[Marinir] Trade & Investment News, 29 August 2005

[Yap Hong Gie]

THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS
REPUBLIC OF INDONESIA
Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4
Jakarta Pusat
Tel: (021) 380-8384    Fax: (021) 344-0394    Website: http://www.ekon.go.id

Trade and Investment News, 29 August 2005

Highlights
·         The government has said it will raise fuel prices again by the end
of the year, with Coordinating Economics Minister Aburizal Bakrie saying the
move should be 'the sooner the better'

Politics:
·         President Yudhoyono takes a swipe at the country's bureaucrats,
saying they must do more to serve the people who elect them
·         Narcotics authorities say they are not specifically targeting
Australians
Regions:
·         The Indonesian military is showing a positive attitude to the
peace accord with Free Aceh Movement (GAM) rebels and has already started
sending its troops home
·         The Regional Representatives Council (DPD) holds its inaugural
plenary session
·         Delegates to the Papuan People's Council (MRP) are to be nominated
and the council to be formed as soon as possible
Economy:
·         President Yudhoyono says he is determined to limit the impact of
new fuel rises on the poor
Macroeconomy:
·         Draft revisions of the tax legislation have been hailed as
business-friendly, offering lower tax rates while encouraging better
compliance among taxpayers
Investment:
·         International sportswear manufacturer Adidas to order 14 million
pieces of apparel and other sports equipment worth $140 million from
producers in Indonesia
State concerns:
·         Proposed amendments to the customs law offer investors incentives
and impose stiff sanctions against smuggling.
SOEs:
·         The government is speeding up the replacement of the board of
directors of 50 state-owned companies
·         The country's largest cement manufacturer PT Semen Gresik's sales
in July grew 6.3% year-on-year to 1.48 million tons
Banks:
·         PT Bank Lippo's shareholders approve the acquisition of 52% of its
shares by Malaysia's Khazanah Nasional for Rp3.3 trillion ($320 million)
Power:
·         The government to rush the construction of a 500-KV extra-high
tension transmission system in southern Java for completion by October
Oil & gas:
·         President Yudhoyono wants the revenue-sharing deal with US
petroleum giant ExxonMobil Corp over the Cepu oil block to be concluded by
September 25
·         Pertamina has won a case against Karaha Bodas Company in the
Singapore courts




Indonesia to Raise Fuel Prices
Indonesia will raise fuel prices at least by the end of this year, said
Coordinating Minister for Economic Affairs Aburizal Bakrie, in a move likely
to reassure markets.

Bank Indonesia (BI) will also raise its three-month reference or BI rate
next month to ease pressure on the rupiah.

Bakrie said the government would raise fuel prices before January the second
rise this year and a move likely to attract strong protest. "A fuel price
increase will happen certainly before January 2006. The sooner it is
announced, the better," Bakrie said Thursday, the state Antara news agency
reported.

He said the fuel-price increases will occur gradually and will rise to meet
international levels by the end of 2006.

President Susilo Bambang Yudhoyono has said he is determined to find ways to
restrict the impact on the poor. He said Wednesday the government "will
continue to reduce the deficit and [fuel] subsidies without sacrificing the
lower-income people whom we have to protect."

Dr. Yudhoyono urged people not to panic and urged those who might be tempted
to take "inappropriate steps that could weaken the rupiah" to instead, make
constructive and positive efforts to save the currency.

Bank Indonesia's BI rate was launched in July to provide a reference band
within which fluctuations of the one-month benchmark rate of Bank Indonesia
Certificates (SBIs) over the following three months should move.

First set at 8.50%, the rate was raised to 8.75% earlier this month as the
rupiah started to fall but there is pressure for a further rise.

The local currency has slumped 11% since the start of the year, mainly
pressured by the rising cost of fuel subsidies.

"Of course the SBI rate will be higher from the current 8.75%," BI senior
deputy governor Miranda Goeltom told a parliamentary budget committee on
Thursday (25/8/05). She said she could not divulge the new level for the
rate.

Coordinating Minister Bakrie had earlier sent the message that the situation
was not a serious problem. He said Monday (22/8/05) that the country's
fiscal condition was solid and the current account and capital account would
be positive at the end of the year.

He admitted that depreciation could weaken payments of debt and interest
payments, but exporters would benefit. He said he believed the value of the
rupiah could reach Rp9,400 to the US dollar in 2006. "The figure is
accountable," he said.

Planning Minister Sri Mulyani Indrawati also spoke out to reassure the
public that Indonesia was not heading for a new crisis. "The government and
the Bank of Indonesia will take many actions to convince the people, market
players and investors that (the) economy is 100% under control," she told
reporters Thursday. "Together we will follow developments and ask the people
not to panic," she added.

Backing the government statements that the position was not too serious was
French bank Calyon. It said the rupiah may reverse losses of the past three
weeks because of robust growth and strong incentives for the government to
avert a crisis.

"Resilient economic growth supports tax receipts," Sebastien Barbe, senior
economist for Asia, said. "Even if the oil bill has increased, exports have
done better, (the) trade balance is still in surplus."

Agost Bernard, associate director for sovereign ratings at Standard & Poor's
in Singapore, said the strengthening dollar won't affect Indonesia's
ratings, because the rupiah's current weakness had been anticipated.
Indonesia is rated single-B-plus by S&P, four notches below investment
grade, and single-B2 by Moody's Investors Service.

Moody's Investors Service also said it had no immediate plan to change
Indonesia's credit rating. "We still have a positive outlook. That remains,
despite recent developments, because we think the government's fiscal
position is manageable, economic growth is okay and political stability has
been achieved," said Steven Hess, vice president and senior credit officer
at Moody's.

Fitch Ratings said the rupiah's decline against the dollar won't affect
Indonesia's double-B-minus long-term foreign-currency rating. "The overall
prospect for [Indonesia's rating] is positive," an official said.

The government said it aims to raise $1 billion in fresh debt. A government
official in Jakarta told Reuters that Indonesia was considering issuing $1
billion worth of sovereign bonds later this year, possibly in several
tranches.

"The plan is in tranches, not $1 billion in one go. But this is still being
discussed," said the official, who declined to be identified.



POLITICS
Yudhoyono Calls for Better Standards
Indonesia needs to make more progress in changing the outlook of government
officials who remain indifferent to providing public service and continue to
engage in corruption, President Susilo Bambang Yudhoyono told the Regional
Representatives Council (DPD) on Tuesday (23/8/05).

Despite seven years of reform begun after the fall of former president
Suharto aimed at eliminating the Indonesian bureaucracy's notorious
corruption, Dr. Yudhoyono said too little had been achieved.

"The tendency for (officials to want) to be served is still felt in various
state institutions and bodies, even though the duty of the state apparatus
is to serve the people," he said in his first speech to the country's upper
chamber.

"The ills of corruption, collusion and nepotism are still happening and with
the handing over of financial autonomy to the regions, we can also feel the
tendency for irregularities in the regions," Dr. Yudhoyono said.

The country's move to decentralize government had led to an array of
inefficiencies, such as overlapping taxes and levies imposed by the central
and regional governments, he said.

"The government is now trying to overcome these (problems), not only by
taking firm measures against the practice of corruption, collusion and
nepotism, but also by heightening supervision over state finances," he said.

Scores of active or former officials and legislators are facing charges of
corruption or have been jailed by courts across the country in the past
year.
Australians "Not Being Targeted"
Australia is not being targeted as part of an anti-drug crackdown, despite
the arrest of several of its nationals across Indonesia, Indonesian police
said on Tuesday (24/8/05).

Police arrested 21-year-old Australian English teacher Graham Payne on
August 20 for allegedly selling ecstasy and separately detained 24-year-old
Australian lingerie model Michelle Leslie after authorities caught her with
two tablets of the party drug. Charges against Payne were later reduced to
possession.

"It is untrue that the arrest of drug traffickers and users is specifically
targeting Australians," spokesman Brig. Gen. Sunarko Danu Artanto told
reporters. "Those who violate our anti-drug laws, whatever their
nationality, will be treated equal before the law."

Leslie was arrested after police raided a dance party at GW Cultural Park.
She could face at least a decade behind bars if charged and convicted.

The two Australians are the latest in a string of foreigners to be detained
during a police crackdown on illegal drugs across the country. Employing
surprise raids and on-the-spot drug tests, authorities have netted scores of
Indonesian celebrities and foreign tourists.

Under Indonesia's tough drug laws, a person found guilty of narcotics
possession faces up to 10 years in jail. A conviction for distribution of
drugs carries the death penalty.





REGIONS
Military Positive on Aceh
The Indonesian Armed Forces (TNI) is supporting fully the Aceh peace accord,
with Commander Gen. Endriartono Sutarto saying he can understand minor
clashes with the Free Aceh Movement (GAM) and will not wait for the deadline
set under the Memorandum of Understanding to pull out troops.

Some 1,300 Armed Forces (TNI) soldiers on Monday (22/8/05) left Aceh
province, a week after a peace deal was stuck with separatist rebels there,
military deputy spokesman Ahmad Yani Basuki said. He said two battalions
from the Army's Kostrad strategic reserve, about 1,300 men, left on board a
navy ship from North Aceh early Monday.

Sutarto meanwhile said TNI felt that those trying to halt the implementation
of the MoU were the enemy of both the government and GAM. He told reporters
the security arrangement stipulated in the MoU are clear.

Commenting on a number of incidents in which GAM flags were raised, he said
the TNI considered this to be the acts of individual GAM members, and not
the policy of the leaders of GAM. Seen in this light, the incidents were
only minor problems, Sutarto said.

GAM is also setting a positive face on the accord. The Aceh Monitoring
Mission (AMM) is moving into place, and the presence of its members is
improving confidence on the ground.

DPD Meets in First Plenary
The Regional Representatives Council (DPD) held its first plenary session on
Tuesday (23/8/05), in what was seen as a new landmark in Indonesia's
constitutional development.

The DPD, whose members were chosen by popular vote in October last year,
sits with the members of the House of Representatives (DPR) to form the
People's Consultative Council and works independently to represent the
interests of Indonesia's regions.

DPD Speaker Ginandjar Kartasasmita said on Tuesday the event, which was
attended by governors and regional legislative speakers, was to provide a
national forum where local leaders could hear the central government's plan
for development in regions.

"This is to put all development work on a parallel track, and to ensure a
synergy in the interests of all stakeholders through holistic development
policies," he said.

President Susilo Bambang Yudhoyono said the existence of the DPD to
represent regional interests, he said, could not be separated from the
aspiration of Indonesians that the regions should have an equal opportunity
to develop themselves.

Dr. Yudhoyono added that the ban on regional governments issuing bonds and
borrowing funds from banks would remain in force for the time being to
maintain macroeconomic stability.

The Intergovernmental Fiscal Balance Law, endorsed by the DPR in September
last year, allows local administrations to raise money domestically,
including through bond issues, but is awaiting the completion of
implementing regulations.




ECONOMY
BUSINESS BRIEFS
MACROECONOMY
BI Introduces New Mechanism
The central bank has ended the repurchase facility of its Bank Indonesia
certificates (SBIs) but will lend funds to banks to overcome daily liquidity
mismatches if liquidity in the market is tight, an official with the bank
said.

Under the new mechanism, BI will take the initiative to offer funds to banks
in need of liquidity.

In the past, banks took the initiative to borrow funds from the central bank
using the SBI repo facility.  This also meant that BI had to provide funds
to banks any time they wanted to borrow with SBI repo deals.

"Now we are the ones who determine when we will add liquidity," an official
in BI's money market department told Dow Jones Newswires.

Current Account Surplus Down
Indonesia's current account surplus is seen falling to 0.9% of GDP or $2.74
billion this year from 1.2% of GDP or $3.11 billion in 2004 as import growth
outpaces that of exports, Bank Indonesia said.

The capital account surplus is expected to decline to $2.06 billion from
$2.61 billion last year, it said.

AFX reported that, according to the central bank, the country posted a
current account surplus of $953 million in the second quarter to June
against $1.83 billion in the first quarter; and a capital account deficit of
$1.15 billion in the June quarter against a surplus of $106 million in the
three months to March.

Meanwhile, foreign exchange reserves dropped to $33.86 billion at the end of
June from Rp36.32 billion at the end of last year.  The decline is seen as
continuing, with the reserves at $32.36 billion by end of this year, equal
to four months of imports and foreign debt payment requirement.

BI said the pressure on the country's current account during the first half
of this year mainly stemmed from growing investment, which has replaced
private consumption as the principal driver of GDP growth.

"Investment growth is expected to continue and will support economic
 growth," the central bank said, adding that GDP growth this year is likely
to reach the upper end of its forecast of 6%.

"But strong investment growth has triggered high growth in imports of both
oil and non-oil products and therefore created an imbalance on external
payment as evidenced from the heavy pressure on the balance of payments
during the first half of this year," it said.

It said non-oil and gas exports rose 30% year-on-year during the first half
of the year, mainly driven by imports of capital goods and raw materials.
This indicates a recovery in investment, which grew 8.83% year-on-year
during the first half.

It said the pressure on balance of payments also came from limited exports
growth as well as the oil price hike to more than $60 per barrel.

As for the capital account, the central bank said there was an inflow of
$2.5 billion of foreign direct investment (FDI) during the first half in
line with stronger investment growth.

Tax Amendments 'Business Friendly'
Recently completed draft revisions of the tax legislation have been hailed
as business friendly as they offer relatively low tax rates while
encouraging better compliance among taxpayers.

Indonesian Chamber of Commerce and Industry (Kadin) Chairman Mohamad S
Hidayat told The Jakarta Post that the draft amendments offered incentives
that would not only stimulate the economy but also help expand the tax base
as a result of a simpler taxation regime.

"In general, we are satisfied with the draft amendments although several of
our submissions were turned down by the government.  There was give and take
during the drafting process and we are comfortable with that," Hidayat said.

He cited a number of incentives in the draft amendments that could help
revive the real sector, among them a plan to scrap the 10% value-added tax
(VAT) on unprocessed agricultural produce and a reduction in the income tax
rate for micro and small businesses from the current maximum of 30% to 10%.

Another incentive for the business community is the proposed introduction of
tax amnesty in one of the amendments, aimed at improving taxpayer
compliance, especially in the corporate sector, he added.

Hidayat said the government had accommodated the interests of the business
community by inviting a team from Kadin to participate in the drafting of
the amendments.

He said among the proposals by Kadin that were stymied by the tax office was
the institution of equality before the law, which would mean that tax
officials would be treated in the same way as taxpayers in criminal
prosecutions involving tax issues.

Meanwhile, Finance Minister Jusuf Anwar said that although the proposed
amendments would temporarily reduce tax revenues, the government is
confident this would eventually be compensated by an increase in
investments.

"The government is aiming to convert the taxation and customs and excise
systems into facilitators for trade, industry and investment," he added.



INVESTMENT
$140m Order from Adidas
International sportswear manufacturer Adidas is set to order 14 million
pieces of apparel and other sports equipment worth $140 million from various
producers in Indonesia, said Trade Minister Mari Pangestu.

The government had won Adidas' commitment during President Susilo Bambang
Yudhoyono's visit to China in July, Pangestu told Antara.

She said Adidas is planning to relocate 20% of its production capacity in
China to Vietnam and Indonesia.

"Vietnam will not get all 20% (of the relocation), so Adidas will surely
have to place part of the relocation here," she said, adding that the
government is trying to lobby Adidas.

Pangestu said she will head for Busan -- South Korea's center for footwear
manufacturers -- this week to convince shoemakers to do business in
Indonesia.

"Busan shoemakers receive orders from Adidas and Nike.  They are the
manufacturers and we need to get them to make their products here," she
said.

Malaysian Projects in W Java
Malaysia's Ireka Corp Bhd has signed a memorandum of understanding with Geo
Fusion Sdn Bhd to become its exclusive design-and-build contractor for $750
million worth of infrastructure projects in Indonesia's West Java province,
AFX reported.

Ireka said in a statement it will help build the Bogor Ring Road for $125
million, the Bandung Intra Urban Toll Road ($225 million) and the Ceribon
Power Plant ($330 million), and help upgrade the Husein Sastranegara Airport
($70 million).

With the signing of the MoU, Ireka is expected to assist Geo Fusion in
finalizing the projects proposed to the West Java provincial government
within six months. Ireka said construction work will begin next year.



STATE CONCERNS
Tougher Customs Law
Proposed amendments to the customs law offer investors incentives but also
impose stiff sanctions against smuggling.

Director for inspection and investigation of the Finance Department's
Directorate General for Customs and Excise, Sofyan Permana, told The Jakarta
Post that the government had broadened the definition of smuggling to
prevent businessmen from escaping criminal charges.

In the proposed amendments, a slight mistake in the inventory of imports
would be regarded as a deliberate attempt at smuggling, Permana said.  At
present, the same mistake is merely seen as an administrative error subject
to a fine.

In the proposed amendments, administrative fines are raised to Rp50 million
($4,850) to Rp250 million from Rp10 million to Rp100 million, while
sentences for smuggling are increased to a minimum of two years and a
maximum of 10 years jail time, from the current maximum sentence of eight
years.

Permana said the directorate would investigate and sanction corrupt customs
officials before pursuing criminal prosecution.

Permana said the proposed amendments also accommodated requests from the
business community for incentives in import duties and simpler clearance
procedures to revitalize the manufacturing sector.

Export of Processed Cacao Encouraged
The Agriculture Department will encourage the export of fermented or
processed cacao as its price is higher by $180 per ton than unprocessed
cacao, Antara reported.

Producing processed cacao in the country would also reduce the import of the
commodity and help save foreign exchange, department official Djoko Said
Damarjadi said.

Indonesia, the world's third biggest cacao exporter after Ghana and the
Ivory Coast, exports 100,000 tons of unprocessed cacao out of the 450,000
tons it produces a year.  It imports 40,000 tons of processed cacao per
year.

Damarjadi said the authorities need to give incentives to encourage cacao
producers to export fermented or processed cacao.

He also emphasized the need to set up a National Cacao Council that would
handle problems facing the upstream and downstream cacao industry.

China to Open Consulate in Surabaya
China plans to open a new consulate general in Surabaya, capital of East
Java province, to strengthen bilateral relations.

Chinese Ambassador to Indonesia Lan Lijun said the new consulate will help
strengthen relationship between the two countries, primarily in the areas of
education, trade, economics, culture and politics, Xinhua reported.

President Hu Jintao already discussed the establishment of the Surabaya
consulate general when he met with his Indonesian counterpart Susilo Bambang
Dr. Yudhoyono in Jakarta last April.



SOEs
SOEs Told to Park Earnings at State Banks
Indonesia's state-owned companies have been told to park their export
earnings at state banks to support the rupiah.

"This is already the standard procedure.  All proceeds of exports must be
funneled towards state-owned (banks)," State Minister for State Enterprises
Sugiharto told Reuters. He said this should be effective in helping support
the rupiah.

In July, the central bank introduced measures to arrange dollar supply for
state-owned companies through appointed state banks, and make it compulsory
for them to place their export earnings in state-owned banks.

New Managements for 50 State Firms
The government is speeding up the replacement of the board of directors of
50 state-owned companies, the Office of the State Minister for State
Enterprises said.

Many of the directors have ended their terms but are still active, the state
minister's secretary, Said Didu, said, noting that the process is expected
to be completed in 10 months.

The companies include port operator PT Pelabuhan Indonesia, highway
construction company PT Jasa Marga, and plantation company PT Perusahaan
Negara.

Fit-and-proper tests for the candidates will be handled by independent
consultants.

Semen Gresik's July Sales Up 6.3%
Indonesia's largest cement manufacturer PT Semen Gresik's sales in July grew
6.3% year-on-year to 1.48 million tons, the Indonesian Association of Cement
Manufacturers said in a report.

Semen Gresik's domestic sales in July rose 6.7% year-on-year to 1.27 million
tons from 1.19 million a year earlier while exports increased 4.3% to
209,972 tons, the report said, according to AFX.

In the first seven months to July, Semen Gresik sold 9.04 million tons of
cement against 8.68 million tons a year ago, with domestic sales accounting
for 7.96 million tons against 7.42 million tons previously.

In contrast, exports over the seven-month period dropped 13.4% year-on-year
to 1.09 million tons.

Port to Build CPO Terminal
Operator of West Sumatra's Teluk Bayur port, PT Pelabuhan Indonesia
(Pelindo) II, will build a crude palm oil (CPO) terminal to accommodate the
increase in the shipment of the commodity from the province.

The construction of the CPO terminal is urgent as shipments from the port
continue to rise, Pelindo II general manager for Teluk Bayur, Azis
Suhartono, was quoted as saying by Antara.

Suhartono said the port handles CPO shipments not only from West Java but
from neighboring provinces as well.

In 2004, CPO shipments from Teluk Bayur totaled 869,687 tons, 35% higher
from the previous year.  Shipments are predicted to increase to 1 million
tons this year and to 1.5 million tons in 2006, he said.



PRIVATE SECTOR
Rubber Exports to Rise
Indonesia's natural rubber exports are predicted to surpass this year's
target by 5% to $2.1 billion, boosted by the strengthening of the US dollar
against the rupiah, the Indonesian Association of Rubber Companies
(Gapkindo) said.

The country's natural rubber would become more competitive with the
continued fall of the rupiah, which breached the 10,000 psychological
barrier last week, Gapkindo chairman Asril Sutan Amir was quoted as saying
by Antara.

The association earlier said it expects natural rubber exports to reach 2
million tons worth $2 billion this year.

Amir said the fall in the value of the rupiah would also lead to a 2% to 3%
increase in the domestic price of natural rubber.



BANKS
Bank Lippo Acquisition Approved
Shareholders of publicly listed PT Bank Lippo have approved the acquisition
of more than half of its shares by Khazanah Nasional, Malaysia's state-owned
investment company.

Khazanah acquired Swissasia Global (SAG)'s 52.05% stake in Bank Lippo for
about Rp3.3 trillion ($320 million), or Rp1,619.11 per share.  The price was
slightly higher than the shares' book value, The Jakarta Post reported.

A Khazanah wholly owned unit, Amsterdam-based Santubong Investments BV,
conducted the acquisition, which is expected to be finalized in October
after Bank Indonesia (BI) approves the process and the election of new
commissioners and directors.

The shareholders also appointed new commissioners and directors with two
Khazanah officials joining the board.

Jos Luhukay retained his position as president director, while Khazanah
senior vice president for investments, Lim Eng Khim, was elected chief
executive officer.  Citibank director of consumer banking Laurenthis
Sulistiawati was chosen as director of consumer banking and Thila Nadason of
PriceWaterhouse Coopers Indonesia as chief financial officer.  Khazanah
director for investments Abdul Farid Alias and Bank Niaga director for
information technology Andi Mohammad Hatta were elected as commissioners.

The deal comes amid reports of objections from certain parties who cited a
clause in the 2004 sale and purchase agreement that SAG, which purchased
Lippo's stake in February 2004, could not resell its stake within the next
two years, the so-called lock-up period.

Danamon Sells 1% Stake in KEBD
Bank Danamon has sold its remaining 1% stake in PT Korean Exchange Bank
Danamon (KEBD) for Rp111 billion ($11.6 million).

Danamon President Sebastian Paredes said the bank sold the stake to Korean
Exchange Bank (KEB) on Aug 15 as it wants to concentrate on its core
business.

Bank Danamon and KEB established KEBD in 1990 with Danamon holding 15% of
the shares.  Last month, it sold 14% to KEB.

Financial Institutions Urged to Help SMEs
The government has called on financial institutions to aid small and medium
enterprises (SMEs) which do not rely heavily on imported raw materials and
have less debts than large companies, head of the Finance Department's
non-bank financial institution sub-directorate, Ngalem Sawega, said.

Sawega said if financial institutions play a bigger role in developing SMEs,
the public would have more alternative sources of funding.

He noted that financial service businesses grew significantly in 2004 as
turnover leaped 44.4% to Rp87.1 trillion ($8.4 billion) from Rp60.3 trillion
($5.8 billion) the year before.

He also stressed the need for a new control system to develop the country's
financial institutions.



POWER
PLN to Compensate Consumers
State power company PT PLN said it will reduce the electricity bills of
nearly 300,000 consumers by Rp876 million ($87,468) to compensate them for
the massive power outage last Aug 18.

The blackout, which lasted from 30 minutes to 12 hours, affected at least
5.3 million users in densely populated Java and Bali, the company said.

Under current regulations, consumers hit by more than 25 hours of blackouts
in a month are entitled to compensation, the Agence France-Presse reported.

"The number of consumers receiving compensation will number 293,235, with a
total amount of reduction of about Rp876 million," PLN said.

PLN apologized and vowed to "work harder" to avoid similar incidents in the
future.

Transmission Line Being Rushed
The government is rushing the construction of a 500-KV extra-high tension
transmission system in southern Java for completion by October.

The project has run into land acquisition problems with local people,
prompting Mines and Energy Minister Purnomo Yusgiantoro to cite the use of a
presidential instruction on compulsory land acquisition for public projects
to reach an agreement with locals, The Jakarta Post reported.

"We'll try to be persuasive.  It's better (to settle the problems) through
dialogue," Yusgiantoro said.

The instruction, issued in May, enables the state to forcibly take over
private land earmarked for development purposes, whether or not landowners
agree with the compensation offered by the government.

PLN vice president for transmission and distribution, Herman Darnel Ibrahim,
said six locations in Depok, West Java, two in Bantul and one in Klaten,
Central Java have landowners who are opposed to the project.

"Locals in Bantul requested Rp100 billion ($10 million) in compensation to
let the line pass through," he said, calling the amount unreasonable.

The south transmission line is crucial to support the north line as a
back-up system and to ensure that supply from three new power plants can be
used optimally.  The three are the coal-fired 1,320-MW Tanjung Jati B power
plant and the 600-MW Cilacap plant, both in Central Java, and the 720-MW
Cilegon plant in West Java, slated to start operating early next year.



OIL AND GAS
President Wants Cepu Deal Finalized
President Susilo Bambang Yudhoyono wants the revenue-sharing deal with US
petroleum giant ExxonMobil Corp at East Java's massive Cepu oil block to be
concluded by September 25, Coordinating Minister for Economy Aburizal Bakrie
said.

"Each month in the delay of negotiations is causing (oil) production
delays... and the country has lost Rp20 trillion (in potential oil revenues)
in two months of delays," Dow Jones quoted Bakrie as saying.

The deadline marks the end of the 90-day period that the head of the
government's Cepu negotiating team said in June that Exxon Mobil,
state-owned oil firm Pertamina and the Cepu regional government would need
to finalize a joint operations agreement and select a contractor.

The government agreed last June 25 to give Exxon Mobil 6.75% of Cepu's
revenues if world oil prices rise to more than $45 a barrel and 9% of
revenues if oil prices are between $40 and $45 a barrel. The Cepu oil field
is estimated to hold 600 million barrels of crude oil.

KBC Loses Case to Pertamina
A Singapore appeal court has ruled in favor of PT Pertamina and rejected
Karaha Bodas Company's claim on the Indonesian state oil and gas firm's
assets, in the latest round of the lengthy legal battle between the two
firms, The Jakarta Post reported.

The ruling, issued on Wednesday (24/8/05), reinforces a previous ruling of a
lower court in March, Pertamina said in an e-mailed statement.

KBC wanted to seize assets of Pertamina's trading arms -- Pertamina Energy
Trading Ltd (Petral) and Pertamina Energy Services Ltd (PES) -- amounting to
$36 million.

"We can refer to this ruling in our defense in other courts," Pertamina
spokesman Mochamad Harun said.

Pertamina has challenged the asset freeze orders requested by KBC in US,
Canadian, Hong Kong, Singaporean and Indonesian courts.

KBC was one of 27 independent power producers whose projects were terminated
by the government -- as recommended by the International Monetary Fund --
following the 1997 economic crisis.

The government is still trying to seek an out-of-court settlement with KBC.

Chevron to Set Up New Unit
With the recent merger of US energy giants Unocal and Chevron, the company
plans to form a new business unit to take charge of its subsidiaries working
in the upstream and geothermal sectors in Indonesia and the Philippines.

The new unit will be called Chevron IndoAsia, said Wahyudi Yudiana
Ardiwinata, president director of PT Caltex Pacific Indonesia (CPI), a
Chevron subsidiary after the merger with Caltex.

"We have begun preparations and expect the business unit to be established
this year," Ardiwinata was quoted as saying by The Jakarta Post.

Downstream businesses, such as Caltex Oil Indonesia, which sells lubricants,
would not be included in IndoAsia.

Unocal, the ninth largest US oil company, was taken over by Chevron on July
20 for $17.1 billion, following the rejection of a higher but politically
controversial bid from the China National Offshore Oil Corp (CNOOC).

Yudiana said there is no plan to merge Chevron and Unocal's subsidiaries in
Indonesia.

"The companies' core businesses are different, with CPI concentrating on
upstream onshore activities and Unocal operating onshore and in the LNG
(liquefied natural gas) business," he said.

The subsidiaries would be able to share services with one another under the
IndoAsia umbrella, he added.

CPI is Indonesia's largest oil producer, with an output of 478,000 barrels
per day, roughly half of the country's total oil production, from its wells
in Riau province.

ChevronTexaco Energy Indonesia Ltd operates the Darajat geothermal
power-generating operations in West Java.

Unocal, according to its website, has interests in 10 production-sharing
areas in Indonesia, including the deepwater West Seno field in the Makassar
Strait.  It also operates the Attaka field, which supplies gas to the Badak
LNG plant in Bontang, East Kalimantan.

Tender for Gas Pipeline Project
The government next month will hold a tender for the construction of a
1,200-km gas transmission pipeline to transport gas from East Kalimantan to
Central Java.

The downstream oil and gas supervisory body BPH Migas is preparing for the
tender in September, earlier than the original schedule, its chief Tubagus
Haryono was quoted as saying by Antara.

The government has said it will speed up the construction of the gas
pipeline, estimated to cost $1.2 billion, to cope with frequent shortage of
gas supplies in East Java and West Java.

The transmission pipeline will have the capacity to transport 1 billion
cubic ft of gas per day.

State-owned gas distributor PGN said construction of the project could be
completed in two years if funds are available by the end of the year.

The target is to reduce the annual use of fuel oil by 20 million kiloliters
in Java in 2009, PNG President WMP Simanjuntak said.

The substitution with gas could save the government up to Rp60 trillion ($6
billion) in fuel oil subsidy, Simanjuntak said.



MINING
Thai Banpu Divests Mine
Thai coal mining company Banpu PCL has divested its coal mining unit in
Indonesia, PT Nusantara Thai Coal, for $1.3 million.

Banpu Minerals Singapore Ltd and PT Nusantara Thai Mining Services, which
hold 95% and 5% of Nusantara Thai Coal respectively, have sold their
combined shares to PT Bungo Raya Nusantara and PT Bara Adhipratama,
according to Dow Jones.

Nusantara Thai Coal has been granted a coal mining concession for the
underdeveloped Mampun Pandan mine in Sumatra, which is located more than 300
km away from waterway transport.

The company said it decided to divest the unit due to excessive
transportation costs.


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