We want predictability, say mining firms

Ika Krismantari, The Jakarta Post, Jakarta

If one asks a mining firm what it wants more than anything from the upcoming new mining law, the likely answer will be "predictability".

"We want predictability. If something is predictable, we know the risks we will be taking. If you don't have predictability, your business is not going to move forward," Australian senior trade commissioner Rod Morehouse told The Jakarta Post on Tuesday.

He was speaking on the sidelines of a seminar on the future of Indonesia's mining industry, organized by the Australian Trade Commission.

According to Morehouse, however, the mining bill, which has been under deliberation by the House of Representative for more than a year, fails to address investor concerns over predictability and certainty, leaving them unable to forecast the costs and risks they are likely to face.

"Will the law be lex specialis or not? ... Will the license system guarantee both exploration and exploitation rights?

"If the country demands complete downstream manufacturing, will this include smelting, refining or even component manufacturing ... These are not yet a hundred percent clear," Morehouse said.

The seminar was held as part of the Australian Mining and Petroleum Exhibition and Conference 2007 (Ozmine 2007), which took place on the same day, and was participated in by 27 Australian mining and oil companies showcasing their latest projects and technologies.

Morehouse said that nine major Australian mining companies, representing a combined investment of more than US$10 billion, were currently waiting to see whether the new mining law -- in addition to the investment and taxation laws -- would address their concerns.

Among the nine firms were mining giant Rio Tinto, which was currently engaged in negotiations with the government for a Contract of Work for a nickel project in Sulawesi worth some $2 billion.

The others included mining heavyweight BHP Billiton, which had invested $77 million since 1998 on seven coking coal plants here, and Oxiana, an international mining and exploration company that was due to set up a joint venture with the Indonesian Kalimantan Gold Company.

Responding to the debate over the issuance of licenses and permits by local governments, as proposed under the new bill, Rio Tinto managing director Charlie Lenegan suggested the adoption of the system applied by the Western Australian government.

"If it involves small-scale projects, then the permits could be handled by the local government. But if it involves large-scale and long-term projects, the permits would be arranged by the central government," Lenegan said.

Many investors have voiced similar concerns over the granting of a bigger role to local government, fearing it would only further complicate the bureaucracy they have to go through to get their businesses going.

The government has set itself the target of having the new mining law on the statute books by March.

RI gets 20 mln euro debt swap offer from Germany, Italy

Jakarta (ANTARA News) - Germany and Italy have offered to swap combined debts of 20 mln eur that Indonesia owes them for education and health-care projects here, National Development Planning Minister Paskah Suzetta said.

Germany and Italy would cancel the 20 mln eur in debts owed them by the government here on condition that it spent the equivalent of 10 mln eur on reconstructing schools and hospitals in disaster-hit areas, Suzetta was quoted by XFN Asia as saying.

Germany had already agreed to cancel 93.5 mln eur-worth of Indonesian

debt after a string of natural disasters here between 2004 and last year.

Govt exempts fishery products from export duties

Jakarta (ANTARA News) - The government has exempted all kinds of fishery products from export duties in a bid to lure more investors to develop the country`s fishery industry, a spokesman said.

Marine Resources and Fisheries Minister Freddy Numbery in a hearing with the House of Representatives (DPR)`s Commission IV here on Tuesday said the policy was adopted as a step to provide investment incentives for investors.

"This is actually an integrated fishery industrial development in Indonesia after the abolishment of the system of licensed fish-catching operations by foreign fishermen," he said.

In addition to the exemption of export duties, the government would only collect a duty of 0 percent to 5 percent on import of goods to develop fishery-related industries in the country.

Freddy said some other incentives offered by the government to attract more investors to get engaged in fishery industry was by exempting the import of certain fishery-related industry goods and maintenance services from duties.

A 50 percent deduction of land and building tax, incentive in compensation of loss which may not reach more than eight years for foreign and local investment.

Companies that had been operating in Indonesia for over seven years with good performance would enjoy easy and quick issuance of business permits.

Since 2006, he said, the marine resources and fisheries ministry had imposed a joint venture system on foreign vessels which caught fish in Indonesian waters.

According to Freddy, after instituting a number of investment incentives, there were about 13 foreign companies which had tendered applications for the allocation of fish catch areas with an investment value of US$203.26 million and in the form of rupiah amounting to Rp619,55 billion.

Indonesia invites Indian investment in SEZs

PTI [ MONDAY, JANUARY 29, 2007 08:30PM]

NEW DELHI (The Economic Times): Indonesia on Monday invited Indian industries to participate in its proposed special economic zones and said it will soon introduce a new law to make procedures for foreign investment easier.

"We are soon going to introduce a new law in order to make foreign investments easier," Indonesian Vice President M Jusuf Kalla said here at a CII conference.

He said the new law will enable businessmen to directly approach the Indonesian office of investments making the clearance of proposals a lot more easier and faster.

Highlighting the investment opportunities in the country, Kalla said Indonesia has targeted to have a power generating capacity of 10,000 MW in the next three years. "This provides immense opportunities for participation by Indian companies," he said.

Indonesian Minister of Industry Fahmi Idris, also present on the occasion, said bilateral trade between the two countries stood at 3.5 billion dollars during 2005. "There is a lot of scope for expanding the bilateral trade basket," he said.

Talking about the palm oil industry, the trade minister said the country was planning to augment its downstream palm oil capacity. "During 2005, we produced 15 million tonnes of crude palm oil and are planning to increase our capacities," he said.

Idris also highlighted the infrastructure sector as a possible investment opportunity for India. "We are planning to set up three airports where Indian businessmen can participate," he said.

World appreciation for RI increasing

LONDON (Antara): The world is increasingly appreciating a new and democratic Indonesia with its predominantly moderate Muslim population, Foreign Affairs Minister Hassan Wirajuda said Tuesday.

"The appreciation has been expressed by many international quarters and is enabling Indonesia to pursue its active and independent foreign policy," Wirajuda said at a gathering with members of the Indonesian community in Britain.

Present at the function were also Indonesian Ambassador to the United Kingdom and Ireland Marty M. Natalegawa, Kartika Soekarno Puteri, a daughter of the late President Soekarno.

Wirajuda is visiting London together with Trade Minister Mari Pangestu and Defense Minister Juwono Sudarsono to attend an Indonesia-UK Partnership Forum and to inaugurate the newly-established Indonesia-UK Islamic Advisory Group (IAG).

The Group's formation was agreed on at a meeting between President Susilo Bambang Yudhoyono and Prime Minister Tony Blair when the latter visited Jakarta in March 2006.

Wirajudha said Blair's visit to Indonesia had become a new pillar in Indonesia-UK bilateral relations.

Lafarge stays on in post-tsunami RI to rebuild facilities

Abdul Khalik, The Jakarta Post, Jakarta

Even though its production facilities were ruined and 182 employees killed or missing after the tsunami that devastated Aceh on December 26, 2004, France-based company Lafarge, which owns PT Semen Andalas Indonesia, has opted to stay in the province.

The world's largest cement producer officially opened a cement packing terminal there last week as part of its post-tsunami recovery projects. These also include the construction of an upgraded cement plant and coal-fired power plant.

The company will spend a total of US$150 million for the project, making it the largest industrial investor in Aceh.

Below are excerpts from an interview with PT Semen Andalas president director Marcel Cobuz about the company's plans and expectations for running a business in Indonesia, especially in still-recovering Aceh.

Lafarge is probably one of the foreign companies hit hardest by the tsunami, Why did Lafarge decide to stay on in the province?

First of all, Lafarge has a strategy of maintaining a good balance of its presence between mature markets, such as Western Europe and Japan, and developing markets, such as Asia and the Pacific region. So, we give a lot of attention to Asia, particularly Southeast Asia. We are almost everywhere in the region. We are present in Malaysia, the Philippines, Bangladesh, India, China, South Korea, and Japan. And this trend will continue.

Of course, even before tsunami, we were quite small in Indonesia. But how else you can start or get a foothold in a market and test the appetite of customers for new products than to start a small operation and grow bigger.

The tsunami was an unfortunate event, leaving a lot of bad impacts. We lost over 180 employees and all of our industrial assets and the plant -- the only manufacturing facility we had in the country. But we got back on our feet quickly. First, we ran logistical efforts to help rebuild Aceh and provide logistical supplies. In fact, we were able to supply cement a couple of weeks after the tsunami.

After the tsunami, we had to think about how to maintain our market share and how to supply cement to our customers. We are fortunate enough to have a plant in Langkawi, Malaysia, to supply North Sumatra and Aceh. And we will continue to do so until our plant in Lhok Nga is completed sometime next year to supply our markets, which are mainly in Aceh, North Sumatra, and the Riau mainland and islands.

How is progress going on the plant reconstruction?

An investment budget of US$150 million has been approved to finance plant reconstruction, while an initial bridging loan of US$30 million from Citigroup has been leveraged to start the project. The new cement plant, which will have a production capacity of about 1.6 million tons a year, is expected to be fully built by the end of 2007 and will be commissioned in early 2008. We are just completing our fourth terminal in Dumai in Riau, and constructing our port in Lhoknga.

Today, we are importing 1.3 million tons of cement from Langkawi and channeling them through our four terminals in Lhoknga in Aceh, Batam in Riau, Belawan in North Sumatra, and Dumai terminal. We have approximately 35 percent of market share in our markets, which comprise Aceh, North Sumatra, and Riau.

What about the issue that the government will tax the proceeds of your insurance claim?

Our capacity depends very much on our financial capability. For instance, if the insurance claim is going to be taxed, then of course that will limit our investment capability. Look, we've already lost the plant and we hope our insurance claim will not be taxed. We are now discussing the issue with the Ministry of Finance, the Aceh governor, and the Investment Coordinating Board (BKPM). We hope we can find a proper solution on the issue by the end of January.

Do you have a legal basis for this?

Yes, the President of Indonesia has issued a post-tsunami presidential decree allowing tax exemptions in order to improve the business environment in Aceh. We believe we qualify for such an incentive.

Are there any new plans for expansion -- for instance, a new plant in North Sumatra? What about the failed attempt to acquire Semen Gresik?

Lafarge is a big international player. We keep on eye on many possible developments, not only the PT Semen Gresik acquisition. For the time being, what I can tell you is that we want to focus on the reconstruction of our state-of-the-art plant in Aceh. But we also see some other developments in Sumatra. Many things will happen in the future. North Sumatra, for instance, has a good potential market. Today, we don't see much infrastructure work but there are plans to build a new airport, expand Belawan port and do other infrastructure projects. So, a lot of cement will be needed, and we want to play an important role.

Speaking of political conditions in Aceh, how do you see the election of Irwandy Yusuf as Aceh governor?

I believe the business environment in Aceh will improve. First, anyone who becomes Aceh governor will realize that without infrastructure, educational development and a sound business environment, this region will be forced to depend on subsidies. We believe that by supporting the business environment, more and more revenues will be generated in the form of local taxes and central government taxes. That investment will create jobs and reduce unemployment, which is high in Indonesia. It will also create welfare and boost other businesses. There will be a full chain of value creation.

All in all, we believe in local autonomy. Whoever is in the decision-making position, they have only one option, which is to give incentives to foreign and local investors to put their money in the province.

Do you have any suggestions on what Aceh or Indonesia in general can do to attract more investment?

I think foreign investors want stability -- economic and political stability. Macroeconomic stability is one of the fundamentals that should be in place. Indonesia has proved over the past two years that its macroeconomic fundamentals are improving. The inflation rate is dropping towards single digits while economic growth is quite high. Foreign currency reserves are quite strong, and the level of debt allows the government to be flexible. I think the fundamentals are there, but we need political willingness to improve the business environment, fight corruption, and allow incentives.

Above all, we need some success stories, since the more success stories are available, the more foreign investment comes in. You see, foreign investors like the rainmakers. They look at Lafarge and other pioneers, and if they think these companies have success stories then they will follow.

UNICEF Opens 227 Child Care Centers In Indonesia

January 26, 2007 4:26 p.m. EST

Siddique Islam - All Headline News South East Asia Correspondent

New York, NY (AHN) - The United Nations Children's Fund (UNICEF) has completed construction of the first of the 227 mother-and-child health centers in Indonesia's tsunami-devastated Aceh province and earthquake-hit Nias Island.

"Through these family health and development centers, mothers, children and babies will have immediate and full-time access to professional midwives, specialized infant health care and learning and development activities," UNICEF's Chief of Field Office in Aceh Edouard Beigbeder says.

"This is a brand new facility for the community. It's not replacing something; it's giving the community something they didn't have before. Strengthening community-based health systems will have a long-lasting impact on child survival and development and will help facilitate Aceh and Nias' recovery, rehabilitation and development."

UNICEF has set aside $11 million for the construction of the centers, in addition to $90 million for the construction of more than 300 permanent schools. The campaign also marks the first time UNICEF has taken on a construction role.

Indonesia was the worst-hit of the dozen Indian Ocean nations that were struck by the earthquake and ensuing tsunami on 26 December 2004, accounting for some two thirds of the death toll of more than 200,000, with over half a million others left homeless.

Pertamina sheds corrupt practices, earns billions

Riyadi Suparno, The Jakarta Post, Jakarta

Once a symbol of corruption, state oil firm Pertamina has embarked on an internal reform program under new leadership and has reaped billions of dollars in investments to double its oil and gas output.

Speaking to the media here Thursday, Pertamina President Ari H. Soemarno acknowledged that his company used to be a cash cow for those with political connections, but he insisted those days were over.

"As someone who has been working in Pertamina for years, I'm also responsible for those poor practices in the past. But now, I'm also determined to transform Pertamina into a competitive, modern and respected company," Ari said.

He said he had launched the internal transformation through 27 "breakthrough projects", including reducing the rampant leakage of fuels during transportation, increasing efficiency at the company's many ports and ridding its fuel depots of white collar thugs and thieves.

Within their first three months, he said, these projects had brought in an additional US$15 million.

The company has also worked to revamp its gas stations to better serve costumers.

"With the arrival of Shell and Petronas in the market, we have to improve the look and management of our gas stations. If Shell and Petronas have convenient stores and beautiful female attendants to serve customers, while our gas stations are manned by people with dirty clothes, how can we compete with them?" Ari said.

Pertamina will also work with multinational oil and gas companies to enhance its downstream businesses; for example, it will partner with SK Corp to build a lubrication oil plant in Dumai, Riau, and team up with Shell in the aviation fuel sector.

Ari said the company plans to more than triple its investment in the downstream sector to Rp 3.7 trillion (US$410 million) this year from Rp 960 billion last year and Rp 1.3 trillion in 2005.

He added that Pertamina would deepen its involvement in the upstream sector as well, which he said promised bigger returns.

"The upstream is our value creator, while the downstream is our value enhancer. So we have to be strong in both," he said.

In the upstream sector, Ari said Pertamina would invest a hefty Rp 10.1 trillion this year, a jump from Rp 3.5 trillion last year and Rp 3.9 trillion in 2005.

With that high investment in the upstream sector, Pertamina aims to double its oil and gas output from its current level of 235,000 barrels of oil equivalent per day within the next four years.

"So our total investment plan for this year would be about Rp 14 trillion (US$1.5 billion). That's still small, compared to our friends overseas. Petronas, for example, invests about $5 billion a year," Ari said.

He noted that most of the money for investment this year would be taken from retained earnings. Last year, Pertamina booked a profit of Rp 21 trillion. About Rp 12 trillion of that will be paid as shareholder dividends to the government, and the remainder retained.

This year, Pertamina, with total assets of around Rp 360 trillion, aims to book a net profit of Rp 23 trillion.

Pertamina's books have not been thoroughly reported on since the company's corporatization a few years ago. A government-ordered Ernst and Young audit is still in progress.

Pertamina May Be Ready for Share Sale by End of 2008

By Arijit Ghosh and Wahyudi Soeriaatmadja

Jan. 26 (Bloomberg) -- PT Pertamina, Indonesia's state oil company, said it may be ready for an initial public offering by the end of 2008 after weeding out corruption and improving accounting procedures.

The company would have a market value of $30 billion, making it the biggest stock on the Jakarta Stock Exchange, company President Ari Soemarno told reporters yesterday. Pertamina hired McKinsey & Co. to improve corporate governance and tapped Schlumberger Ltd., the world's largest oilfield- services provider, to evaluate exploration capabilities, he said.

``Investor appetite would obviously be great as Pertamina still holds monopoly rights,'' said Andi Nugroho, who helps manage $22 million of bonds and stocks at PT Cipta Dana Asset Management as investment director in Jakarta. ``The question is how the management is willing to commit to transparency, a weak area that state-controlled companies typically have.''

Pertamina's market value may exceed PT Telekomunikasi Indonesia's 193.5 trillion rupiah ($21 billion) as of today. The oil company wants to raise money to fund its oil and gas exploration and reverse a drop in output.

Pertamina, which plans to double output in the next four years, forecasts $40 billion of revenue this year.

A share sale has to be decided and approved by the Indonesian government, Soemarno said.

The government, which runs 141 companies, will keep its stake in 50 of them in sectors such as energy, transportation and telecommunications, and sell part of its holdings in the rest, Indonesia's Vice President Jusuf Kalla said in an interview in November.

Preparation Time

The Indonesian government in 2003 had planned to sell part of its stake in Pertamina by 2006. The company at that time said it needed more time to prepare for the sale.

``Before an IPO our accounting, financial and corporate governance system has to be proper,'' Soemarno said yesterday. ``We want a transparent system that will create value for the company.''

Pertamina asked the government to reduce the amount of dividend taken from the company because the oil producer wants the proceeds to fund exploration, Soemarno said. Last year Pertamina paid about 45 percent of its profit to the government.

The oil producer expects net income to rise 10 percent to 23 trillion rupiah this year, Soemarno said yesterday.

Joint Ventures

Pertamina, which was formed by the merger of three state oil companies in 1968, is planning to partner with companies such as Norway's Statoil ASA in $18 billion of projects to boost production and fuel refining.

Indonesia, Southeast Asia's only Organization of Petroleum Exporting Countries member, needs to use new technology to extract more oil and gas from its aging fields and raise production after a decade-long decline in output. The government wants to find new reserves in untapped areas, mostly in deep seas and the eastern part of Indonesia.

Pertamina and Statoil are bidding for a deep-sea license in the Makassar Straits, part of 20 drilling areas offered this year by the Indonesian government, Soemarno said.

Indonesia pumped 855,000 barrels of oil a day in December, according to Bloomberg estimates. That's the lowest production among OPEC members after Qatar's 800,000 barrels a day.

To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net ; Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net .

CGI no longer needed as RI's creditors now limited in number: minister

Jakarta (ANTARA News) - Finance Minister Sri Mulyani said the Consultative Group on Indonesia (CGI) was no longer needed as the country`s main creditors were only the World Bank, the Asian Development Bank (ADB) and Japan so that Indonesia now preferred bilateral to multilateral approaches.

"The amounts we are borrowing are becoming smaller and smaller and there will probably be only three main creditors, namely the World Bank, the ADB and Japan," Minister Sri Mulyani said here Thursday.

Thus, the minister said, debt negotiations with donor countries or institutions could be held in purely business-like ways without political cost and stigma.

"We are under the supervision of the House of Representatives (DPR). All our debts are in the state budget, written and managed professionally," the minister said.

The decision to dissolve the CGI was also beneficial to Indonesia as it freed the government of the obligation to explain many things to many parties. The government now only needed to give explanations to prospective creditors so that the government could manage its time and costs more efficiently.

"So, now , if I want to issue bonds, my director general directly issues them to the market. If we want to borrow from Japan for an MRT project, for instance, we just borrow without having to go through a long, meaningless ceremony," the minister said.

Foreign loans were still needed although the measure was not the main choice to cover financial deficits, she said, adding that the dominant source to cover the deficits was the issuance of state bonds both at home and abroad.

Other sources were payments from the Assets Management Company, the government`s current accounts, privatization and bilateral borrowings, the minister said.

Govt fails to empower SMEs, curb poverty, says Kadin chief

Apriadi Gunawan, The Jakarta Post, Jakarta

High unemployment and poverty levels are partly the result of the government's failure to empower small and medium enterprises (SMEs), Indonesian Chamber of Commerce and Industry (Kadin) chairman Mohammad S Hidayat says.

Speaking Wednesday to the annual conference of Kadin's North Sumatra branch in Medan, Hidayat said the government had failed to strengthen SMEs and to develop the country's infrastructure.

He said that of the 43.4 million SMEs registered by Kadin, only 5 million of them received any government support.

"This is proof that the government has yet to succeed in strengthening our SMEs. If handled properly, they could contribute positively to the growth of business in Indonesia," he said during his address.

With slow real-sector growth, it will be difficult for the government to create new job opportunities and to reduce the number of people living under the poverty line.

"Based on Kadin figures, the number of poor people in Indonesia stands at 39 million, higher than the 37 million reported by the government. Meanwhile, the number of jobless people stands at some 11 million," he said.

Regarding infrastructural development, Hidayat said that the construction of highways, bridges, power plants, etc., was not progressing as expected.

"This is because the role played by local investors in infrastructural development is still limited," he said. Given these circumstances, it was reasonable that most major infrastructure projects were awarded to foreign investors.

Hidayat said that he was aware that the government faced a lot of hurdles in its attempts to improve the nation's infrastructure, particularly as regards land acquisition.

"We want the government to issue a regulation on land acquisition, just as in the developed world, so that middlemen and speculators cannot jack up prices as they please," he said.

Speaking at the same event, Investment Coordinating Board chairman Muhammad Lutfi asked North Sumatra governor Rudolf Pardede to immediately set aside land to be used for the development of a special economic zone (SEZ) in order to attract more foreign investors to the province.

"Actually, none of the provinces have yet to submit their reports. But, this is important for North Sumatra province as the Penang (Malaysia) minister has informed me of his desire to cooperate with Medan, given declining competitiveness in Penang nowadays," he said.

"Last year, North Sumatra was the fifth best foreign investment destination in the country. Japan was the biggest foreign investor on $3 billion, followed by the U.K. on $2.5 billion, Luxembourg on $940 million, Malaysia on $900 million and Singapore on $820 million," Lutfi said

Rudof said he had promised Lutfi that he would promptly submit a list of potential zones as requested.

World Bank launches website in Indonesian

The Jakarta Post, Jakarta

The World Bank launched an Indonesian version of parts of its website Wednesday so as to expand its audience here in response to requests from visitors to its regional development information centers located in 16 state universities around the country.

The service, which can be accessed through its official website http:\\www.worldbank.org, contains the latest data and statistics on the economy and social indicators, project and program information, and poverty, tsunami reconstruction in Aceh and the District Development Program.

"We hope this site will be the main portal for economic and social information in Indonesia," said Muhamad Al Arif, an external affairs executive in the office of the World Bank's vice president for East Asia and Pacific Region.

Arif added that the site was primarily directed at those who needed data for research purposes.

"Sooner or later, the World Bank's role as a funds provider will be reduced, but its role as an information bank will be broadened," he said.

At present, the World Bank website is presented in five major languages -- Spanish, Chinese, French, Russian and Arabic. Its English-language version currently draws 8,000 visitors in Indonesia and generates 35,000-page views per month.

Telecommunications sector has bright prospects in Indonesia

The telecommunications industry remains attractive despite the high inflation of 2006.

Chandra Sahala Pasaribu, Equity Analyst

The Jakarta Post

Last year, the total number of subscribers climbed to almost 65 million, representing a healthy growth rate of 38.6 percent. It is expected that Indonesia's telecommunications market has the potential to grow to between 110 million and 120 million subscribers over the next five years, and achieve a penetration rate of 50 percent.

Therefore, there should be a potential 60 million new customers for each of the next five years. There are three important aspects to consider here: industry drivers, regulation and competition. Overall, the market continues to provide growth opportunities, but accompanied by tight competition in quality services, coverage and pricing.

There is ample room for growth in the telecommunications industry, especially in view of the current relatively low penetration rate of 29 percent.

A penetration rate of 50 percent seems reasonable for Indonesia given its per capita GDP of US$1,100. However, the next 60 million potential subscribers will be more at the lower end of the income pyramid, meaning that competition to reach this second segment will be stiffer.

Furthermore, the 60 million potential subscribers are probably located outside Java as Java is already well covered by the incumbents.

Given that potential new customers will have lower purchasing power, competitive tariff structures will be the key factor in penetrating this segment. Fixed wireless access services have tariff advantage compared to cellular operators. However, pricing is not always the main factor when choosing an operator. It has been shown that service quality and coverage are also important factors for customers when choosing operators.

For instance, Telkomsel's average revenue per user per month (ARPU) stood at Rp 85,000 at the end of September, 2006, which is a premium compared to the industry average of around Rp 50,000.

The main reason for this premium is the excellent service quality and coverage provided by Telkomsel. However, the tariff structure is a bit too complex for consumers to make a clear comparison.

This prevents customers from knowing which operator is really the cheapest. Such a state of affairs is the result of an oligopolistic market structure that gives the operators control over prices.

For customers, telephone bills depend on calling habits, between originating calls through "on net" or cross operators. Since it is difficult for customers to get a clear-cut idea about tariffs, we believe that service quality and coverage are crucial.

A high call-success ratio and a low number of failed calls are the main determinants of high quality service.

Another source of revenue is data communication. The function of a handset has moved beyond voice calls, and it is now a device used to transmit data. Based on an analysis of several telecommunications operators, voice calls reach a maturity level, with minutes of usage of around 50-60 minutes per user per month.

A second feature that has been growing rapidly is texting, or SMS. But unlike advanced economies, Indonesia is still at the early stages of data transmission. Another popular feature is ring-back tones -- especially among young people as a way of expressing their individualism.

The Indonesian Telecommunications Regulatory Board (BRTI) has officially announced new costs based on interconnection regulation. Under this new ruling, an operator whose interconnection revenues represent more than 20 percent of its total revenues must open its network up to interconnection and publish its interconnection rates.

Currently, this new ruling applies only to Telkom, Telkomsel and Indosat. Other operators are not yet under an onus to comply with the requirements. The new interconnection regime will level the competitive playing field in the telecommunications industry.

It has long been known that interconnection is a latent problem and that it favors the incumbents as they have control over larger networks. The new ruling requires incumbents to open up their interconnection points based upon clear pricing regimes.

Smaller players will be able to easily interconnect with the incumbents as the regulation is transparent and clear. Previously, it was a time- and resource-consuming process to acquire an interconnection with some of the incumbents.

We think that this new ruling will accelerate the growth of the industry as the network becomes more integrated. This should translate into larger traffic volumes.

The intention of the regulatory board is clear in that it seeks to promote fairer competition, transparency and a non-discriminatory business climate. But despite the introduction of the new interconnection regime, we have not seen any drop in retail tariffs.

Operators are still charging the same rates as before. However, some marketing gimmicks have been introduced, resulting in a decline in effective tariffs, albeit compensated for by higher traffic volume.

The new players are bit slow to roll out their networks, despite the fact that the equipment is not hard to come by. Some electronics manufacturers even provide vendor financing. The largest obstacle can be the erection of masts as locations become scarcer.

Some regencies are restricting the number of permits they issue for the erection of new masts, and are encouraging operators to share existing masts.

With around 10 operators in Indonesia and an addressable market of around 120 million, this means that each operator has only 12 million potential customers. Especially given Telkomsel's position, with the largest slice of the pie, the industry will probably need to consolidate in the near future through a mergers and acquisitions.

Four new players that are lining up to roll put their networks are Hutchinson, Lippo Telecom, Sampoerna Telecom and Primasel Indoprima Mikroselindo.

The principal challenger to the existing player is Hutchinson, which is operating on a trial basis, with committed capital expenditure of US$1 billion. Sampoerna Telecom could face problems as it operates in the 450 mhz frequency band, which is less popular than other frequencies.

The principal implication of this is more expensive electronic equipment due to lower economies of scale and limited handset choices.

Lippo Telecom seems to be a bit late in announcing its rollout plan. It is still unclear what Lippo Telecom's timeframe actually is. The last operator, Primasel, has problems with its frequency license.

Currently it operates in the 1900mhz band, which has already been allocated for 3G use. With its CDMA license, Primasel should actually operate in the 800Mhz band. However, unfortunately for Primasel, there are no free slots available there.

Malaysian plantation firm sign deals for mega-merger

Kuala Lumpur (ANTARA News) - Three Malaysian plantation companies on Wednesday signed agreements launching a 11 billion dollar merger which will create the world`s largest listed palm oil firm, company officials said.

Synergy Drive, the merger vehicle, signed sale agreements with Sime Darby, Golden Hope Plantations and Kumpulan Guthrie Berhad, involving all their assets and liabilities.

"We are pleased with the progress that has been made, and we will commit the necessary energy and resources to ensure a smooth completion of the merger and integration of our businesses," Synergy Drive`s chief executive Ahmad Zubir Murshid said in a statement.

Synergy Drive said the deal is expected to be completed by the fourth quarter of 2007, after which it will be listed on Malaysia`s bourse.

"The companies are committed to working as one to ensure the exercise is carried out smoothly and successfully," said Kumpulan Guthrie group chief executive Abdul Wahab Maskan.

Synergy Drive will have a combined market capitalisation of 38.4 billion ringgit (10.97 billion dollars) according to current share prices, making it Malaysia`s third-largest listed firm, officials said.

Synergy Drive said last month it would enter into a conditional sale and purchase agreement with each of the firms and their units in January.

The agreements were to have been signed on January 15, but instead two of the firms said the deadline to conclude a deal was extended to January 29.

The New Straits Times reported that the delay was due to hesitation by the companies` majority stakeholder, government investment vehicle Permodalan Nasional Berhad (PNB).

However, the government has firmly backed the merger, and the newspaper said PNB returned to the negotiating table after a high-level meeting at which it was told the government wanted the deal concluded.

"The authorities told them in no uncertain terms that this merger was good for the companies, the market and the country," an unnamed source was quoted as saying Wednesday in the daily.

PNB will control the firm, which will have total annual revenue of over 26 billion ringgit, a workforce of some 107,000 and combined plantation land of some 600,000 hectares in Malaysia and Indonesia.

Five companies interested in Palapa Ring mega-project

Jakarta (ANTARA News) - The number of companies interested in taking part in a US$1.517-million broadband fiber optic mega-project bid has increased to 5, an official said here Tuesday.

"The five companies have already met requirements for participation in the tender on the Palapa Ring mega-project," Yusuf Iskandar, director general of post and telecommunication affairs, said on the sidelines of an Information Communication and Telecommunication Summit 2007.

The five firms that had expressed interest in the bid were PT Aqela, PT Potensi Bumi Sakti, PT Telecommunication Indonesia, Bakrie Telecom and PT Wireless Indonesia (WIN), a telecommunication subsidiary of diversified business company Sinar Mas Group.

The Palapa Ring would be a broadband fiber optic network which can carry high speed and huge capacity data. The network would consist of seven fiber optic rings connecting Sumatra, Java, Kalimantan, Nusatenggara, Sulawesi, Maluku and Papua as well as eight back hauls.

The 30,000-km-long ring would hopefully link 33 provinces and 440 cities/districts throughout the country.

"The network project is aimed at developing the telecommunication sector, encouraging economic growth and reducing the digital gap," Iskandar said, adding that the government would surely facilitate the network project.

In view of the huge amount of investment involved, the government would give the five companies a chance to set up a consortium, he said.

"The five firms have generally agreed to form a consortium and none of them has said it is ready to finance the mega-project by itself," he said.

A source at the post and telecommunication directorate general, however, said PT Aqela and PT Potensi Bumi Sakti were prepared to fund the project by themselves in cooperation with foreign investors.

World economy looking good: Investment firm

The Jakarta Post, Jakarta

The world economy should remain spinning steadily this year, with an expected increase in consumer demand in Asia set to balance out possible wobbles from a likely slowdown in the U.S. economy, says a forecast from U.S.-based investment house Merrill Lynch.

China and India will continue to lead last year's good-news story for the economies of the Pacific Rim, Merrill Lynch said, with Japan -- having lately shown signs of a recovery -- to provide further support.

"Consumption expenditure in the Pacific Rim will be enough to weather a slow landing of the U.S. economy," Merrill Lynch chief economist Jesper Koll said in a media briefing on the report Tuesday.

"Japan, in particular, will be the main source of demand for Asia."

Merrill Lynch sees Japan's economy recovering from last year's high levels of savings, bad loans in the banking sector and unemployment, picking up on more growth from domestic demand this year with the Japanese central bank being in no rush to raise rates and the government ruling out an early hike in consumer taxes.

Japan is expected to experience slightly higher growth of 2.2 percent in 2007 from 2.1 percent last year, helping compensate for the effects of the U.S. growing slower at 1.7 percent (from 3.2 percent) due to the recent housing market downturn.

This will result in the global economy still being able to grow by an aggregate of no less than 4.5 percent (from 5.2 percent), and the Asian region at 7.8 percent (8.7 percent).

The region's expected growth should be strong enough to boost inflationary pressures in the second half of this year, which, coupled with strong external surpluses, should support continued policy tightening through currency appreciation and persistent central bank rate hikes, Merrill Lynch global forex strategist Alex Patelis said.

All this will in turn help spread out more evenly to emerging markets the more than US$800 billion of capital flowing each year into the U.S., thus easing out the risk of global imbalances in the world economy.

Specifically for Indonesia, Merrill Lynch sees this as an opportunity to continue attracting investors to the country's financial markets.

"Investors are looking at new frontiers. There is a race going on between emerging markets to attract investors," Koll said. "Now is a good opportunity for the government to put in place good policies to support this."

Merrill Lynch sees Indonesia's central bank being able to continue cutting rates to 9 percent by the year's end from 9.5 percent at present.

With inflation standing at some 6.6 percent now, the resulting real interest rate may not be "historically attractive, but still more attractive if compared to other countries in the region," Patelis said.

The overweight rupiah also remains among the investment firm's favorite currencies in Asia, he added.

Total Oil To Expand Gas Exploration In Indonesia

January 22, 2007 8:07 a.m. EST

Komfie Manalo - All Headline News Correspondent

Jakarta, Indonesia (AHN) - Total oil on Monday has announced plans to expand operations in Indonesia and invest an additional $6 billion in the next five years for oil and gas explorations in the region.

Thierry Desmarest, Total oil chairman said in Jakarta, Indonesia after meeting with Indonesia President Susilo Bambang Yuhhoyono, "We plan to continue with many projects and we will increase by six billion dollars our investment in oil and gas exploration and production, especially in Kalimantan, in the next five years."

Desmarest adds his company's initial exposure of $1 billion in the region in the past three years have already doubled.

The fresh infusion will be earmarked for the expansion of the capacity at Total's Mahakam Delta oil and gas block in East Kalimantan and to pinpoint new sources for oil and gas reserves. Over 20,000 people are currently working in Makaham Delta.

Indonesia's demand for gas is expected to grow at six percent each year between 2004 and 2012. Power supply shortages have already begun to surface outside Java. Analysts say the industry needs at least $25 billion to avert a looming power crisis by developing the domestic gas market.

Indonesia's Energy and Mineral Resources Minister Purnomo Yusgiantoro expressed appreciation for Total's long term commitment in developing and oil and gas industry in the region.

The Indonesian government last week announced tax incentives and to review regulations in the industry in an effort to attract more investors.

Rising oil prices have seen Indonesia focus on gas production for domestic needs rather than for export.

The gas industry in Indonesia remain underdeveloped because of poor incentives offered by the government to interested investors and make the sector economically viable. Subsidies for oil products and the absence of revenue sharing arrangements for gas field exploration/expansion in current production sharing contracts are largely responsible for the current situation, industry insiders say.

Minister wants quick answers to PGN share-price debacle

The Jakarta Post, Jakarta

Finance Minister Sri Mulyani Indrawati has instructed the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) to speed up the ongoing probe into the sudden collapse in the price of shares in state-owned gas firm PT Perusahaan Gas Negara (PGN).

"The finance minister wants the investigation into the case to be wrapped up quickly. The case is very sensitive and could damage the market," Jakarta Stock Exchange president director Erry Firmansyah said Friday.

No specific timetable has been set for the investigation, but Erry said he hoped it would take less than two weeks. "I want it to be completed as expeditiously as possible," he said.

PGN's shares fell 23.3 percent at one point earlier this month, prompting the regulator to temporarily suspend trading in the company's shares.

PGN has said the unanticipated slump in its shares was due to the announcement of a six-month delay in the commencement of a gas pipeline project worth US$1.1 billion.

Because of the delay, the company had to revise down its gas output target for this year to 555 million standard cubic feet per day (mmscfd) from 787 mmscfd. The pipeline has the capacity to transport 1,000 mmscfd, and links South Sumatra and West Java.

The suspension of trading in PGN shares on the Jakarta Stock Exchange has now been lifted, but an investigation is underway to find out what really happened.

Bapepam said that besides PGN, it would also question 12 local and foreign-based brokers that are reported to have been involved in the case.

Erry said the JSX was ready to submit the relevant information to Bapepam, but stressed that it could not become involved in the investigation.

M.S. Hidayat, the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), said the government must act firmly in handling the case so as to help improve the image of state firms.

"I think it is a warning to the government. I don't want to blame anybody, but the government must immediately take firm action as this case concerns a state-owned firm," he stressed.

He said state-owned firms had to improve their images and performances, and do what they had promised to do as regards projects and plans.

"The decline in PGN's share price was due to uncertainty," he said.

Indonesia to invite bids for severance pay insurance

JAKARTA – (Bloomberg) Indonesia will ask insurance companies to bid for the right to provide severance pay cover for workers in the country, where the cost of firing staff is the second highest in Asia.

'We want to invite insurance companies that are credible, have a wide network to participate in providing severance-pay insurance so our workers become comfortable,' Vice-president Jusuf Kalla said in Jakarta on Saturday. 'We will ask for premium that's competitive.'

Indonesia plans to adopt China's model for protecting workers by requiring companies to join insurance plans to cover severance pay, Manpower Minister Erman Suparno said on Dec 11. The insurance will ensure payment to workers who get laid off.

'Employers will have to pay the premium so they will be free from the requirement to give severance pay when they fire workers,' Mr Suparno said.

In China, severance pay is a month's salary for every year of work. In Indonesia, companies have to pay 32 months of wages, the most after Sri Lanka, to fire workers employed for 20 years or more. Jakarta expects to have a severance pay insurance system in place three months from now.

RI, Denmark explore alternative energy cooperation

Jakarta (ANTARA News) - Indonesia and Denmark have agreed to explore a cooperation in the use of efficient energy and alternative energy in place of fuel oil, Indonesian Foreign Affairs Minister Hassan Wirayuda said here on Monday.

"So far Denmark has been known to be outstanding in the use of efficient energy from non-fuel materials. Besides, it is also the best country in its economic development without relying to fuel and gas," Wirayuda said at the presidential office after accompanying President Susilo Bambang Yudhoyono to receive Danish Foreign Minister Per Stig Moller.

Wirayuda added that the two countries would also explore cooperation in clean water management and environment, especially in sharing experiences on transfer of technology.

According to the minister, President Yudhoyono had asked Energy and Mineral Resources Minister Purnomo Yusgiantoro and State Minister for Environment Rachmad Witoelar to visit Denmark in the near future to follow up the discussion on the cooperation.

Mutual understanding about the culture, tradition, and religion, especially in relation with the recent publication of Prophet Mohammad caricature in Denmark's media was also discussed in the meeting which lasted for about half an hour.

"President Yudhoyono asked Denmark to organize a study program in those fields through reciprocal visit of the two countries reporters and Denmark is ready to consider it," Wirayuda said.

He added that the situation in ASEAN, East Asia, Korean Peninsula, Myanmar, Middle East issues on Iran, Iraq and Palestine were also discussed in the meeting.

"The president also extended his gratitude for the two countries cooperation so far, especially Danish support to Indonesia in the United Nations Security Council and the UN Human Rights Council," Wirayuda added.

Pertamina slashes its fuel price for transportation

JAKARTA (The Jakarta Post): State owned oil and gas firm Pertamina lowered its fuel price for transportation use which is effective on Saturday due to the declining crude oil price and strengthening rupiah against the U.S. dollar.

In Jakarta and West Java, the new price of Pertamax fuel is Rp 4,850 a liter, down from Rp 5,200 a liter on Jan. 1.

Pertamax plus is lowered to a new price of Rp 5,000 a liter from Rp 5,350 a liter on Jan. 1

Biopertamax price is also down from Rp 5,200 per liter to Rp 4,850 per liter, while Pertamina dex drops from 5,900 to 5,600.

Pertamina also adjusts its fuel price in other regions across the country.

Back to Normal in Bali as Investment Pours In

The number of foreign tourist arrivals to Bali was almost on par with previous boon times, new central government data show, as the level of foreign investment continued to grow.

By William J. Furney , Managing Editor The Bali Times

SEMINYAK ~ A total of 122,848 overseas nationals arrived on the island in December, a massive increase of 61.9 percent on the same month a year earlier, figures from the Central Statistics Bureau reveal.

Analysis of the data show that Bali is attracting vacationers from parts of the world that have not been traditionally strong, while previous mainstays Australia and Japan remain below usual figures.

For 2006, Bali welcomed 1.26 million people from other lands, the bureau said, a level almost on a par with the previous 12-month period.

In actuality, however, total arrivals for last year were up 26.9 percent compared to 2003, when the island underwent disturbances, observers said.

Data from the Investment Coordinating Board in Jakarta show, meanwhile, that licenses issued to foreign companies in Bali totaled 70 up to November 2006, with the value of investment rising to US$101.2 million, up on $97.5 million the year before.

One of the major investments of recent years that came onstream towards the end of last year was the ultra-luxurious Bvlgari Resort in the scenic cliff-top area of Uluwatu on Bali’s southern node, the second such multimillion-dollar property by the elegant Italian jeweler following an initial hotel in Milan.

Key developments in 2007 include a hypermarket currently being constructed by the French Carrefour chain on Jl. Sunset Road in Kuta district.

Currently, Carrefour, which came to Indonesia in 1998, operates 22 hypermarkets in seven Indonesian cities - Jakarta, Medan, Palembang, Makassar, Yogyakarta, Surabaya and Bandung, and employs more than 7,500 people, according to the company’s corporate information.

The Bali hypermarket is due to open in around three months’ time, at the latest by the end of April, a site official who gave his name as Kristian told The Bali Times on Wednesday.

At the firm’s corporate office in Jakarta, officials refused to disclose details of the investment in Bali, merely saying that now was a good time to focus on Bali.

“We hope to do good business in Bali, which is where we are focusing right now,” Carrefour spokesman Irawan told The Times on Thursday, refusing to comment further on the nature or value of the investment.

Meanwhile, the official confirmation of Bali returning to its former boon times comes as the local government of Badung Regency, where most of the island’s tourism industry is located, works on a program to upgrade Bali’s infrastructure and facilities, under a plan dubbed Bali #1 Destination 2001, which aims to draw increasing numbers of foreign tourists to these shores.

Among the plans are a tripling of Ngurah Rai International Airport to handle the projected tourist influx, including a lengthening of its runway, development of roads and green areas and a cleanup of the environment that is especially despoiled during the current rainy season by waste flowing onto beaches and into the ocean.

And while Bali’s economy and lure continue to grow, one foreign writer sings the island’s praises in a just-published article in an American newspaper.

“Bali is so gorgeous, you can’t help but gasp from time to time when a hillside terraced with rice paddies or a thousand-year old temple comes into view,” wrote Karyn Lindberg of California’s San Jose Mercury News, in an article titled “Bask in Bali’s beauty: There’s magic to be found on Indonesian island.”

“The magic in Bali is found everywhere - in the lush beauty of the surrounding countryside, in the rich cultural traditions and in some of the best bargain hunting in the world. The true beauty of this remarkable little island, however, is the kindness and goodness of the people. Deeply spiritual, they seem to be born with an understanding of the meaning of life it takes Westerners decades to learn.”.

Hino launches Euro2 certified product line-up

Jakarta (ANTARA News) - PT Hino Motors Sales Indonesia, a subsidiary of Indomobil Group, has launched all product line-ups of Euro2 certified trucks and buses here Friday, following the recent launch of the chassis of buses running on compressed natural gas (CNG).

President Director of PT Hino Motors Sales Indonesia Toshiro Mizutani said that his company had made the products in Indonesia.

"After the drastic increase in fuel oil prices, we try to produce and provide means of transportation with low fuel oil consumption, low-cost maintenance, best performance and friendly to the environment," he said.

Hino, he said, tried to give a contribution to the relevant parties in Indonesia and hoped the contribution could be meaningful to the government in controlling air pollution.

Under its commitment to environementally friendly products, Euro2 and CNG are aimed at meeting new standards set by the government of controlling air pollution.

The company is the the country`s first producer of its Euro2 certified product line-up for commercial vehicles of category 2, category 3 and buses.

Shareholders of PT Hino Motors Sales Indonesia are publicly listed companies Indomobil Sukses International Tbk, Japanese Hino Motors Ltd and Sumitomo corp.

Foreign investors begin eyeing RI as investment destination

Jakarta (ANTARA News) - Foreign investors have began eyeing Indonesia as an investment destination besides China, India and Vietnam thanks to its increasingly stable economic and political conditions, Bank Indonesia (BI) Governor Burhanuddin Abdullah said.

"I think that the investment climate, political stability and macro economic conditions are getting better," he said on Friday.

Foreign investors would only invest in a country which offered more favorable opportunities, he said.

"I think Indonesia is one of the nations that must be taken into account thanks to its increasingly stable conditions," he said.

"Therefore, I am optimistic that the engine of economic growth in 2007 will be not only the government, the banking sector and exports but also foreign investment," he said.

Lack of legal certainty remains a major obstacle to attracting investments into the country.

In the January-November period of 2006 foreign investment fell by 45.91 percent from a year earlier.

Burhanuddin further said to enable domestic banks to carry out their intermediary function they needed to reduce credit risks and increase credit access.

"Why does the intermediary function not work? This is not because of liquidity shortages but because of their failure to reduce credit risks and increase credit access," he said.

He said the problem currently facing the banking sector was overhanging liquidity funds which reach more than Rp200 trillion. On the other hand, the real sector was in dire need of funds to run their business.

Starbucks denies coffee report, Nestle says sorry

The Jakarta Post

Giant multinational coffee-shop chain Starbucks denied a World Wide Fund for Nature (WWF) allegation Thursday that it purchased illegally-planted coffee in Lampung province, while Switzerland-based food producer Nestle said it regretted buying the beans.

Ratih Gianda, head of investor relations for PT Mitra Adi Perkasa, Starbucks' Indonesian partner, said in a written statement sent to The Jakarta Post that the WWF report alleging that Starbucks had bought illegally-planted coffee from the Bukit Barisan Selatan National Park in southern Sumatra was inaccurate.

The statement said that Starbucks only purchased arabica coffee from Sumatra, which was grown legally in the northern part of the island. It added that Starbucks had never sourced robusta, the coffee species referred to in the WWF report, from Sumatra.

Brata T. Hardjosubroto, head of public relations for Nestle Indonesia, said his company had been unaware that the coffee Nestle purchased from Lampung was illegally planted.

"Nestle never willingly purchases coffee from dubious sources. However, the company admits the difficulty of determining the precise origin of a coffee bag which has passed through different hands before it reaches the Nestle buyer."

According to Brata, Nestle purchases between 11,500 and 12,000 tons of coffee beans from Lampung each year to make instant coffee.

He said Nestle had entered into discussions with WWF on how to avoid purchasing illegally grown coffee, and how to boost production of sustainably grown coffee and to restore wildlife habitats in the national park.

Nestle also said it hoped the Indonesian authorities would issue a regulation clarifying the precise origin of coffee grown in the region.

Suherman Harsono, chairman of the Indonesian Lampung Coffee Exporters Association, said that the members of his association could not determine if some of the coffee beans they bought were grown illegally in protected forests, although he said he was aware that many farmers grew coffee in such conservation areas.

"The government needs to be stricter in dealing with illegal practices inside the national park."

"To date, there have been no mechanisms available to differentiate between illegal and legitimate beans. However, the authorities must know more about this than us, as we only buy the beans from local traders," he said.

He said that the association would forge closer cooperation with the local government's plantation agency, forestry agency, economic affairs agency, and trade and cooperatives agency to prevent the possible rejection of Lampung's coffee exports.

According to Suherman, annual average domestic coffee consumption stood at around 150,000 tons, while last year Indonesia exported 258,000 tons of fourth grade coffee beans at a price of US$1,200-1,300 per ton. The quality of beans are ranked grade one to six.

Indonesia is the world's fourth-largest coffee producer and exporter, and second-largest producer of robusta. About 70 percent of Indonesia's coffee exports come from South Sumatra, Bengkulu and Lampung.

The WWF reported that about 15,000 local farmers worked illegally inside the park, cultivating 45,000 hectares of conserved land to grow more than 19,600 tons of coffee. Their illegal activities had destroyed about 20 percent of the forest.

Seventy percent of the 365,800-hectare Bukit Barisan Selatan national park is located in Lampung, while the rest is in Bengkulu province. It is home to a number of critically endangered species, including populations of approximately 40 Sumatran tigers, 500 Sumatran elephants and between 60 and 85 Sumatran rhinoceroses.