[Marinir] Trade and Investment News, 25 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, 25 July 2005

Highlights

Politics
·         President Yudhoyono orders a halt to all offensive operations in
          Aceh
·         President Yudhoyono to leave on his delayed visit to China

Regions
·         Troop numbers to be scaled down in Maluku province

Economy
·         A decision by US investment fund Bear Stearns to upgrade Indonesia
           to overweight sends the Jakarta Stock Exchange to new records
·         The Fitch ratings agency says the entry of foreign banks is
          positive

Macroeconomy
·         More debt bought back

Investment
·         President Yudhoyono's recent visit to Japan netted $1.3 billion in
          investment commitments
·         China to invest $2 billion on development of entertainment
          infrastructure in the Thousand Islands

State concerns
·         Telephone providers to contribute rural telephone systems

SOEs
·         Indonesia's largest mobile phone operator, PT Telkomsel,
          registered 22.5 million users

Private Sector
·         PT Excelcomindo will tap the US dollar bond market after an IPO
·         Some 40% of Indonesia's people soon to be cellular phone users

Banks
·         The ratings agency Fitch says the government's war on corruption
          will have a positive effect on the banking sector
·         The government calls on banks to support the manufacturing sector

Power
·         Peak-time power consumption down considerably due to a
          conservation campaign
·         State electricity company PLN plans to substitute fuel oil with
          other energy sources

Oil & gas
·         The government and a joint venture of subsidiaries of ExxonMobil
          and Pertamina to sign a deal on the Cepu block
·         Liquefied natural gas exports contributed Rp100 trillion (about
          $10.5 billion) in foreign exchange last year
·         Plans to sell up to 10% of PT Perusahaan Gas Negara

Mining
·         Sebuku Coal Mine on Target



POLITICS
Aceh Military to Halt Offensive

President Susilo Bambang Yudhoyono has ordered the military to avoid all
offensive operations following clashes with rebels in Aceh which broke out
after government and Free Aceh Movement (GAM) negotiators concluded a
ground-breaking draft peace agreement on July 17.

At the same time, Justice Minister Hamid Awaluddin has announced` that the
Government will begin scaling back its 40,000 non-organic military and
police forces in Aceh between mid-September and December 31 in conjunction
with the gathering and destruction of GAM weapons.

Speaking after a Cabinet meeting late on Wednesday (20/7/05), Cabinet
Secretary Sudi Silalahi said the president has made it clear the military
must switch to a defensive posture in the restive province, even if it
anticipates a rebel attack. On Monday, military chief Gen. Endriartono
Sutarto pledged to hold back any offensive activities.

The agreement on the draft peace pact is scheduled to be signed in Helsinki
on August 15, ending nearly 30 years of separatist conflict that has claimed
5,000 lives.

The deal covers the disarmament of the 5,000-strong GAM guerilla force, the
withdrawal of troops, the monitoring of a ceasefire and the reintegration of
the rebels back into society.

GAM set aside its demand for independence, and the government moved to
accommodate GAM's request for political participation in Aceh.

Vice President Jusuf Kalla, who has been instrumental in guiding the talks,
says Parliament will have to agree to change the law to accommodate a key
demand by rebels to form their own political party as part of the deal.

"A local party would need a change in the law and that would need the
agreement of the Parliament," Kalla told reporters. "The government will try
as hard as it can to create the political and legal situation in support of
that."

Negotiators said the details of the accord will not be released before the
formal signing in August, but the deal reportedly allows 18 months for the
completion of the legislative process.

In the meantime, the rebels will be allowed to field individual candidates
in local elections for district chiefs and mayors, which will be held next
April instead of this October.


President Heads for China

President Susilo Bambang Yudhoyono will leave on Wednesday (27/7/05) for a
four-day trip to China, where he will meet with his counterpart Hu Jintao
and other high ranking Chinese officials, said presidential spokesman Dino
Djalal.

Yudhoyono's first date on his arrival in Beijing is with the Indonesian
community living in China. The following day, he meets National People's
Congress chief Wu Bang Guo and Chinese Prime Minister Wen Jiao Bao.

President Hu is scheduled to receive Yudhoyono on the same day for bilateral
talks, after which the two leaders will witness the signing of several
memorandums of understanding on trade and investment. That night, Hu is to
host a state dinner in his visitor's honor.

On the third day, the president has planned a series of one-on-one meetings
with Chinese businesspeople. "This is a standard format for the president
when making an overseas visit," Djalal said.

The president would later attend a business lunch together with members of
the Indonesian Chamber of Commerce and Industry (Kadin) and their Chinese
counterparts.

On the fourth day, Yudhoyono will fly to Shenzhen, one of the
fastest-growing Chinese cities, where he is to meet the mayor and the
secretary of the local communist party.

The president also plans to visit a hospital there and technology company
Huawei Technologies, before flying home to Jakarta.

Hu Jintao visited Indonesia last April for the Asia Africa Commemorative
Summit and officials from the two countries signed an agreement to enhance
bilateral trade worth from US%13 billion in 2004 to US$20 billion in 2008.

China also offered assistance to Indonesia in the form of $400 and $300
million of preferential buyer credits for several infrastructure projects,
and a total of about $20 million grant in the form of technical assistance
in various fields.


Embassy Bomb Suspect Jailed

The first suspect to face trial over the 2004 bombing of the Australian
Embassy in Jakarta was sentenced to 3 1/2 years in jail on Thursday
(21/7/05) after judges cleared him of helping plan the attack.

The main charge against Hidayat was helping plan the September 2004 attack
that killed 10 people and wounded more than 200 others. If found guilty of
that charge he could have faced the death penalty.

Judges said that charge could not be proved, but found him guilty of the
lesser charge of "assisting in a terrorist action" by lending money  and
providing a refuge to the perpetrators of the attack.

Police are preparing cases against five other people arrested in relation to
the embassy blast.
Two Malaysian militants, Azahari bin Husin and Noordin Mohamed Top, are
still wanted as suspects in the attack. Both are alleged leaders of the
Jemaah Islamiyah terror group blamed for a series of deadly bombings in
Indonesia since 2002, which have claimed 214 lives.




REGIONS
Troop Withdrawal from Maluku

The government is planning to withdraw some 3,000 non-organic troops from
Maluku next year, but will maintain other 1,650 of non-organic mobile police
there to maintain security, in a clear sign of improving security
conditions, The Jakarta Post reported.

Pattimura Military Commander, Maj. Gen. Syarifuddin Suma said it was planned
to enlarge the local territorial command to anticipate any future security
problem.

At present, there are about 4,000 organic troops in Maluku, comprising of
three infantry battalions and one cavalry unit.

Syarifuddin spokes to reporters after a meeting with Vice President Jusuf
Kalla, Maluku Governor Karel Albert Ralahalu, provincial police chief Brig.
Gen. Aditya Warman, and local legislator Richard Lauhenapessy.

During the meeting, the National Police also proposed to maintain 1,650
non-organic mobile police in the province since most of the organic police
are deemed "not neutral" in trying to any religious conflict there.

"In general, the security situation in Maluku is conducive enough, but it
remains fragile in the long run, especially when the TNI is planning to
reduce their troops there amid several potential conflicts there," the
police chief said.



ECONOMY
Bear Stearns Lifts Markets

An announcement by US investment house Bear Stearns that it was upgrading
Indonesian equities to overweight sent the Jakarta Stock Exchange into
overdrive, while the rupiah showed signs of firming against the US dollar.

Indonesian shares ended at a record high Friday for the second day as
investor sentiment toward local stocks stayed buoyant. The Jakarta Stock
Exchange's Composite Index rose 14.73 points, or 1.3%, to 1172.244, after
rising 1.5% Thursday. Volumes were also strong, with over Rp4 trillion in
trades over the two days.

Bear Stearns upgraded Indonesian equities to overweight from market weight,
saying that there had been "sufficient" progress on structural reforms in
Indonesia.

"Improving consumer and business sentiment, and strong export performance
provide an environment conducive to broad-based earnings upgrades," it said,
according to Dow Jones Newswires.

Indonesia's sizable trade account surplus is Asia's largest after China,
Bear Stearns noted. While a net outflow of $3.8 billion had occurred between
March and May, it had mainly been caused by an investigation into collusive
lending practices at PT Bank Mandiri, and was not a case of "systemic risk".
The probe into Bank Mandiri has produced praise from many quarters, with the
government jailing bankers many people thought were untouchable.

Bear Stearns said longer-term positive signs included a drive against
corruption and implementation of judicial reform; the March cut in fuel
subsidies to achieve greater fiscal discipline; and a resolution for the
four-year stalemate over ExxonMobil's investments in the Cepu oil block.

Blue-chip stocks benefited most from the strong interest, with PT Telkom
putting on 6.4% on Friday and PT Indosat 3.6%, while PT Astra International
gained 2%.

The rupiah also moved up, together with most Asian currencies, following the
revaluation of the Chinese yuan, but gains were limited as dollar demand
from local companies remained strong. The dollar closed at Rp9,795, down
from Rp9,800 Thursday.

Bank Indonesia deputy governor Aslim Tadjuddin said China's revaluation of
the yuan should help Indonesia push down inflation.

"The appreciation of other Asian currencies, like the yen, will affect the
rupiah positively and furthermore (help) on inflation as it would push
imported inflation lower," he told Reuters.

The government continued to ponder how to deal with the cost of fuel
subsidies, and Finance Minister Jusuf Anwar said they were likely to push
the budget deficit well over initial forecasts unless immediate action was
taken.

He said Monday (18/7/05) the deficit could jump to 1.3% of gross domestic
product (GDP), or about Rp35.2 trillion ($36.2 billion), from the original
budget target of 0.8% of GDP.

"The government's cash flow is still manageable, but it will be hard in the
future to maintain it following the soaring cost of the fuel subsidy," Jusuf
said.

"We will certainly review the allocation system for the fuel subsidy... I
guess you can deduce what I mean buy that," Anwar said.

In other news, the Fitch ratings agency said Indonesia's banking sector
still needed significant structural reform.

In a report on Indonesia, Fitch said the entry of many foreign banks into
the market was a sign that it was "highly unlikely that there will be a
return to the 'old ways' with its rampant related party lending," Fitch
analysts wrote, according to The Financial Times.

The agency added that banks faced lower profits this year because of higher
interest rates and the possible effects of tighter central bank rules on the
classification of non-performing loans and how to provide for them.



BUSINESS BRIEFS
MACROECONOMY
Debt Payments Lower Forex Reserves
Indonesia's foreign exchange reserves continued to decline, largely due to
foreign debt repayments, Antara reported.

Bank Indonesia (BI) reported that its foreign exchange reserves dropped by
$1.12 billion in a week to $32.74 billion in the first week of July and from
$36.32 billion early this year.

BI Deputy Governor Aslim Tadjuddin said foreign debt repayments accounted
for most of the decrease in foreign exchange reserves.

Funds used for market intervention to shore up the rupiah and to finance
fuel imports by state-owned oil company Pertamina were relatively small,
Aslim said.

SBI Rate Unchanged
The interest rate on Indonesia's key one-month central bank certificates
(SBIs) was unchanged at 8.49% in a weekly auction on Wednesday (20/7/05),
close to the recently announced reference rate for the sales, a Reuters
report said.

Dealers had expected the SBI rates to edge up by 2 basis points but bidders
were less aggressive last week after failing to secure certificates the week
before.

Bilateral Trade with Singapore, UK
Singapore's bilateral trade with Indonesia in the second quarter of 2005
rose 10.8% from the previous quarter to reach S$8.3 billion (US$4.97
billion), the Associated Press reported.

In the April-June quarter, Singapore exported S$3.8 billion worth of goods
to Indonesia and imported S$4.5 billion worth of goods from the country.
Imports and exports between the two countries totaled S$7.7 billion in the
first quarter.

Singapore's key exports include petroleum products, telecommunications
equipment and electrical generators, while its major imports from Indonesia
include refined petroleum products, data processing machine parts and
electrical circuits.

Meanwhile, bilateral trade between Indonesia and Britain rose 15.8% to
$192.1 million last March from the previous month, according to Antara.

Indonesia's trade attaché in Britain said in a report that Indonesian
exports to the UK were valued at $145.6 million in March or 18.8% higher
than in February, while its imports from the UK rose $46.5 million from
$34.3 million.

In the first quarter of the year, bilateral trade amounted to $547 million,
giving Indonesia a surplus of $272.5 million, the report said. Indonesian
exports consisted mainly of furniture, beddings, garments and timber
products.


Govt Bond Buy Back

The Finance Department bought back Rp1.15 trillion ($117.2 million) worth of
government bonds using cash on Thursday (22/7/05), part of efforts to ease
the state's debt burden, a top ministry official said.

The buyback, the amount of which almost matched the government's full year
buyback target of Rp1.2 trillion, comes amid government efforts to ease
pressure on the budget from rising domestic oil subsidies due to high world
oil prices, a Reuters report said.

The government attracted strong selling interest, with offers worth Rp24.76
trillion for bonds maturing between 2006 and 2010, allowing it to buy back
the bonds at attractive yields, Treasury Director General Mulia Nasution
said.

He said the government bought back some three-year bonds at an average yield
of 9.23%.  This compares to an 11.38% median yield in the secondary market
for three-year government bonds on Thursday.

"The buyback program is aimed at reducing (refinancing) risks, boosting
liquidity on the secondary market and reducing debt," Nasution said.

Govt. to Open Labor Market
The government is lobbying other countries and making the necessary
preparations for the liberalization of regional labor markets, The Jakarta
Post reported.

Chief of the Manpower and Transmigration Department's Center for Research,
Development Studies and Information, Harry Heriawan Saleh, said the
government is putting in place the necessary infrastructure and attending
international conferences in an effort to protect the country's interests
when labor markets are opened up.

"Indonesia is committed to providing job opportunities for foreign workers
only in the professional, energy, maritime, education, construction, finance
and health sectors," he said.

The local labor market will be opened to foreign workers amid the global
economic liberalization drive, starting with the implementation of the ASEAN
Free Trade Agreement (AFTA) next year and a World Trade Organization (WTO)
agreement in 2008.

Saleh said the government's initial proposal to limit the liberalization
drive to seven sectors would be discussed at a WTO ministerial meeting in
Hong Kong in December next year.

The government will also conduct an "economic net test", or labor market
test, to measure the effect of the presence of foreign workers on the seven
sectors.

"If the presence of expatriates in a certain sector affects the domestic
labor market, we will tighten formal requirements for expatriate
recruitment.  This is acceptable and valid because it is not classified as a
trade barrier," he said.



INVESTMENT
Japan Visit Nets $1.3b Investments
President Susilo Bambang Yudhoyono's visit to Japan last month has drawn
investment commitments worth $1.3 billion from Japanese businessmen,
Japanese Ambassador to Indonesia Yutaka Iimura said.

The new investment projects would provide up to 2,900 job opportunities,
Yutaka was quoted as saying by Antara.

The companies intending to invest in Indonesia include Daihatsu with a total
commitment of $1.1 billion, followed by Honda with $100 million, Yamaha $67
million, Toyota $40 million and Nissan $40 million.

Japan's investment commitments tumbled to only $818 million and $519 million
in 2001 and 2002, respectively, from $1.81 billion in 2000, data from the
Japanese embassy show.

"Since that time, Japanese investments in Indonesia have continued to
increase, and we will try to maintain such a rising trend," Iimura said.

China to Invest $2b in Riau Islands
Chinese entrepreneurs are set to invest $2 billion to turn Riau Islands into
a tourist resort, head of the Riau Islands Development Acceleration Agency
Rufinus I. Susanto said.

"Many investors from China have expressed their interest to build private
tourist resorts in Riau Islands, not just resorts in a single area, but
turning the whole island into an integrated, complete tourist resort," The
Jakarta Post quoted Susanto as saying.

The agency will soon start making an inventory of all the islands and select
those that could be developed into resorts.

The investment, to be realized over five years, will be carried out through
PT Naga Putra Sakti, a company established by local entrepreneurs and
Chinese investors.

Meanwhile, Maldivian businessmen likewise want to help develop Riau Island's
tourism industry.

"The Riau Islands will be a good investment place for Maldivian tourist
resort businesses, while the Riau Islands can learn from the Maldives'
experience in managing its island tourism sector," president of the
Maldivian Chamber of Commerce and Industry, Mohamed Salih, said.

Govt. to Develop Oil Palm Plantation
The government will develop what it claims to be the world's largest
integrated oil palm plantation, which will include processing facilities,
along Kalimantan's 850-km border with Malaysia, The Jakarta Post reported.

Agriculture Minister Anton Apriyantono said his department has been tasked
to coordinate the development of the plantation, including attracting local
and foreign investors and providing seedlings and farm equipment.

The project, which hopes to create more than 500,000 jobs and increase oil
palm production by 2.7 million bunches annually, is estimated to cost Rp5.5
trillion ($567 million) over the next five years, Apriyantono said.

"The end-product can be exported or sold in the local market for developing
biodiesel fuel, which is much needed to help reduce the domestic consumption
of subsidized premium gasoline.  The plantation has huge prospects," he
said.

Areas near the border will also be developed into rubber plantations with an
estimated annual output of some 135,000 tons of dried rubber, he added.

Indonesia is the world's second largest palm oil exporter after Malaysia.
Output from the two countries makes up about 85% of the annual global oil
palm production.

Foreign Housing Projects
Two investors from Malaysia and Singapore want to build housing projects in
Indonesia with state-owned housing developer Perumnas, Antara reported.

Perumnas President Harry Jasa Slawat said he recently signed a memorandum of
understanding with the two investors who will develop housing projects under
a profit-sharing system.

The Malaysian investor plans to build middle- to low-cost housing while the
Singaporean investor wants to build houses for middle- to high-income
people, he added.



STATE CONCERNS
Rural Phone System Levy

President Susilo Bambang Yudhoyono has signed a regulation obliging
telephone operators to contribute 0.75% of their annual gross revenues to
develop the country's rural telephone system, The Jakarta Post reported.

The move is expected to raise more than Rp400 billion ($41.23 million) this
year, nine times higher than the government's annual allocation for the
Universal Service Obligation (USO) in the past two years, to ensure that
more people living in remote areas gain access to telephones.

RI-Japan Partnership
Indonesia and Japan are setting up an Economic Partnership Agreement (EPA)
to strengthen their cooperation in trade, investment and intellectual
property rights, Trade Minister Mari Pangestu said.

During the first round of their talks recently, the two countries agreed to
form an EPA with five "expert groups" that would negotiate sector
agreements, Pangestu was quoted as saying by The Jakarta Post.

The Expert Group on Trade in Goods will negotiate issues on market access,
customs, rules of origin, competition, and standards and conformance. It
will also explore areas of regulations needed to enhance investment, while
the Expert Group on the Movement of Citizens will cover workers moving
between the two countries.

The group on intellectual property rights meanwhile will focus on
information exchange and cooperation, while the group on cooperation will
look into areas of capacity building to enable Indonesia's private sector to
penetrate Japanese and international markets through the improvement of
quality, standards and technical requirements.

Earlier, the Trade Ministry said Indonesia needs to focus more on a
cooperation on capacity building since lifting the tariff barriers would not
automatically give wider market access to local products, which would still
face non-tariff barriers.

Indonesian goods might fail to meet Japan's quality standards, technical
requirements or tastes, it warned.



SOEs
Telkomsel Claims 22.5m Users
Indonesia's largest mobile phone operator, PT Telkomsel, registered 22.5
million users by the end of June, already close to its full-year target of
25 million, its president Kiskenda Suriahardja said.

Falling costs are fuelling fast growth in the number of mobile phone users
in the world's fourth most populous nation, home to 230 million people.

"The cost of mobile phones is getting lower, and the cost that a customer
has to pay to subscribe to the service is getting lower as well,"
Rudiantara, secretary general of the Indonesian Association of Cellular
Telephone Operators (ATSI), was quoted as saying by Reuters.

Rudiantara said that in the first half of the year, the number of mobile
phone users across the country grew by 7 million to 8 million, from 30
million by the end of 2004, meaning Telkomsel's market share could have
grown to about 60%, compared to just more than 50% at the end of last year.

He also said Indonesian mobile phone operators have boosted capital
expenditure by about 80% this year, with most of the funds going into
infrastructure.

Telkomsel is 65% owned by PT Telekomunikasi Indonesia, with the rest of its
stocks controlled by Singapore Telecommunications Ltd.



PRIVATE SECTOR
Excelcomindo to Sell $ Bonds
PT Excelcomindo will tap the US dollar bond market after its initial public
offering slated for September, an official of the Indonesian cellular
network operator said, according to Dow Jones.

The size of the deal has yet to be determined, although press reports have
suggested the firm will be in the market for about $400 million.

The lead managers of the deal will be Commerce International Merchant
Bankers Bhd and UBS AG which also advised on the firm's recent rupiah bond
buyback.

The buyback of Rp1.25 trillion in 14.25% coupon bonds due 2008 was completed
Thursday (21/7/05) at a price of 105%.

The buyback came after bondholders declined to allow Excelcomindo to alter
the covenant of the bond to allow it to raise more debt.  They initially
asked the borrower to buy back the debt at 106%.  "But they knew that was
too high," the official said.

The IPO, expected to raise some $300 million, is being organized by Commerce
International Merchant Bankers Bhd and Credit Suisse First Boston.

A Malaysian newspaper article said Thursday at such a size, the offer would
involve between 15% and 25% of Excelcomindo in subscriber terms.

Telekom Malaysia Bhd, which owns 27.3% of the company, is committed to
increasing its stake to between 67.3% and 80% by the end of October. It
already has management control over Excelcomindo.

Early this month, Standard & Poor's Ratings Services affirmed its B+ rating
on Excelcomindo.

Cell Phone Market Growing Rapidly
The Indonesian Association of Cellular Telephone Operators (ATSI) is
optimistic that some 40% of Indonesia's 230 million population would become
cellular phone users by next year, The Jakarta Post reported.

ATSI Chairman Johnny Swandi Syam said the growth in the country's cellular
phone industry from January to June was satisfactory, with 10 million people
signing up as new subscribers, bringing the total number of subscribers to
40 million.

He however noted that despite the rapid growth, Indonesia still lags behind
many countries in Southeast Asia -- in Singapore, 89% of the people are
cellular phone users, Thailand (41%), Malaysia (53%), and the Philippines
(36%), compared to Indonesia's 18%.

ATSI Secretary General Rudiantara said that if the industry sustains its
growth, the number of Indonesian subscribers could reach more than 80
million next year.

He said the association's optimism is based on the fact that growth is
higher in the second half of the year.

He also said that huge investments being made by cell-phone operators would
lead to more services being made available to customers.

"So far this year, ATSI has recorded $1.8 billion in new investments in the
industry, 30% higher than the Rp1.2 billion invested last year," he said.

He said that most of the new investments are focused on the introduction of
new technology, particularly the 3G.

With 3G technology, cellular operators can provide multimedia facilities
faster and with more data than the cellular technology currently in use in
the country, which is classified as 2.5G.

Manulife Forecasts 25% Growth
PT Asuransi Jiwa Manulife Indonesia (AJMI), a local unit of Canada's largest
insurer Manulife Financial Corp, is confident its revenue from its insurance
premiums will grow by at least 25% this year on higher economic growth in
the country, The Jakarta Post reported.

AJMI president director John Harrison said the company expects its revenue
from premiums to increase to at least Rp1.8 trillion ($185 million) this
year from Rp1.4 trillion last year.

"We are projecting solid growth of more than 25% this year.  Our
policyholders have so far grown from 850,000 at the beginning of the year to
900,000," he said.

IBM's E-Solution for SMEs
In an effort to penetrate the small and medium enterprises (SMEs) market
segment, PT IBM Indonesia is offering an e-solution package to improve their
efficiency and performance. The company is aware of the potential of the SME
market, IBM country manager Fetra Syahbana was quoted as saying to The
Jakarta Post.

Data released by the IDC market research company showed that last year, SMEs
spent about $1.187 billion on information technology (IT), almost double the
2003 figure of $610 million.  IBM projected that the segment would grow by
94.6 % in 2008.



BANKS
Khazanah Closer to Controlling Lippo
Malaysia's Khazanah Nasional Bhd has prepared Rp3.3 trillion ($347 million)
to acquire 52.05% of Indonesia's Bank Lippo from the Swissasia Global
consortium, Antara reported.

Khazanah's wholly owned subsidiary Satunbong Investment BV had already
signed a purchase and sale agreement with Swissasia, said a joint statement
issued by the two sides.

Swissasia acquired its Bank Lippo stake from the government early last year
for only Rp1.2 trillion.

Khazanah however said the final deal will still depend on the approval of
regulating agencies, including the central bank Bank Indonesia (BI), and
shareholders of Bank Lippo.

BI Deputy Governor Siti Chalimah Fadjrijah said the central bank welcomes
the deal as it will help speed up bank consolidation.

Finance Minister Jusuf Anwar said Bank Lippo's planned sale comes at a
"strategic time" when Indonesian banks are consolidating to strengthen their
capital and financial position under BI's 10-year blueprint for the banking
industry, better known as the Indonesian Banking Architecture.

Bank Lippo has more than 2.8 million customers and was Indonesia's ninth
largest bank in terms of assets as of last December.

Banks to Back Manufacturing Sector
For the manufacturing sector to grow by 8.6% every year, it would need fresh
investments of up to Rp50 trillion ($5.15 billion) annually, some 10% of
which is expected to come from state banks, Industry Minister Andung
Nitimihardja said.

The remaining investment funds are expected to come from the private sector,
including local private banks, The Jakarta Post reported.

"Without assistance from the banking industry, it would be hard to meet the
manufacturing sector's growth target and for the sector to absorb
unemployment and alleviate poverty," he said.

According to the minister, President Susilo Bambang Yudhoyono had earlier
summoned bankers and asked them to increase their loans to the manufacturing
sector.

The banking sector, still traumatized by the 1997 monetary crisis which was
marked by large non-performing credits, is reluctant to extend large loans
to the real sector.  Instead, it prefers to focus more on consumer credit,
taking advantage of robust consumer spending that has been the backbone of
Indonesia's economic growth since the crisis.

Bankers said they need to study the country's industrial policy first. The
government wants the manufacturing sector to grow by an average of 8.6%
annually to increase its contribution to the gross domestic product (GDP) to
30.4% in 2009 from the current 27.8%.

With such growth, the sector could provide 500,000 new jobs every year,
absorbing 2.5 million new workers until 2009.

As the manufacturing sector has already expanded by 8.11% in the first
quarter of the year, Nitimihardja said he is optimistic that the sector
might even exceed the annual target.

The manufacturing sector has issued a comprehensive detailed plan to develop
the country's industries over the next 20 years, including naming the 32
priority sectors.

The priority sectors are grouped under two main categories:  the basic (core
and supporting) industries, and future industries.

Over the next five years, the government will continue to support and focus
on the core industries of food and beverages, seafood processing, textile
and clothing, footwear, palm oil processing, wood products, rubber, pulp and
paper, petrochemicals, electrical machinery and appliances.

At the same time, supporting sectors will be developed including steel,
heavy industry, agricultural machinery, cement, consumer electronics,
ceramics, atsiri oil, handicraft, precious stones and jewelry, and pottery.

In the longer term, besides continuing to develop the basic industries, the
government will encourage future industries including agribusiness,
transportation and information, and communications technology.




POWER
Power Consumption Decreases
The government said peak-time power consumption had declined by more than
half after President Susilo Bambang Yudhoyono issued a presidential
instruction on energy conservation two weeks ago, The Jakarta Post reported.

Mines and Energy Minister Purnomo Yusgiantoro said that power consumption in
the Java-Bali network during peak hours between 5 PM and 10 PM had declined
by 900 MW from 1,500 MW to 600 MW.

He said that the power savings were very encouraging as the instruction was
not legally binding on the public, but was rather dependent on the people's
goodwill.

Yusgiantoro added that the government had decided not to issue immediately
binding regulations for reducing both power and fuel consumption as
initially planned, as the impact would be severe on both the public and the
economy in general.

Presidential Instruction No 10/2005, signed on July 10, requires government
offices to reduce power consumption on air conditioners, lighting and office
appliances, and the use of official vehicles.

PLN Looks to Alternative Energy

State electricity company, PT PLN, is planning to substitute fuel oil with
other energy sources such as coal, gas, geothermal energy and hydropower
because oil is inefficient in producing electricity, a company official
said.

"By 2008, the composition of PLN`s energy sources to produce power would be
(oil) 5%, coal 44%, natural gas 36%, water 8%, and geothermal energy 6%,"
the company's director of energy and power generator, Ali Herman Ibrahim,
said, according to Antara.

Ibrahim said by 2015, the composition would be coal 64%, natural gas 22%,
hydropower 6%, geothermal energy 4%, and oil 4%.

In 2004, he said, PLN spent Rp23 trillion ($2.3 billion), or 40% of its
operational cost, to provide fuels.

He said fuel oil absorbed 63% of the cost but produced only 33% of PLN's
total electricity production of 94,041 GWH.

In comparison, coal, gas, hydropower and geothermal energy, which took 37%
of the cost, contributed 67% of electricity production.

"Given the high oil prices, the lack of effort to reduce consumption will
increase fuel oil costs to 78% while production stays at 33%," Ibrahim said.



OIL AND GAS
ExxonMobil, Pertamina in Cepu JV
The government and a joint venture consisting of subsidiaries of US energy
giant ExxonMobil and state oil and gas firm PT Pertamina will sign the
production sharing contract (PSC) to develop the oil-rich Cepu block, The
Jakarta Post reported.

Pertamina Commissioner Umar Said said a company subsidiary to be called
Pertamina Cepu would be set up by the end of the month.

"Pertamina Cepu and ExxonMobil Cepu Ltd will form a joint venture and sign
(the contract) with BP Migas," said Umar Said, referring to the oil and gas
regulatory body, which represents the government in managing the country's
oil and gas fields.

After four years of dispute, Exxon and the negotiating team, represented by
Pertamina Chief Commissioner Martiono Hadianto, signed a Memorandum of
Understanding (MoU) on June 25 on the development of the Cepu block, located
on the border between Central Java and East Java.

Both parties agreed to an adjusted production split scheme and contractors'
participatory interests.
Under the deal, the contractors will get 15% of output and the government
85% if oil prices average more than $45 during the course of one year, while
the contractors and government will get 30% and 70% respectively if prices
stay below $35 on average over one year.

Pertamina will have a 45% participatory interest, Exxon another 45%, and
local regencies the remaining 10%. Under the scheme, Exxon and Pertamina
will each get between 6.75% and 13.5% of total output.

The Cepu block is expected to produce 170,000 barrels of oil per day at its
peak, about 17% of the country's current oil production.

Indonesia to Sell 10% Stake in Gas Firm
Indonesia plans to sell up to 10% of its stake in state-controlled gas
distribution firm PT Perusahaan Gas Negara (PGN) this year to help raise
budget funds, State Enterprises Minister Sugiharto said.

Based on PGN's closing share price of Rp3,075 on Monday (18/7/05), the sale
of the 10% stake could raise about Rp1.38 trillion ($140 million), Reuters
reported.

Sugiharto also reiterated the government's plan to sell stakes in
state-controlled banks, most of which are already listed on the stock
market, as part of the government's privatization program, but he declined
to give figures.

According to the company's 2004 annual report, the government controlled
about 61% of the firm at the end of last year.

The government aims to raise Rp3.5 trillion from the privatization program
this year to help contain the budget deficit forecast to reach Rp20.3
trillion, or 0.8% of the gross domestic product.

PGN is considering building a 173-km natural gas pipeline linking the
Sengkang gas field in South Sulawesi to the provincial capital Makassar, AFX
quoted corporate secretary Widyatmiko Bapang as saying. The Sengkang gas
field is owned by state oil and gas firm PT Pertamina.

Bapang said PGN is also considering the supply of natural gas to PT Aneka
Tambang (Antam) which operates a nickel mine in Pomalaa, Southeast Sulawesi.

Antam President Dedi Aditya Sumanegara said last month the company plans to
stop using fuel for its power plant due to rising oil prices. The source of
the gas supply however has not yet been decided, Bapang said.

PGN may also supply Antam with liquefied natural gas (LNG) as it plans to
build a mini LNG plant in Pare-Pare in South Sulawesi using gas from the
Sangkeng field, he added.

Tender for 13 Oil Blocks
ConocoPhillips, ChevronTexaco Corp, Royal Dutch Shell, PT Caltex Pacific
Indonesia, Santos Ltd, Genting Oil & Gas Ltd and Husky Energy Inc were among
the oil and gas firms that have filed bids for the tender of 13 oil and gas
concessions, a Mines and Energy Department official said.

The government is evaluating their bids, AFX quoted director general for oil
and gas, Iin Arifin Takhyan, as saying.

The tender for the 13 blocks was announced by the government last month,
along with 14 other blocks being offered via regular tender process.

Takhyan earlier said development of the 27 oil and gas blocks is expected to
generate $350 million in investment spending by the winning bidders over the
next three years.




MINING
 Sebuku Coal Mine on Target

Australia's Straits Resources Ltd said its Sebuku coal mine in Indonesia is
on track to meet a 2005 target of 3 million metric tons, Dow Jones Newswires
reported.

The company's flagship mine produced 697,000 tons in the second quarter, up
from 626,000 tons in the first quarter, bringing the calendar first half
result to 1.32 million tons.

Sebuku sold a record 707,000 tons in the second quarter, contributing to the
company's sales revenues of A$32.1 million, up from A$25.2 million in the
first quarter.

Increased production targets, partly due to a new crusher, and higher
contracted prices mean Sebuku's contribution to group earnings is expected
to be strong, Chief Executive Milan Jerkovic said in a statement.

Straits also poured first gold at its Mt Muro mine in Indonesia's Kalimantan
last month and expects to ramp up to 100,000 oz in 2006 following access to
the high-grade Botol deposit.

Straits has revived the mine after problems with illegal miners drove out
former owners Aurora Gold, forcing it to shut the mine in 2002.

Confrontations between illegal miners and Indonesia's special police force
Brimob climaxed at Mt Muro in January 2002 when a local man was shot dead.

Jerkovic said the time was right to reopen Mt Muro as Indonesian authorities
now have a greater appreciation of the need to tackle illegal mining to
encourage foreign investment.

"The locals have been starved of those funds and the jobs," Jerkovic told
The Australian.

At full production, Mt Muro will inject $4 million to $5 million annually
into the area through wages and services, he said.

Straits employs about 500 people at Mt Muro and aims to produce 100,000 oz
by the end of the year, eventually expanding to 200,000 oz.  Mt Muro has a
resource estimate of 800,000 oz.

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