to rise 34% to Rp1.25 trillion this year while sales are expected to rise 17% to about Rp16 trillion, newly appointed president Djoko Pranoto said.
"Both net profit and sales should rebound this year after a drop last year amid a recovery in demand for heavy equipment in particular from the mining sector," he was quoted as saying by XFN-Asia.
Pranoto said about 70% of this year's total sales are expected to come from sales of heavy equipment to the mining sector, with the remainder coming from agribusiness and forestry.
Finance director Gidion Hasan said he expects heavy equipment sales to increase to 2,600-2,800 units this year from 2,250 last year and 2,406 units in 2005.
Hasan added that the company has targeted capital expenditure (capex) of Rp2.5 trillion this year, up from Rp1 trillion last year and Rp1.6 trillion in 2005.
"The capex will be financed through internal cash, leasing, and a revolving credit facility (worth $70 million) secured in April," Hasan said.
United Tractors is the country's leading distributor of heavy equipment and components as well as the largest mining contractor in Indonesia.  Its flagship brand is Komatsu.

BANKS
TPG Acquires 72% of BTPN
US company TPG Capital LLP has agreed to buy a 72% stake in Bank Tabungan Pensiunan Nasional (BTPN), a person familiar with the transaction was quoted as saying by Dow Jones Newswires.
TPG Capital will pay about $200 million for the stake, a price that would value the entire bank at a little less than three times its book value of $100 million, the source said.
Under the arrangement, signed on Tuesday (22/5/07), TPG Capital and its Indonesian joint-venture partner, local investment bank Northstar Pacific, will take control of BTPN, the source added.  TPG Capital is the buyout arm of TPG, the former Texas Pacific Group.
BTPN, which lends mainly to pensioners, was formerly part of the business empire of Bakrie Group.  The bank collapsed after the 1997-1998 Asian financial crisis, and the government took a 47% stake in it.
Since the crisis, the government has reduced its holding to 28%, which it will retain under the new arrangement.  TPG Capital will buy its shares from a number of private investors who acquired stakes after the crisis, according to the person close to the deal. 
These include 23% held by local investment fund PT Recapital Advisors.  PT Bakrie Capital Indonesia, which is controlled by Bakrie's family, will sell its remaining 10% stake in the bank.
BTPN corporate secretary division chief, Dewiyanti, however said the bank has no knowledge of whether some of its shareholders have agreed to sell their stakes to TPG Capital, XFN-Asia reported on Wednesday (23/5/07).
“I haven't heard about it.  Our shareholder ownership structure is still the same,” she said.
Meanwhile, spokesman of state asset management firm PT PPA, which holds the government share in the bank, Renny Rorong told XFN Asia that the firm is willing to sell its stake in the bank but is not involved in any talks with potential buyers.
TPG tried to buy Bank Central Asia (BCA) in 2002 but lost out to US hedge fund Farallon Capital, which paid $540 million for it. 
Ashish Shastry, executive director of TPG Capital's southeast Asian office, reportedly said two weeks ago that TPG is preparing to invest $500 million to $2 billion in Indonesia.

POWER
EMP Begins E. Kalimantan Block Gas Production
Publicly listed oil and gas company PT Energi Mega Persada (EMP) has started gas production from the Semberah block in East Kalimantan at 5,200 Mcf/day. The gas will be supplied to state-owned power utility Perusahaan Listrik Negara's power plant, a senior EMP official said Wednesday (24/5/07).

"The 5,200 Mcf/day is flowing from one well in Semberah, while we have two wells in the block. We expect to reach our full capacity at 10,000-15,000 Mcf/day in July this year to feed  PLN's power plants," Platts Commodity News quoted Herwin Hidayat, vice president of capital markets at EMP, as saying.

EMP and PLN signed a sales and purchase agreement in September 2005 under which EMP will supply a total 62 billion cu ft of gas from the block to PLN until 2015. The two companies have agreed to a price of $2.72/MMBtu but this will increase annually.

Energi acquired the 99.99% working interest in Semberah through its acquisition of PT Tunas Harapan Perkasa in January 2006. Semberah in addition is flowing 710 b/d of oil from four wells. The block is operated by Semberani Persada Oil which is 100% owned by EMP.

Dongfang, Shanghai Electric Win Power Plant Bids
State electricity firm PT Perusahaan Listrik Negara (PLN) said China's Dongfang Electric Corp and Shanghai Electric Corporation have won the bidding to build three coal-fired power plants which will supply power to PLN, XFN-Asia reported on Friday (25/5/07).
The winners offered the cheapest power sales prices once the plants were built.
PLN said Dongfang and its partner PT Dalle Energy will build one plant in Banten province and another in the East Java town of Pacitan. A consortium of Shanghai Electric and PT Maxima Infrastruktur will build the other in Pelabuhan Ratu, West Java, it said.
The three plants will have power generating capacity of between 300-400 MW.

OIL & GAS
Pertamina to Drill 170 Oil Wells
State-owned oil company Pertamina is planning to drill at least 170 oil exploration wells with an estimated cost of $1.2 billion over the next few years, Antara reported on Monday (21/5/07)
Pertamina president director Ari Soemarno said the drilling of the oil wells was expected to help increase the country's oil and gas reserves. "We hope that we will drill 35 wells this year alone."
He said one of the oil fields which was believed to hold large oil reserves was the Pondok Tengah field in Bekasi, West Java where oil production currently stands at 4,000 barrels per day. This oil production capacity could increase to 26,000 barrels per day after the discovery of new reserves.
The 4,000 barrels per day is being produced in the Cluster A temporary production facility, which began operations last year.
Pertamina is currently installing a permanent production facility in the Cluster A and B areas, which is expected to be completed at the end of 2008.
 
Pondok Tengah's oil production is channeled through a 22-km pipe network to Muara Gembung, Bekasi, from where the oil is shipped on a tanker to be transported to the Cilacap oil refinery plant in Central Java.
The government has been urging oil and operators to speed up exploration activities in order to support its plan of increasing the country's oil production by 30% to 1.3 million barrels of oil per day by 2009.
Recently, Pertamina signed contracts with its counterparts for four Pertamina projects.
The four Pertamina projects are the expansion of the Subang gas field and the Pondok Tengah oil field with a total investment of $343 million, construction of the main transit terminal of Balongan worth $62 million and construction of the Cikampek Depot worth $9 million.

Aabar Strikes Oil in Sumatra
Abu Dhabi's Aabar Petroleum Investments Company announced Thursday (24/5/07) it has successfully completed drilling and testing operations on the Mengoepeh South-1 exploration well in the Tungkal Production Sharing Contract in Sumatra, Platts Commodity News reported.
Mengoepeh South-1 was drilled to a total measured depth of 1,502 meters and encountered 70 meters of net oil pay over a gross pay interval of 188 meters, the company said in a statement. Four drill stem tests were conducted on the well and oil flowed at a combined rate of 2,065 b/d, the company said.

The Mengoepeh South-1 well is located 2.5 km from the existing Mengoepeh oil field, which commenced production in December 2004. The well has been completed as a production well with the ability to flow from two zones.

Production will be processed at the nearby Mengoepeh facilities. Aabar, through its wholly owned subsidiary Pearloil (Tungkal), is operator of the 2,288 sq km Tungkal PSC and holds a 70% participating interest. The remaining 30% participating interest is held by Fuel-X Tungkal Ltd, a subsidiary of a privately owned Canadian oil and gas company.

Hopefuls Lining Up At Oyong
Australia's Santos is pre-qualifying companies for pipeline engineering, procurement, construction and installation for phase two of its delayed $130 million Oyong project, off the coast of Java, Upstream reported on Friday (25/5/07).

Work will include installation and testing of the 14-inch  diameter, 60-km gas pipeline that will run from the Oyong A wellhead platform to the onshore processing facility at Grati, East Java.

The contractor will also be required to install risers and flexible jumpers and modify process facilities at the existing Oyong A platform. Hook-up, mechanical completion and pre-commissioning of the pipeline will also be part of the job.

Santos is aiming to have first gas flowing in 2009. Start-up of the delayed phase-one early oil output at Oyong, on the Sampang production sharing contract, is now targeted for July.

Likely recoverable reserves at the shallow-water field are 6 million barrels of oil and 97 billion cubic feet of gas. The development consists of three phases.

Ina Interested in 25% of Ujung Pangkah
PT Ina International Co. is keen to acquire ConocoPhillips' 25% stake in the Ujung Pangkah oil and gas field in offshore East Java, Ina president Minadi Pujaya told XFN-Asia on Wednesday (23/5/07).
The remaining 75% stake of the field belongs to US firm Hess. Pujaya said Ina will get funding for is planned acquisition from BNP and CIMB.
Industry regulator BP Migas said Hess started producing gas from the field early this month at a rate of about 20-25 million standard cubic feet per day (mmscfd). The volume is expected to increase gradually to 100 mmscfd in the near future.
Ujung Pangkah will also produce oil and condensate at the rate of 5,000 barrels a day this year reaching about 20,000 barrels per day in 2009.

MINING
Deal Signed for $1.3B Coal-To-Fuel Plant
The government has signed a preliminary agreement with 11 firms to build a $1.3-billion coal liquefaction plant, a mines and energy ministry official said on Tuesday (22/5/07).
The companies are mostly major coal producers in Indonesia, including PT Adaro Indonesia, PT Berau Coal, PT Bumi Resources, PT Tambang Batubara Bukit Asam and PT Bayan Resources, Reuters reported.
State oil and gas firm Pertamina is expected to buy the fuel. "The government is encouraging the coal liquefaction project to reduce oil use. We will discuss all aspects, including finance and technology, with those companies," Nenny Sri, head of research and development at the energy ministry, told reporters. "We expect the products to include diesel oil."
Utami said the plant will have a capacity of 13,500 barrels per day (bpd) and to be commercially operational in 2013. Capacity is expected to be increased to 27,000 bpd in 2017. She said 2.5 million tons per year of coal is needed for a 3,500 bpd capacity plant.
Indonesia has abundant coal deposits of around 38.9 billion tons, but about 60% of the reserves are low quality, data from the mines and energy ministry shows. Coal production might total 196 million tons in 2007, a 17% rise from 168 million in 2006.

Private Tin Smelters Keep Output Consistent at Bangka
Three major private smelters in Bangka island have restarted production but are aiming to maintain output at 600 tons per month (tpm) each, Metal Bulletin reported on Wednesday (23/5/07).
CV DS Jaya Abadi, PT Bangka Putra Karya (BPK) and CV Donna Kembara Jaya (DKJ) restarted production in early May but are committing to producing around 600 tpm, smelter officials said. "Production is still under capacity. But we don't want to produce too much either," one official said.
The four smelters, along with another private smelter CV Bukit Timah, are expected to be part of a consortium well-known Indonesian businessman Tommy Winata is looking to set up, sources said.
Winata, the chairman of Artha Graha Group, had met with Bangka Belitung Governor Eko Maulana Ali, a week ago to discuss the setting up of the consortium, local paper Bangka Pos reported last week.
Winata is also looking to take up a stake at PT Koba Tin - currently 75% owned by Malaysia Smelting Corporation and 25% by PT Timah - as part of the consortium plan, the report said.
By keeping production at 600 tpm each, the consortium hopes to maintain tin prices at $13,500-14,500 per ton, one source said.
 

GlobalCOAL Launches Indonesian Contracts
Electronic trading platform globalCOAL launched an Indonesian thermal coal contract on Wednesday, riding on a wave of Asian demand and rising prices in the sector.
Traders said the new contract could improve price transparency and increase liquidity in the market. "There's no better time for them to launch the product, especially when demand is so strong," said a Singapore-based trader on Wednesday (23/5/07). "This could be the first step towards a more transparent market where buyers can shop around in an open market."
"We've been working with various interested parties on an Indonesian contract for some time but it heated up in the past few weeks and we launched it today," globalCOAL's CEO Eoghan Cunningham told Reuters.
"We've had numerous people with Indonesian positions interested but the key thing was to get the producers involved. We got two of the main producers Kaltim Prima and Arutmin involved and ready to put numbers on the screen."
Indonesian coal production is expected to reach 200 million tons this year, the bulk of which will be exported.

Tata Power Seeks $950M Loans for Mine Stakes
Tata Power Co., India's second-biggest utility, will borrow $950 million to fund its purchase of stakes in two Indonesian coal mines, Bloomberg reported on Tuesday (22/5/07), citing three people involved in the transaction.
The Mumbai-based company has hired Calyon to arrange a $600 million loan secured by the coal mines and a $350 million loan guaranteed by Tata Power, said the people who didn't want to be identified before an announcement by the borrower. Calyon is marketing the loans to other banks, they said.
Indian power producers must secure supplies of coal as the government targets almost tripling the country's generating capacity by 2012 to meet demand in the world's second-fastest growing major economy. Tata Power agreed in March to pay $1.3 billion for a 30% stake in PT Kaltim Prima Coal and PT Arutmin from PT Bumi Resources, Asia's third-largest coal miner.
“Given the fact that power plants in India are predominantly thermal, securing supply becomes critical,'' said Rajiv Anand, who manages $3 billion of stocks and bonds at Standard Chartered Mutual Fund in Mumbai. “There is a global scramble for assets whether it's iron ore, base metals or coal.''
Companies are buying $48.2 billion of energy assets in the Asia-Pacific region this year, including coal mines, and are set to surpass $79.4 billion of such transactions in 2006, according to data compiled by Bloomberg.

Kobe Steel Builds Coal Refinement Plant
Kobe Steel Ltd. said Wednesday it has started building a 600-ton-a-day coal reprocessing plant in Indonesia.
The plant will cost around Y8 billion to build, Dow Jones quoted a statement from the Japanese steel maker.
The plant, scheduled to commence pilot operations in October 2008, will produce higher grade coal by dehydrating lower grade brown coal, which is otherwise difficult to use, the statement said.

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