[Marinir] Trade & Invest News-11 July 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, 11 July 2005


Highlights

Politics
·         President Yudhoyono to delay his planned trip to China, Thailand 
and Brunei to deal with the fuel crisis at home
·         New National Police Chief Sutanto has been told to make fighting 
corruption and terrorism his priorities
·         Eleven suspects charged with acts of terrorism
          Economy
·         Investment approvals in the fourth quarter more than four times 
the level in the same period of last year
·         Coordinating Economics Minister Aburizal Bakrie says more good 
news is on the way, with strong commitment from China
·         The central bank says growth this year will hit 5.9%
·         Parliament's budget commission agrees on parameters for next year's 
budget that estimate growth of up to 6.5%

Business briefs
Macroeconomy
·         The central bank announces five measures to support the rupiah
           Investment
·         Japanese electronic producer Sanyo to invest $20 million to boost 
production
·         French company Lafarge SA to spend $90 million to rebuild a cement 
plant in Aceh
          State concerns
·         Indonesia and Japan to start negotiations on a free trade 
agreement on July 14-15
·         Indonesia to allow the use of imported wood in rebuilding 
tsunami-hit areas
         SOEs
·         The government to restructure the debt of state-owned Merpati 
Nusantara Airline
          Private sector
·         Average hotel occupancy rate in Indonesia increases
·         Automobile production predicted to reach 750,000 units in 2009
          Banks
·         Banks collected Rp988.7 trillion ($104 billion) in third party 
funds by May 2005, indicating improving public confidence in banks
          Oil & gas
·         Vice President Jusuf Kalla hints the government will have to 
reduce fuel subsidies next year
           Mining
·         The Constitutional Court allows seven companies to go ahead with 
mining operations



POLITICS
Yudhoyono Postpones China Trip
President Susilo Bambang Yudhoyono on Saturday (9/7/05) postponed this week's 
scheduled visit to China, Brunei Darussalam and Thailand because of the 
current fuel crisis.

Cabinet sources and presidential spokesman Andi Mallarangeng said Yudhoyono 
would reschedule the trip in late July.

The president is to meet the country's 32 provincial governors to discuss 
the steps needed to save fuel and reduce power consumption.

Officials say the efficiency drive will in general be applied to commercial 
buildings, transportation, power consumption and industry.

Yudhoyono's planned visit to Beijing would have marked his second meeting 
with China's president in three months, underlining the warming economic and 
political ties between the two giant Asian nations.

He was scheduled to leave for China on Wednesday (13/7/05) for a three-day 
trip, during which he was also to visit the southern Chinese province of 
Guangzhou.

Guangzhou is the center of China's manufacturing industry. It is an 
important investment destination for Indonesian businesses and a big buyer 
of the country's plentiful raw materials.

Yudhoyono was expected to discuss economic and regional issues with Chinese 
President Hu Jintao.

In April, Hu Jintao made a two-day state visit to Indonesia and signed 
agreements to boost bilateral trade by more than 50% over the next three 
years to $20 billion.

The figure marks an increase of $7 billion in annual trade between the two 
countries, up 54% from the current $13 billion as recorded by China's 
statistics.

Indonesia wants to sell more of its natural gas, coal, palm oil and many 
more commodities and hopes to attract more Chinese investment in its 
economy, which is currently growing around 6% a year.

Political ties between Indonesia and China have improved significantly since 
the downfall of former president Suharto, who cut ties with communist China 
between 1965 and the 1980s. The two leaders signed a Joint Declaration of 
Strategic Partnership which will be the grand design of various cooperation 
in the fields of political and security, economic and development, and 
socio-culture.

Police Chief to Hit Corruption and Terrorism
President Susilo Bambang Yudhoyono swore in new national police chief Gen 
Sutanto on Friday (8/7/05) and told him to crack down on corruption and 
improve cooperation with foreign security agencies in the fight against 
Islamic terrorists.

"The new chief must continue the successes of the old one in the 
anti-terrorism field, especially in cooperation with foreign countries," he 
said.

His remarks came a day after suspected Islamic extremists exploded bombs in 
three subway trains and a bus in London, killing at least 60 people and 
wounding 700.

Sutanto took over from Gen. Da'i Bachtiar, who was in the post for four 
years. "We want the security situation to quickly improve so we will arrest 
whoever is suspected of being a (terrorist) perpetrator," Sutanto told 
reporters after the ceremony.

The Indonesian government condemned the attacks in London. "We are appalled 
by the news of the terrible acts of terrorism," said foreign ministry 
spokesman Marty Natalegawa. "We condemn these acts, which remind us that 
such acts of terrorism can strike any place at any time, causing great 
suffering to innocents.

11 Terrorist Suspects Charged
 Police said Tuesday (5/7/05) that 11 out of 17 alleged terrorists arrested 
the previous week had been officially charged as suspects in relation to a 
string of terror activities around the country, including the deadly bomb 
blast in front of the Australian Embassy in Jakarta last year.

Police spokesman Brig. Gen. Soenarko told reporters that the suspects, who 
were apprehended in Central Java and Jakarta, will be charged under the 
Anti-terrorism Law (No15/2003), which carries a maximum penalty of death.

Investigators believe they were planning attacks against the national and 
the Jakarta police headquarters.

Nine of the 11 were apprehended in Solo and neighboring Wonogiri in Central 
Java, while the other two were arrested in Jakarta. Their names have yet to 
be released.

The two men seized in Jakarta  allegedly provided the detonators and TNT 
explosives used in last September's Australian Embassy attack, which killed 
10, including the suicide bomber, and wounded 180 people.

Three suspects being held in Central Java are facing charges of harboring 
fugitive Malaysian bomb-makers Azahari bin Husin and Noordin Mohomad Top, as 
well as supplying materials for a series of bomb attacks around the country.

Four other detainees have been charged with aiding and abetting terrorists, 
including providing transportation and financing, and the final two are 
suspected of involvement in the murder of prosecutor Ferry Silalahi last 
year in the Central Sulawesi town of Palu.

Ferry was shot dead in his car after leaving a house where he had attended 
an evening religious service.

The six other people in custody are still undergoing tactical interrogation 
and have yet to be declared suspects.


Jakarta Rejects E. Timor Tribunal
Indonesia on Thursday (7/7/05) formally rejected a recommendation by a UN 
panel of experts that an international tribunal be set up to judge military 
officers and others accused of atrocities in East Timor in 1999.

"We have all along rejected the recommendation on the establishment of an 
international tribunal because it is not a solution," Foreign Minister 
Hassan Wirayuda told reporters after a cabinet meeting.

Wirayuda said Indonesia would soon write to UN Secretary General Kofi Annan 
and the Security Council to convey its rejection of the report by the 
three-member UN Commission of Experts.

Wirayuda said Indonesia and East Timor were bringing justice through 
reconciliation efforts and by calling for an international tribunal the UN 
panel had exceeded its mission's purpose.

"Regardless of the Commission of Experts' recommendations, we will continue 
to work with East Timor to come to terms with the past through the 
Commission of Truth and Friendship," Wirayuda said.

East Timor leaders have said they do not support an international tribunal, 
preferring to focus on good ties with their neighbor.



REGIONS
Tsunami Reconstruction

Indonesia will allow the use of imported wood in rebuilding tsunami-hit 
areas to prevent the use of illegally felled timber, Agence France Presse 
quoted reconstruction chief, Kuntoro Mangkusubroto, as saying.

The country will also allow the import of other materials, such as steel and 
cement, if domestic products are too expensive, he said.

The conservation group Fauna and Flora International had reported that 
illegally felled timber was being used to rebuild houses in 
tsunami-devastated Aceh province, warning that this could lead to another 
disaster.


New Route for Ladia Galaska Road
The government will create a new route for the controversial Ladia Galaska 
highway project in Aceh to avoid passing through the Gunung Leuser National 
Park, The Jakarta Post reported.

A meeting between Minister of Public Works Djoko Kirmanto, Minister of 
Forestry M.S. Kaban and State Minister of the Environment Rachmat Witoelar 
agreed to avoid the Pinding-Lokop region that falls within the Leuser 
ecosystem, considered to be one of the few remaining pristine forest areas 
in the country.

Instead the road will be re-routed through Peurelak in a change that will 
set the project back around five months.

The 470-km Ladia Galaska highway, which will link the west and east coasts 
of the province, is expected to stimulate economic activity in the 
province's western coastal areas.



ECONOMY
Investment Moves Higher

Investment moved higher once again in the second quarter, with approvals 
hitting $2.9 billion, more than four times the figure of $577 million in the 
same period of last year.

Coordinating Minister of Economic Affairs Aburizal Bakrie said the rebound 
was largely due an improvement in the investment and political climate. "The 
trust is coming back to Indonesia," Bakrie told the Associated Press.

"The stable political situation, a new president elected democratically by 
the people, the action against corruption," he said listing the factors 
driving the country's economic resurgence.

The investment is key to achieving the target of 6.6% in gross domestic 
product growth between 2004 to 2009. The government has projected an 
economic expansion of 6.0% this year, up on the 5.4% GDP growth registered 
last year.

Bakrie said he expected foreign investment to remain strong in the coming 
years, led by China, Japan and Singapore. He said recent, high-level 
meetings with Chinese leaders have produce commitments of $10 billion over 
the next five years, nearly $8.6 billion of that in palm oil plantations.

He said he expects China's investment could reach $16.7 billion in areas 
like petrochemicals, refineries and coal projects. "Investment from China 
will be very, very big," he said.

The economic recovery continued, with BI saying it expected GDP to have 
grown between 5.5 and 6.0% in the second quarter.

The central bank said GDP growth for the full-year 2005 is seen at 5.9%, in 
the same range as its previous estimate of 5.0-6.0%.

"Going forward the economic prospects for the next quarter and for the whole 
of 2005 are still promising," it said.

BI on Tuesday also launched its new reference rate, or the BI rate, to guide 
interest rate movements over the next three months to target inflation 
better.

The BI rate had been set at 8.5%, indicating further interest rate hikes on 
the one-month Bank Indonesia Certificates (SBIs).

In the latest auction Wednesday (6/7/07), BI sold Rp15.10 trillion worth of 
one-month SBIs at a weighted average interest rate of 8.44% against 8.25% at 
the previous week's auction. It was the biggest increase in almost four 
years.

Meanwhile the government received approval from the House of Representatives 
Budget Commission on assumptions to be used in next year's budget. The 
assumptions include economic growth of up to 6.5% and a budget deficit of 
0.7 percent of GDP.

The commission agreed Thursday (7/7/07) on an inflation rate assumption of 
between 4.5-6.5% for next year and a rupiah range of between Rp9,000 and 
Rp9,400 to the U.S. dollar. Oil production is expected to reach between 
1.075 and 1.125 million barrels per day, with the oil price assumption in a 
range between $40 and $45 a barrel.



BUSINESS BRIEFS
MACROECONOMY
BI Firm on Exchange Rate

Bank Indonesia (BI) still hopes the rupiah's average exchange rate this year 
would be 9,300 to the US dollar as assumed in the revised state budget, 
Governor Burhanuddin Abdullah said.

New measures announced by the central bank and the government should enable 
the rupiah to achieve the target, Abdullah said, according to AFX.

"Year-to-date average exchange rate is 9,556, compared to the budget 
assumption of 9,300.  We expect that in the second half, it (average rate) 
would be lower than that," he said.

BI last week announced five measures to shore up the rupiah after it nearly 
broke the 9,900 level against the greenback.

The first is that the government will supply dollars directly to state oil 
and gas firm PT Pertamina using the government's holdings with BI, instead 
of letting the state oil and gas company procure dollars from the market for 
its oil import requirements.

Second, the central bank will assign state banks to supply dollars to other 
state-run companies such as electricity firm PT Perusahaan Listrik Negara. 
Third is to require state companies to repatriate their export earnings and 
place them in local banks to increase dollar supply.

Abdullah said a study by the central bank indicated that repatriation of 
export revenue placed in overseas accounts could increase dollar supply by 
$8 billion to $10 billion per year.

He said the measure could be extended to cover all locally based exporters 
to repatriate and keep their export revenues in the country.

Coordinating Minister for Economic Affairs Aburizal Bakrie said separately 
that the government and the central bank are drafting a regulation on dollar 
repatriation. "More than 100 countries have implemented" policies on dollar 
repatriation, he said, adding that "We can start with state companies and 
later move to private firms."

Fourth is to increase bilateral currency swap agreements with the ASEAN+3 
grouping among ASEAN members and China, South Korea and Japan to enable them 
to help one another when their currencies come under heavy pressure.

And fifth, the central bank will implement a new forex transaction 
regulation, which imposes restrictions on rupiah purchase and sales 
agreements between banks and non-residents if they are not backed up with 
actual transactions.

Rp18.9t Budget Surplus
The government posted a budget surplus of Rp18.9 trillion ($1.93 billion) in 
the first half of 2005, against a Rp20.3 trillion deficit predicted in the 
state budget, data from a government official showed.

"Revenues were recorded at Rp191.2 trillion and expenditures stood at 
Rp172.3 trillion," Reuters quoted Mulia Nasution, a Director General at the 
Finance Department, as saying.

The Indonesian government has forecast a budget deficit of 0.8% of the 
country's gross domestic product for all of 2005, compared to 1.3% of the 
GDP targeted in the state budget last year.

Jakarta has been trying to bring down the country's budget deficit in the 
past few years in a bid to strengthen its fiscal position and help maintain 
macroeconomic stability.

GDP at 5.5%-6% in Q2
Indonesia's gross domestic product is expected to have grown 5.5% to 6% in 
the second quarter to June from a year earlier, driven by improving 
investment activity, Bank Indonesia said.

GDP growth for full-year 2005 is seen at 5.9% in the same range as its 
previous estimate of 5% to 6%, Agence France-Presse quoted the central bank 
as saying in a statement.

The second quarter GDP growth should be within the 5.5% to 6% range despite 
a slowdown in global economic growth, it said.

Indonesia's economic growth during the second quarter is "still high amid an 
economic expansion pattern marked by increased investments". The central 
bank also said that manufacturing exports rose slightly.

The bank's full-year GDP growth estimate of 5.9% is below the government's 
forecast of 6.5% under the revised budget but BI said it expects the GDP to 
be boosted by increased investment activity and a bigger contribution from 
exports of manufactured goods.

It forecasted full-year core inflation at 7%, compared to the government 
forecast of 7.5% real inflation for 2005.

Considering the macroeconomic estimates and inflationary pressures ahead, 
the central bank said it would maintain a "tight bias" monetary policy --  
which was used to gradually raise the bank's key interest rates since last 
year.

SBI Rate Jumps
Rates on Indonesia's benchmark one-month central bank certificates (SBI) 
rose at an auction on Wednesday (6/7/05) by 19 basis points, the biggest 
increase in almost four years, as authorities try to boost the rupiah and 
curb inflation.

The widely held one-month SBI rose to 8.44% from 8.25% at the week-earlier 
auction, the biggest increase since August 2001.

The SBI rate compares with a new reference rate for the debt of 8.5% set by 
Bank Indonesia on Tuesday (5/7/05).

The rise in three-month SBI rates to 8.45% from 8.05% at an auction in June 
was the biggest since September 2001.

BI absorbed Rp15.1 trillion ($1.5 billion) in the one-month auction, 
slightly below its Rp16 trillion target and compared with Rp12.5 trillion in 
debt maturing last week.

The central bank raised Rp132.5 billion in three-month paper compared to a 
Rp1 trillion target and a maturing amount of Rp730 billion.

Non-Oil/Gas Export Target
The government will push for an 8% growth in non-oil/gas exports this year 
to $60 billion from $56 billion last year, Trade Minister Mari Pangestu 
said.

The target is down from 12% last year considering the present global 
economic condition, which is marked by soaring oil prices, Antara quoted her 
as saying.

In the first five months of the year, exports grew 30% in rupiah terms but 
the increase was attributable more to the fall in the value of the rupiah 
than to a rise in export volume, Pangestu said.

Indonesia's main non-oil/gas export commodities are textiles, cosmetics, 
jewelry, food and beverages and agricultural products.

Revenue from Import Duties
Revenue from import duties is estimated to reach Rp14.87 trillion this year, 
slightly higher than the government's full-year target of Rp14.64 trillion, 
a Finance Department official said.

Of the amount, Rp7.12 trillion has been collected as of June 23, AFX quoted 
Director General for Customs and Excise Eddy Abdurachman as saying.

The country's import spending has been growing at a double-digit rate since 
the middle of last year as investment activity picked up, matching domestic 
consumption and rising export demand.

Excise revenue as of June 23 totalled Rp13.65 trillion, or 43.43% of the 
full-year target of Rp31.43 trillion, he added.



INVESTMENT
Sanyo to Invest $20m

An Indonesian unit of the Japanese electronic producer Sanyo Co plans to 
invest $20 million this November to boost production, The Jakarta Post 
quoted Industry Minister Andung Nitimihardja as saying.

The minister's statement quashes rumors that there would be layoffs in 
Indonesia, where four Sanyo companies are located.

The Japanese newspaper Nihon Keizai Shimbun recently reported that Sanyo 
plans to dismiss 10,000 of its employees worldwide as part of cost-cutting 
measures due to its $1.55 billion loss last year.

Sanyo, on the contrary, says it remains committed to Indonesia as demand for 
its products in the country continues to be high despite the emergence of 
new players in the industry, the minister said.

All the four companies felt they had to increase their production capacity 
just to keep up with the demand, he added.

Sanyo's Indonesian units -- PT Sanyo Electronics Indonesia, PT Sanyo 
Indonesia, PT Sanyo Jaya Components Indonesia and PT Sanyo Energy 
Indonesia -- employ about 10,450 workers.

"They told me that if the country's infrastructure improves and the 
government could draw up better policies on tax and labor issues, Sanyo 
companies in Indonesia will soon expand their business, rather than lay off 
employees," Nitimihardja said

Lafarge to Rebuild Aceh Plant
Lafarge SA will invest $90 million to rebuild a cement plant in Aceh 
destroyed by last December's tsunami, the French company said.

Lafarge said the refurnished plant, which would have an annual production 
capacity of about 1.6 million tons, is expected to be operational by 
mid-2007, Dow Jones Newswires reported.

The company said it would also finance the building of 500 houses, a school 
and a mosque in a village near the factory that was also devastated by the 
tsunami. Lafarge lost about a third of its 625 full-time workers in 
Indonesia in the disaster.

China, ASEAN Trade
About 200 businessmen and trade officials from China and members of the 
Association of Southeast Asian Nations (ASEAN) had begun discussing the 
opportunities brought about by their Trade in Goods Agreement, to take 
effect on July 20, Asia Pulse reported.

The agreement, the core of the ASEAN-China Free Trade Agreement, will lead 
to reduced duties for some 7,000 kinds of goods this month.

China and Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand, 
will start zero tariffs on common products by 2010 while China and the other 
four ASEAN members will do the same by 2015.

Data from China's Customs Bureau showed that bilateral trade between China 
and the ASEAN has grown by 20% annually since 1990, reaching $105.9 billion 
in 2004.



STATE CONCERNS
Indonesia, Japan Talk Free Trade

Indonesia and Japan will start negotiations on their free trade agreement on 
July 14-15, a Trade Ministry official told Kyodo News.

The first meeting will discuss the modalities of the negotiations but will 
not touch on timeframe and tariffs, the official said.

Indonesian President Susilo Bambang Yudhoyono and Japanese Prime Minister 
Junichiro Koizumi last month agreed that the talks, which will cover trade 
in goods and services, investment, movement of people and intellectual 
property rights, will be concluded "within a reasonable period of time".

Local daily Bisnis Indonesia quoted Herry Sutanto, Director General for 
International Trade, as saying the negotiations are expected to last two 
years but could be speeded up to 18 months.



SOEs
SOE Forex Repatriation

The government's latest currency defense policy, which requires state-owned 
enterprises (SOEs) to repatriate their export revenues, is expected to 
strengthen the country's foreign exchange reserve by up to $10 billion, Bank 
Indonesia (BI) said.

BI Governor Burhanuddin Abdullah said the central bank believes that the 
policy would improve the country's forex supply side, particularly regarding 
the American greenback, The Jakarta Post reported.

"The policy could bring between $8 million and $10 billion into the country 
per annum," he said.

The government recently issued a ruling requiring SOEs to place their export 
revenues in local banks as part of its latest effort to help strengthen the 
rupiah, which recently hit a three-year low.

Other measures include arranging the dollar needs of SOEs through appointed 
state banks and supplying state oil and gas firm Pertamina's particularly 
large dollar requirement for oil imports directly out of the country's 
foreign exchange reserves.

Indonesia's foreign currency reserves as of June 30 stood at $33.87 billion, 
down $510 million from the previous week.

Abdullah said the government's policy would not violate international 
conventions -- including Indonesia's agreement with the International 
Monetary Fund (IMF) -- on forex trading.

"There are 101 other countries studied by BI that have implemented such 
repatriation policies," he said. "Of the 101, 76 implement direct 
repatriation without currency conversion beforehand."

Abdullah said BI must still work with the government to provide the 
necessary administrative infrastructure needed to effectively implement the 
policy and encourage other export-oriented firms operating in the country to 
do the same.

Data from the Central Statistics Agency shows that Indonesia's exports 
between January and May reached $33.88 billion, producing a surplus of $10.3 
billion as imports stood at $23.57 billion.


Jakarta Rail Privatization
The Greater Jakarta (Jabotabek) branch of state-owned railway company PT 
Kereta Api (KA) will be privatized in 2009, Asia Pulse reported.

PT KA Jabotabek will be privatized once the construction of new tracks in 
the area, which covers Bogor, Tangerang and Bekasi, is completed, the 
Transportation Department's director for railways Harris Fadillah said.

The move could help guarantee the safety of railway passengers, he said. 
Scores of passengers were killed in a recent railway accident in Jakarta 
when an electric locomotive rammed into another electric train parked at a 
station at Pasar Minggu.

Gov't to Revitalize Merpati
The government has decided to restructure the debt of state-owned Merpati 
Nusantara Airline and revitalize its fleet in cooperation with investors, 
Antara reported.

State Minister for State Enterprises Sugiharto said the first step would be 
to restructure a debt of Rp1.6 trillion ($168 million) owed by the airline 
to vendors and the government, which matured last March.

The government and the House of Representatives have agreed to shore up the 
ailing company and inject Rp400 billion to allow it to resume normal 
operations.

Sugiharto did not specify the name of the investors to be involved in 
revitalizing Merpati but earlier Royal Brunei Airlines, AirAsia, Virgin Blue 
Airlines, and Swiss International Airlines had reportedly indicated 
interest.

Kertas Kraft Aceh Gets Loan
A consortium of state-owned banks has agreed to loan PT Kertas Kraft Aceh 
Rp350 billion ($35.7 million) to enable the state-owned paper producer to 
resume operations, Antara reported.

Indonesia's sole producer of kraft paper used for cement sacks has been idle 
for more a year due to financial problems and a shortage of gas supply for 
fuel.

Kertas Kraft  Aceh, which has an annual capacity of 135,000 tons, will use 
the loan as its working capital so it could start operating again early next 
year, the Industry Ministry's director for upstream chemical industry, Agus 
Mundiono said.



PRIVATE SECTOR
Rise in Hotel Occupancy

Indonesia's average hotel occupancy rate has increased, with the highest 
recorded by East Java and Central Java, general chairwoman of the Hotel and 
Restaurant Association Yanti Sukamdani said.

Normally even in peak seasons occupancy rates in East Java and Central Java 
remain low, but in June they recorded an occupancy rate exceeding the 
country's average of 60%, she said, according to Antara.

Hotels in East Java registered a rise in foreign guests from the usual 
40,000 to 200,000, she said, noting that occupancy rates averaged 80% in 
Bali, Batam, Jakarta, Semarang and Yogyakarta.

Increased Car Production
The Industry Department has predicted that Indonesia's car production will 
reach 750,000 units in 2009, up from 483,283 units in 2004 and the projected 
550,000 units this year, Antara reported.

To reach the target, the department has prepared a mid-term plan to increase 
investment in the component industry, its secretary general, Agus Tjahjana, 
said

The government will also encourage car makers to improve their skills in 
design and engineering.

He noted that the multipurpose vehicle has continued to dominate production 
and sales in the country.

The strong market for Multi-Purpose Vehicles has prompted foreign majors 
such as Suzuki, Toyota and Honda to make the country their production base 
for certain car models, he said.

Indosat to start G3 pilot project
Cellular phone operator PT Indosat plans to try out its third-generation 
(3G) technology in August as part of preparations to obtain a 3G license 
from the government, Indosat president Hasnul Suhaimi was quoted as saying 
by The Jakarta Post.

Suhaimi said the pilot project, to be launched in Jakarta and Surabaya, will 
monitor market response, the technical implications, customer service as 
well as see how to offer the technology.

Indosat plans to invest $90 million in the 3G project, or about 80% of its 
recent Rp1 trillion bond issue, he said.  "Hopefully with this pilot project 
we will get the (3G) license next year and launch the product later on."


BANKS
Public Confidence Improving

Indonesian banks collected Rp988.7 trillion ($104 billion) in third party 
funds by May 2005, marking an increase of 10.1% year-on-year.

The increase indicates that public confidence in Indonesian banks has 
improved, Antara quoted a central bank official as saying.

Outstanding credit by May totaled Rp609.3 trillion or an increase of 29.35% 
a year ago, Amril Arief, head of Bank Indonesia offices in Central Java and 
Yogyakarta said.

Credit disbursement in some areas is still low, Arief noted, attributing it 
to debtors' characteristics in the regions although loan-to-deposit ratio 
has tended to increase.

In Yogyakarta, outstanding credits totaled only Rp4 trillion but third party 
funds held by banks totaled Rp9 trillion. The big gap was caused by the fact 
that debtors in Yogyakarta are mostly micro and small scale enterprises.



POWER
Power Plant Project in Batam

The management of PT Bukaka Barelang Energy (BBE) said the gas-fired power 
plant and gas pipeline projects in Batam will be completed in 2007, 
according to Antara.

BBE is a joint venture between PT Bukaka Realty and PT Pembangunan Daerah 
Batam, which is owned by the Batam administration.

It will build a 75 MW gas-fired power plant in Panaran and a 573-km $845 
million pipeline project from Jambi in Sumatra to Panaran.

The pipelines will transport gas from the Prambulih-Pagar Dewa gas field in 
South Sumatra to Jambi and to Batam.  The company will also build gas pipes 
to distribute gas in Batam and neighboring islands.



OIL & GAS
Fuel Price Might Increase Next Year

With the recent fuel shortages in some areas in the country and rising 
global oil prices, Vice President Jusuf Kalla has hinted that the government 
will have to reduce fuel subsidies next year if it wants the economy to 
progress, The Jakarta Post reported.

"Our best option is to do a price (assumption) adjustment, which is not a 
popular move.  But it would be even more unpopular if we burned the subsidy 
(money) on the streets," he said on Friday (8/7/05).

Kalla said global oil prices -- which have hit $61 per barrel -- would force 
the government to spend as much as Rp135 trillion ($13.79 billion) this year 
on fuel subsidy, with half of it going to the transportation sector.

The government has allocated a fuel subsidy of Rp76.5 trillion, on the 
assumption that oil prices average $45 a barrel and annual fuel consumption 
reaches 59.6 million kiloliters.

He said Indonesia had become the biggest socialist country in the world by 
disbursing 27% of its state budget to subsidize a commodity.

Kalla said this would hamper the economy and prevent the government from 
developing infrastructure such as roads, schools and hospitals.

The government slashed fuel subsidies last March, vowing to keep gasoline 
prices stable at least until next year.

Increase in Industrial Oil Price
The government will soon raise the prices of industrial diesel oil for 
export-oriented mining companies, Vice President Jusuf Kalla said. The 
decision aims to prevent further increases in fuel subsidy, Antara reported.

Meanwhile, State Minister for National Development Planning Sri Mulyani 
Indrawati said the government is considering raising kerosene prices as an 
incentive for users of alternative sources of energy.

Indrawati said low kerosene prices will not encourage the use of alternative 
sources of energy such as coal.  The government had maintained the price of 
kerosene when it announced a 30% hike in fuel oil prices last March.

30 Bidders for Blocks
At least 30 foreign and local companies are interested in 27 new oil and gas 
blocks offered by the government, Antara reported.

The 30 companies took part in a tender held on June 10 to develop the 
blocks, director for explorations and production of the Oil and Gas 
Directorate Novian M. Thaib said.

ConocoPhilips, Chevron, Husky Energy, Marathon Energy and Amerada Hess from 
the United States, Shell from the Netherlands, Santos from Australia, 
Genting Oil from Malaysia and Star Energy from Indonesia were among those 
which bid for blocks located in such areas as Cakalang, Kerapu and Baronang 
off Natuna island, East Baqwean I and II off East Java, Lampung I and II in 
Lamoung, and Buton I and II in Sulawesi.


MINING
Seven Projects to Go Ahead

The Constitutional Court has approved proposals for open-pit mining in 
protected forests by seven companies that have already begun operations.

The Constitutional Court on Thursday (7/7/05) rejected a request from NGOs 
and a number of individuals to ban all open-pit mining in protected forests, 
allowing the seven firms that had begun work to continue.

In the complex 420-page judgment, the Constitutional Court judges ruled that 
"the six companies which are still at the stage of exploration or 
feasibility studies, at such time as they enter the exploitation stage must 
comply with the requirements in Clause 38(4) of the Forestry Law (which 
prohibits open-pit mining in protected forests) as long as their licenses 
for exploration and exploitation are not combined licenses."

The ruling honored the contracts of companies that already have mining 
licenses and have begun operations.  These include Newcrest, with its mine 
in northern Sulawesi, and the giant Freeport operation in Papua.

Chief Judge Jimly Asshiddiqie said overturning the law permitting 13 firms 
to operate could have created legal uncertainty in Indonesia.

The seven companies allowed to engage in open pit mining in protected 
forests are PT Freeport Indonesia, PT Karimun Granite, PT INCO, PT Indominco 
Mandiri, PT Aneka Tambang (Buli), PT Natarang Mining, and PT Nusa Halmahera 
Mineral.

Third Coal Mine for Thai Company
Thai mining company Lanna Resources plans to develop a third coal mine in 
Indonesia for $19.2 million, Antara reported.

Company executive Srihasak Arirachakaran said the project is expected to 
start operating next year.  The company already has two subsidiaries 
operating coal mines in the country -- PT Lanna Harita Indonesia and PT 
Citra Harita Mineral, each of which is 55% owned by Lanna.

The two subsidiaries' combined annual output has reached 1 million tons but 
could be expanded to 5 million tons.

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