Indonesia's Trade and Investment News, 19 February 2007

Written by Mahendra Siregar/ Hari S.noegroho

Highlights Politics ·         The head of the US Joint Chiefs of Staff says US keen to maximize military cooperation Regions ·         Hospitals overwhelmed with flood cases, as dengue fever toll mounts ·         Government meets with WHO over bird flu sample ban Economy ·         Fourth quarter growth comes in at 6.1%, full year 2006 at 5.5% ·         Government says it will import more rice to restrain price rises Business briefs Macroeconomy ·         Central bank sees room for more cuts in benchmark rate ·         FDI approvals begin to move forward Investment ·         New incentives for raw materials sector investment ·         No barrier on foreign development in retail sector State concerns ·         Agriculture technology project will help 400,000 farming families ·         Cigarette prices to be raised SOEs ·         Toll road company, airlines for IPO Private sector ·         Business losses counted after floods ·         Orders flock in for footwear industry Banks ·         Sector profits improved 13.82% in 2006 ·         Warehouse receipts may be used as collateral Power ·         2,000 villages to be made energy self-sufficient Oil & gas ·         Winners to be named on 12 new oil and gas blocks Mining ·         Tin exports not interrupted, says PT Timah ·         PT Aneka Tambang signs cooperation deal with BHP Billiton POLITICS US, Indonesia t o Strengthen Ties The United States is looking for ways to strengthen military ties with Indonesia, including holding more joint exercises, the chairman of the US Joint Chiefs of Staff, Gen Peter Pace, said on Tuesday (13/2/07). "I want to know how the United States military, along with the Indonesian military, can continue to strengthen the bonds of friendship between our two nations," Pace told a news conference after talks with President Susilo Bambang Yudhoyono. "There are many kinds of exercises and things we might do together in future.” "I'm very comfortable with the relationship that exists right now, and especially between the Indonesian armed forces and the US armed forces," he said. "I came here only to talk on how the US and Indonesian military can work together regionally for the betterment of both our countries," the general went on. Pace praised the improved US.-Indonesia military relationship and said Washington was keen to compete for Indonesian arms contracts. "I think the United States has shown that when Indonesia needs help ... we will help. We want to be here when we're needed, and we don't want to be here when we are not needed," he said. House Passes Natuna Sea Law The House of Representatives on Tuesday (13/2/07) passed a law on the continental shelf boundary between Indonesia and Vietnam that is expected to strengthen Indonesia's claim over the Natuna Sea. The law specifies six coordinates in the South China Sea with a connecting line that situates the Natuna Sea on Indonesia's continental shelf. The two governments used a map released by the British Admiralty to ensure neutrality in defining the boundary. The Natuna Sea contains a 46 trillion cubic foot gas field, which was discovered in the early 1970s but has yet to be exploited because of a high quantity of carbon dioxide. House Commission I on defense and foreign affairs believes the law will also help improve national security. "Currently, we only have four warships to control the sea traffic in the area,” commission member Ade Daud Nasution told The Jakarta Post . “Oil smuggling is rife because there has been no regulation giving the military authority to do anything about it.” The Indonesia and Vietnam governments went through stiff negotiations between 1997 and 2003 to resolve the continental shelf issue. Although a treaty was concluded in 2003, the Indonesian government could not ratify it without the passage of implementing legislation. Jakarta t o Train Myanmar Military Indonesia will provide training for Myanmar military officers which may lead to a joint military exercise in the future, Foreign Minister Hassan Wirayuda said on Thursday (15/2/07). "We made an offer and it was welcomed," Wirayuda told a press conference after meeting with Myanmar Foreign Minister Nyan Win. "Training will be provided for Myanmar military officers in Indonesia's military command schools using the educational and training system, and it will not be impossible that we will hold a kind of joint exercise in the future," he said. In January, President Susilo Bambang Yudhoyono met with Myanmar Prime Minister Soe Win on the sidelines of the ASEAN summit and suggested that the military-ruled country learn from the Indonesian military's experience in promoting democracy. During Thursday's meeting, Nyan Win also told Wirayuda that the Myanmar government "is optimistic enough" about completing the process of drafting a new constitution this year. "If the constitution can really be completed this year, I think, it will be good progress," the Indonesian minister said. REGIONS Flood Victims Overwhelm Hospitals Hospitals in the capital were overwhelmed throughout the week with hundreds of flood victims suffering from water-borne diseases after the city's worst flooding in five years. Jakarta is still struggling to clear up the mess from floods earlier this month which killed 94 people and forced half a million others to flee their homes. Some 200,000 people have suffered from flood-related illnesses and there are fears that disease could spread with hundreds of people still displaced from their homes and thousands living in homes with no clean water or plumbing. "Some hospitals in charge of taking care of flood victims were overloaded. They asked the health ministry to send more medical personnel," Suprawoto, spokesman of the National Coordinating Agency for Disaster Management, told Reuters on Wednesday (14/2/07). "There are 757 in-patients, most of them are suffering from diarrhea, skin diseases, dengue, leptospirosis and severe respiratory problems." The patients are in some 20 hospitals in the city. As hospitals struggled to cope, authorities were busy clearing the streets of garbage while survivors cleared their homes of debris and mud left behind by the receding waters which in some neighborhoods had been up to several meters deep. Govt. Meets with WHO Over Bird Flu Samples The government met with high-ranking officials from the World Health Organization on Friday (16/2/07) to settle a disagreement over the sharing of bird flu virus samples. Health Minister Siti Fadillah Supari declined to disclose details of the agenda Thursday but hinted that she would bring up the substance of the Material Transfer Agreement (MTA), a protocol for virus-sharing. "I will meet both Heyman and Fukuda here, tomorrow," she said, referring to David Heyman, World Health Organization (WHO) acting assistant director general for communicable diseases and Keiji Fukuda, acting director of WHO's Global Influenza Program. Under the transfer agreement, the recipient agrees to specific constraints, such as not sharing the sample with others or using it for commercial purposes. Indonesia has refused to send its virus samples to foreign laboratories, including collaborating centers under the WHO, since the beginning of this year. Supari termed the move a "reaction" after Australia-based pharmaceutical company CSL Ltd. developed human vaccines "without Jakarta's consent" using the Indonesian strain sent to WHO centers. She called it a timely move to 'speak up' for equality and justice. Indonesia last week appointed Swiss-based Baxter Healthcare SA, a subsidiary of US drug maker Baxter International Inc., to develop human vaccines with the Indonesian strain. The refusal to share the samples drew immediate criticism from many who said Indonesia's move could jeopardize the world's access to a pandemic vaccine, especially if Indonesia became the epicenter of a global outbreak. According to Supari, Indonesia's decision to control its virus samples has gained support from other developing countries. "The most important thing is that we speak out. Besides, usually, we, the third world, lose the battle. But as an international organization, WHO should have been wise, fair and neutral." Indonesia's decision was defended by the Lancet medical journal, which said the WHO must find a way to help poorer countries benefit more from medical research done by rich companies. "Indonesia fears that vaccines produced from their viruses via the WHO system will not be affordable to them," the editorial reads. "Their concerns are forcing the world to address this inequity problem. The fairest way forward would be for WHO to seek an international agreement that would ensure that developing countries have equal access to a pandemic vaccine, at an affordable price," it said. President Urges Faster Papua Development The government will speed up development in the provinces of Papua and West Papua after an assessment found both still lacking in terms of infrastructure and economy, President Susilo Bambang Yudhoyono said on Friday (15/2/07). "The improvement of peoples' prosperity in two Papua provinces is slow. Special autonomy has not been implemented in a good way," Yudhoyono told reporters after a cabinet meeting on the issue. "I will issue a presidential decree to accelerate the development in the two Papuan provinces. Funds will come from the region and the central government," Reuters quoted the president. Yudhoyono said transport infrastructure would be priority to boost the local economy. "We hope in three to five years we will see significant results of this acceleration program," he said. On Thursday, Coordinating Minister for Political, Legal and Security Affairs Widodo AS told reporters after a cabinet meeting that "it is important to improve access and mobility to remote areas, and those near the border, so that people in these areas can be reached more easily," The Jakarta Post reported him as saying. Widodo also mentioned the need to develop suitable plantations and crops to promote self-sufficiency. "We are considering developing oil palm plantations, among other things," he said. "This will also help create employment in these areas." West Papua Governor Abraham Atururi acknowledged the development challenges in the two provinces, and said future strategies should also focus on developing the local human resources. "Papua is said to be a land of riches; the problem is in its human resources," he said. "We hope this can be changed for the betterment of all." Officials from the two provinces will meet soon in Manokwari, he said, to discuss cooperation in implementing future development policies. Ahtisaari Urges Aceh to Implement Reforms The envoy who brokered the peace deal that ended the long-running war in Aceh called Friday (16/2/07) on Aceh's new leaders to quickly carry out reforms. Martti Ahtisaari, a former Finnish president, negotiated an end to one of history's longest wars by bringing together the Indonesian government and rebels from the Free Aceh Movement in 2005 on behalf of the European Union. "It was a fair democratic election, and we all came through that process successfully," Ahtisaari said in his first public comment on Aceh since the successful transfer of power from the former Indonesian governor. Ahtisaari praised progress so far in Aceh: "It is a case of so far, so good." But he urged quick reforms - which Aceh's new officials, most of them former separatists, have vowed to quickly implement to raise living standards in the province. "I hope that wisdom will prevail and that the new governor will utilize all the available expertise in Aceh to carry out the reforms he and many others want to carry out," Ahtisaari told the Associated Press after a meeting with NATO's secretary general. ECONOMY 2006 GDP Growth at 5.5% The economy put on a spurt in the fourth quarter last year, with gross domestic product growing 6.1% year-on-year, according to Rusman Heriwan, head of the Central Bureau of Statistics (BPS). The World Bank called for more government spending, say it had reaped a windfall of $15 billion and should spend it on poverty reduction. Cutting fuel subsidies in 2005, declining interest payments on its debt and increasing revenues have handed Indonesia the largest increase in fiscal resources for development since the oil boom of the mid-1970s, the bank said in a review of Indonesia's public expenditure. "Indonesia's post-crisis period is over: the country now has enough financial resources to address its development needs," Outgoing country director Andrew Steer said the government should raise infrastructure spending to 5.4%, outlaying another $6 billion a year, Agence France-Presse reported. Steer added that money was already being well spent on education. "They now need to figure out how to also spend money well in infrastructure," he said. In an article in The Jakarta Post on Monday (12/2/07) entitled ‘Opportunity knocks for Indonesia,' Steer and colleagues Wolfgang Fengler and Soekarno Wirokartono noted that: “Indonesia's move to decentralization in 2001 has changed the fiscal fundamentals of the country, and it is particularly regional governments that need to spend money, not save it.” On Tuesday, Vice President Jusuf Kalla said Indonesia had relaxed its ban on rice imports, saying it would be one of several instruments to control rising prices for the next few years until productivity can be increased to meet demand. Kalla said Indonesia "won't ever stop" importing rice as he unveiled plans to buy 500,000 tons from overseas to stabilize prices. There was positive news on infrastructure, with an advisory committee for a mass rapid transit (MRT) system in Jakarta announcing agreement on a Rp9 trillion ($991 million) line from Lebak Bulus in Jakarta's south into the city. The committee and the Japan Bank for International Cooperation (JBIC) said at a joint news conference on Tuesday that the project will be partly funded by loans from the JBIC, Reuters reported. The MRT, planned to be 14.5 km long with 12 stations, is expected to start operations in 2014. The Jakarta administration is also proposing to build a comprehensive flood prevention infrastructure in the capital and nearby provinces at a cost of Rp19.96 trillion, Bisnis Indonesia reported, quoting Jakarta Governor Sutiyoso, who said the projects should be completed in two years. BUSINESS BRIEFS MACROECONOMY BI Sees Room for Rate Cut in March Bank Indonesia (BI) sees room for a cut next month in its reference interest rate, known as the BI rate, Deputy Governor Aslim Tadjuddin said Friday (16/2/07), according to Reuters. "The room is there," he said when asked by reporters whether the central bank could lower the rate next month. Tadjuddin also said the country's foreign exchange reserves could top $50 billion by the end of 2007.  "If we estimated a surplus in balance of payment of $5 billion to $6 billion, by the end of the year, I think it can exceed $50 billion," he said.  At the end of last year, the country's foreign exchange reserves reached $42.59 billion and rose further to $43.11 billion last month. Meanwhile, Coordinating Minister for the Economy Boediono said Thursday (15/2/07) inflation is likely to be "higher than expected" in February due to the severe flooding that swamped Jakarta earlier this month.  He however noted that the floods will have limited macroeconomic impact in the longer term and won't affect official forecasts for end-2007 inflation, reported Dow Jones Newswires. BI has cut the BI rate nine times in less than a year, reducing it from 12.75% in April to 9.25% this month, as price pressures eased significantly from the inflation shock in late 2005.  But the authority is likely to be more cautious in cutting rates this year because any further decline in the annual inflation rate is likely to be limited compared with 2006, analysts said. Some analysts and market watchers say the BI rate could fall to 8.5% by the middle of this year, as inflation is expected to decline slightly to 6.55% by the end of 2007 from 6.6% last year. WB Urges Indonesia to Spend ‘Windfall' Indonesia has enough money to pay for its development programs as prudent macroeconomic policies have resulted in a $15 billion windfall to spend on reducing poverty, the World Bank said on Monday (12/2/07). Cutting fuel subsidies in 2005, declining interest payments on its debt and increasing revenues have handed Indonesia the largest increase in fiscal resources for development since the oil boom of the mid-1970s, it said in a review of Indonesia's public expenditure. Indonesia should now increase public spending, particularly in infrastructure, education and health to keep its economy competitive in the long term. It should raise infrastructure spending by two percentage points of gross domestic product to 5.4%, or an additional $6 billion a year, World Bank country director Andrew Steer was quoted as saying by Agence France-Presse.  "It would be very nice if it would be higher than that to catch up" after a "lost decade" following the 1997-98 Asian financial crisis, he said. Indonesia has lowered its debt to GDP from almost 100% to less than 40%. "Right now the issue is not the shortage of money or financing.  Money will come when there are the right designs and the right policies," he said. Steer said some of the additional money is already being well spent, particularly on education. Indonesia is also scaling up an anti-poverty program to reach 75,000 villages in the next three years.  A second scheme based on successful programs in Mexico and Brazil will also give assistance to the poor but on conditions such as they put their children in school and provide proper nutrition, he said. "In terms of helping the poor, they've got two programs that will become world class...," Steer said.  “It will enable the inter-generational transmission of poverty to be broken, at least for some poor people, because at the moment the great tragedy worldwide is that if you're born into a poor family, you're going to be poor, so the trick is to break that transmission mechanism." "The government at present is in a financially strong position and this is very good for Indonesia.  Therefore, with the new challenges, I am certain the country will make a lot of progress in the future," he said. Forex Reserves Foreign exchange reserves rose to $43.27 billion as of Janurary 31 from $43.11 billion as of January 25, Bank Indonesia said Friday (16/2/07). A notice posted on the central bank's Web site didn't provide any reason for the increase, Dow Jones Newswires reported. INVESTMENT FDI Expected to Improve Actual foreign direct investment (FDI) in Indonesia dipped in January from the same period last year, data showed on Thursday (15/2/07), but the state investment agency (BKPM) said full-year investment is likely to pick up. The agency said actual FDI last month fell to Rp2.7 trillion ($298.6 million). Investment approvals in January, however, rose to $1.19 billion from $463 million in the same month last year and the investment agency said it expects last month's fall in actual FDI to be only temporary. "We can't expect the same figure every month.  It is normal if the data fluctuates.  When there is a project worth billions of dollars the investment figure may jump sharply and similarly otherwise," Darmawan Djajusman, deputy of promotion and investments at the agency, told Reuters. "But overall, we still expect investment to grow 15% this year from last year," Djajusman said. Investment Incentives to be Offered Indonesia plans to offer new incentives in a bid to attract $5 billion of domestic and foreign investment into its raw materials sector, the state investment agency (BKPM) said on Tuesday (13/2/07). The government is considering offering tax breaks and guarantees for supplies as it seeks to draw more firms into the cocoa, palm oil and rubber sectors, the head of the agency, Muhammad Lutfi, told Reuters. He said Indonesia is aiming to become a "formidable" player in the world market for refined products by offering incentives to firms to refine raw materials in the country instead of selling unprocessed materials. The government of one of the world's top producers of raw materials is hoping the incentives will encourage new projects that will start commercial production within two to three years. He said the move is critical to cut high unemployment and poverty in the country, which has struggled to attract investment since the Asian economic crisis a decade ago. He said he expects the palm oil sector to attract $1.5 billion of new investments in processing 3 million to 4 million tons of crude palm oil into refined products.  "We produce around 15 million tons of crude palm oil, with around 5.4 million absorbed by the domestic market.  We export the rest.  Looking ahead, we expect to sell an additional at least 3 million to 4 million tons of refined products," he said. Indonesia is set to overtake Malaysia as the world's biggest palm oil producer this year.  It is the world's second biggest rubber producer and the world's third biggest cocoa producer. Lutfi said the government also expects to attract investments worth at least $500 million in the cocoa sector through the development of cocoa processors in the country's main cocoa-growing areas of Sulawesi. The government expects the new scheme to help it build two new oil refineries worth $4 billion to support the country's petrochemicals industry.  He declined to elaborate, but said the new scheme should help boost overall investment in Indonesia. Foreign Retailers Not Restricted A presidential regulation on modern retail market, to be issued in March, will not restrict the operation of foreign retail chains, which have been criticized by some for the massive inroads they are making into the market. Speaking Monday (12/2/07) at a seminar on foreign investment in the modern retail market, the Trade Department's market development and distribution director, Gunaryo, said speculation that the regulation would be aimed at restricting the expansion of foreign retailers is groundless. "The regulation is aimed at creating harmonious competition between modern and traditional retail markets.  Don't be mistaken.  The regulation will not restrict foreign ownership," Gunaryo was quoted as saying by The Jakarta Post . Excel Takes More Than 25% of Trimegah Singaporean investment company Excel Holdings Pte Ltd, fully owned by Overseas Chinese Bank Corp Ltd (OCBC), will acquire more than 25% of the paid-up shares of PT Trimegah Securities (TRIM) from some of the latter's stakeholders, an Excel spokesman said. Hadiputranto, Hadinoto & Partners public accountant, acting on behalf of Excel, told the Capital Market Supervisory Agency-Financial Institutions (Bapepam-LK) head on Tuesday (13/2/07) that Excel has begun negotiating a plan to acquire more than 25% of TRIM's stocks from several shareholders at the price of Rp160 per share, Antara reported. When the parties have agreed to the conditions of the acquisition and after the signing of a document on the acquisition, Excel would make a tender offer for the TRIM shares in accordance with Bapepam regulations. Trimegah Securities director Rosinu said recently the acquisition of half of Trimegah shares by OCBC is still being negotiated. STATE CONCERNS Agricultural technology project will help 400,000 farming families The World Bank (WB) has agreed to extend a $123 million loan to Indonesia to enhance its farmers' capacity through an agricultural technology and Information project that will help more than 400,000 farming families to increase their productivity and income in the next five years. The project, to be carried out by the Agriculture Department, is aimed at encouraging market-oriented agricultural service system development. The loan consists of $60 million in International Development Assistance (IDA) with a grace period of 10 years, which will be due after 35 years, $32.8 million from the International Bank for Reconstruction and Development (IBRD) with a grace period of five years which will be due after 20 years, and the rest to be provided by the Indonesian government. The project, to be implemented jointly with public and private institutions, will begin in May, it said. Some $41 million of the funds will go to a program to empower farmers through a farmers group capacity development scheme and to an agriculture-based grant program. The programs, it said, will hopefully help the Indonesian agricultural sector grow by 3.9% and develop agricultural diversification so that in the long run the poverty rate will decrease. Indonesia Relaxes Rice Import Ban Indonesia relaxed its ban on rice imports on Tuesday (13/2/07), saying it would be one of several instruments to control rising prices for the next few years until productivity can be increased to meet demand. Vice President Jusuf Kalla said Indonesia "won't ever stop" importing rice as he unveiled plans to buy 500,000 tons from overseas to stabilize prices that have climbed more than 10% this year and are 17% higher than the government's desired price. "Tenders will be opened today.  We hope for urgency and that the rice will arrive by March or April" this year, Kalla was quoted as saying by the Financial Times , adding the government is considering importing a further 500,000 tons. Kalla linked the decision to recent storms and floods that battered large swathes of the country and said there is no reversal of the long-standing ban on rice imports. Jakarta Planning Rp19.96t Flood Prevention Work Jakarta's city administration is proposing to build a comprehensive flood prevention infrastructure in the capital and nearby provinces at a cost of Rp19.96 trillion, Jakarta Governor Sutiyoso said. “All flood management projects should be completed within two years.  Otherwise, we will continue to experience flooding every year,” Sutiyoso said, according to Bisnis Indonesia . He said the project includes a Rp4.3 trillion flood canal in East Jakarta and a Rp1 trillion canal in West Jakarta.  He said Sutiyoso said funding should be shared by the Jakarta administration, West Java and Banten provincial governments and the central government. Govt. to Raise Cigarette Prices The government is determined to press ahead with its plan to increase cigarette prices by 7% in March despite protests from cigarette firms. "The price increases will go ahead as scheduled, in March for the retail price, and in July for the special tax adjustment," the Finance Department's Customs and Excise Director General Anwar Suprijadi said Wednesday, according to Antara. Suprijadi was referring to a directive issued by Finance Minister Sri Mulyani Indrayati in December stating that the retail price of cigarettes would be increased 7% beginning March 1. In addition, from July next year, cigarette producers will also be required to pay a special tax of Rp7 per cigarette in the case of cigarette firms with annual production of more than 2 billion cigarettes, referred to as category-1 firms, Rp5 per cigarette for firms with annual production of between 500 million and less than 2 billion cigarettes (category-2 firms), and Rp3 per cigarette for firms with annual production of less than 500 million cigarettes a year (category-3 firms). The new tax will be in addition to the standard tobacco excise duties.  At present, excise duty is charged at a rate of 40% (of the official retail price) on category-1 cigarette firms, 36% on category-2 firms and 26% on category-3 firms. Concern Over EU, Japan Rules on Shrimp Exports Indonesia has complained about the stringent requirements set by the European Union (EU) and Japan over its shrimp exports. The country's Director General for Fish Breeding, Made L Nurjana, said the EU's requirement that shrimp from Indonesia must contain less than 1 mg of antibiotic residue per ton is illogical, Antara reported on Wednesday (14/2/07). He also noted the difficulty of meeting Japan's requirement that Indonesia's shrimp ponds must be free from worms or birds.  "It may not be too much of a problem to keep worms or birds away from a 1-hectare pond but the country has 50,000 hectares of shrimp ponds," he said. He said that last month, Japan rejected 15 containers of shrimp from Indonesia for failing to meet its requirements, causing the latter to lose $2.4 million. SOEs Govt. to Sell 49% of Jasa Marga The government hopes to privatize several state-owned companies this year to raise working capital for the companies, State Minister for State Enterprises Sugiharto said Monday (12/2/07). Sugiharto told parliament the government will reduce its stakes in two companies via initial public offerings.  He said up to a 49% stake in toll road operator PT Jasa Marga will be sold, while a maximum 35% stake in construction company PT Wijaya Karya will be on offer, Dow Jones Newswires reported. Strategic investors will be sought for airlines PT Garuda Indonesia and its sister company PT Merpati Nusantara Airlines, which mainly flies to small towns in Indonesia, said Sugiharto. Garuda Indonesia will sell up to a 49% stake, while nearly 40% of Merpati Nusantara Airlines will be sold. PRIVATE SECTOR Business Lost Rp8t in Floods Businessmen claimed they lost about Rp8 trillion because of the recent floods in Jakarta. The loss came from damaged distribution lines and supporting infrastructure, general chairman of the Indonesian Chamber of Commerce and Industry (Kadin), MS Hidayat, said on Thursday (15/2/07), according to Antara. Indonesia's exports were valued at $56 billion, including 40% through Jakarta, he said, adding that he did not know how much small- and medium-scale businessmen had lost. He said he had asked the government to give small- and medium-scale businessmen some kind of assistance because their losses were not covered by insurance companies. He suggested that the government extend their credit repayment period, or provide them collateral-free credits. "I heard the cabinet had given a positive response to the idea," he said after meeting with Vice President Jusuf Kalla to discuss problems caused by the floods. Shoe Orders Increase Six major international footwear companies increased their orders from Indonesia to a combined $51.8 million this year, from $47.8 million last year, after the European Union (EU) extended anti-dumping duties on shoes made in China and Vietnam for another five years, the Investor Daily reported. The buyers are Nike, Fila, Adidas, Puma, Reebok and Lacoste, the newspaper quoted Ansari Bukhari, Director General of Metal, Machinery, Textile and Miscellaneous Industries at the Industry Department, as saying. Bukhari said footwear exports are expected to reach $2 billion this year, after rising to $1.64 billion in 2006 from $1.5 billion a year earlier. The latest trend shows improving confidence among international buyers toward Indonesia, the daily quoted him as saying. Earlier this decade, international shoe companies trimmed their orders from Indonesia amid rising labor unrest. BANKS Banks' 2006 Net Profit Up 13.82% The country's 130 banks earned a net profit of Rp28.33 trillion ($3.14 billion) last year, up 13.82% from the previous year, owing to a rise in operating income from credit interest, Bank Indonesia (BI) data showed. Last year's performance, however, was not as good as in 2004, when net profit totaled Rp29.46 trillion.  Two state banks, Bank Mandiri and Bank Negara Indonesia (BNI) were the main contributors to the net profit, Antara reported on Thursday (15/2/07). Last year's operating and non-operating income of the 130 banks totaled Rp212.49 trillion and Rp77.66 trillion, marking an increase of 19.8% and 37.51%, respectively from the year before. Operating and non-operating costs also rose 17.45% and 49.55% from the previous year to Rp184.82 trillion and Rp64.83 trillion, respectively. Warehouse Receipts to be Used to Secure Loans Bank Indonesia (BI) is set to issue a directive providing a legal basis for the country's banks to accept warehouse receipts as collateral, Trade Minister Mari Pangestu said Tuesday (13/2/07). "For a warehouse receipt to be used as collateral, there needs to be an intermediary bank.  BI is preparing a directive so that warehouse receipts can be legally accepted as collateral," Pangestu was quoted as saying by The Jakarta Post . She said that with the issuance of the directive, it is expected that banks would no longer be reluctant to extend loans based on the surrendering of warehouse receipts. A warehouse receipt is a document that proves the delivery of a commodity into the custody of a warehouse, and can be traded or used as collateral.  Warehouse receipts are widely used as collateral in developed countries, such as in the US and Canada, and in many developing countries, including India, the Philippines, Ukraine, Brazil and Zambia. The government will permit the use of warehouse receipts as both collateral and as negotiable instruments from July 14.  The move follows one year of preparation, including the introduction of the concept to all involved -- civil servants, business players and the banks. Mandiri Ready to Merge with, Buy Bank - CEO State-owned Bank Mandiri, Indonesia's largest bank by assets, is ready to merge with or acquire a domestic bank by as early as 2008, chief executive Agus Martowardojo said Thursday (15/2/07). Bank Mandiri is eyeing a merger or acquisition with a domestic lender "strong in consumer and commercial business, especially small and medium enterprise (loans)," Martowardojo was quoted as saying by Dow Jones Newswires. The proposed merger or acquisition is part of Bank Mandiri's plan to become a "regional champion" bank with a market capitalization of Rp10 trillion by 2010, he said. Meanwhile, Martowardojo estimated the bank's material losses from the recent floods in Jakarta and its environs at Rp10 billion ($1.1 million).  Some 33 of the bank's 2,800 ATMs in the area were submerged in floodwaters causing a total loss of Rp7 billion, he said Tuesday (13/2/07), according to Antara.  He said 16 of the damaged ATMs are under repair. POWER Renewable Energy to Power Villages Indonesia aims to have 2,000 energy self-sufficient villages powered by hydro, solar or bio-fuel resources by 2009, according to Energy and Mineral Resources Minister Purnomo Yusgiantoro. The country currently has 140 villages capable of meeting all their own energy needs, Antara news agency quoted him as saying late Wednesday (14/2/07) after a cabinet meeting. "President Susilo Bambang Yudhoyono wants the number of energy-self-sufficient villages ... 140 increased to 200 this year and to 2,000 by the end of the present cabinet's tenure in 2009," Yusgiantoro said. The villages have developed micro-hydropower plants or solar, bio-gas and bio-fuel energy schemes which also create jobs and reduce reliance on fossil fuel reserves to help meet growing energy demands in Southeast Asia's largest economy. Yudhoyono has asked the relevant ministries to arrange to disburse the necessary funds to the villages involved in the scheme, Antara said. He said the villages were eventually expected to produce an energy surplus which they could then sell. The scheme was hoped to reduce the number of unemployed by one million by 2009, the minister said, adding that 45% of Indonesia's 70,000 villages were underdeveloped. One pioneer village, Tanjung Harjo in Central Java, was already using vegetable energy resources to meet all its needs and was selling its surplus power to a nearby sugar factory, the agency said. Around a third of Indonesians have no access to electricity, the World Bank says. OIL & GAS Major Oil Companies in Race for Blocks The government is in the process of selecting the winners of last August's tender for the development of 12 oil and gas blocks with potential reserves of between 30 and 400 million barrels of oil equivalent, according to a senior official. "We will soon announce the winners of the contracts after getting approval from the Energy and Mineral Resources Minister," Director General for Oil and Gas Luluk Sumiarso said Friday (16/2/07). He was quoted by Antara as saying that the 12 blocks were the SE  Mahakam block in Kalimantan; West Air Komering block in Sumatra; Karama, Mandar and Sageri blocks in the Makassar Straits; Ujung Kulon block in West Java; Cucut, Tuna, Cakalang and Baronang blocks in Natuna; Enrekang block in West Sulawesi; and Lampung I block in Lampung. Among the companies that participated in the tender were Total, Manley NV, Premier Oil, Petronas, Esso Exploration, Talisman, Anadarko, StatOil and state oil and gas firm Pertamina. With the signing of contracts, the government expects to take in $25 million in signature bonuses, Luluk explained. He said that the blocks in the Makassar Strait appeared to be the most interesting areas on offer, even though the sea there was more than 1,500 meters deep. He said the government had actually put 20 blocks on the table, but there were no bidders for eight, which were considered uneconomic. Earlier this year, the ministry's director for the upstream oil and gas industry, R. Priyono, said the government would offer another 30 blocks, mostly in the deep waters off Papua and Nusa Tenggara, for oil and gas exploration. The government wants to increase the country's oil production to 1.3 million barrels per day by 2009 from the current 1.06 million barrels per day. Odira Energy to Invest $30m in Exploration PT Odira Energy Persada which recently won a tender for the Karang Agung oil and gas block in Banyuasin, announced on Friday (16/2/07) that it will invest $30 million in exploration around the country. "Exploration is expected to be carried out in 2008 after seismic surveys which will take around one year", Odira president Mahyudin Farouk Rais told Antara. Rais said a block with one gas well and two oil wells was found in 1986 but has never been exploited. The company signed an exploration contract last month. Santos Keen on Coal Seam Gas Australian oil and gas producer Santos Ltd. said on Thursday (15/2/07) it was interested in exploring coal seam gas fields in Indonesia, after media reports it was preparing to bid for two upcoming tenders there. Santos told Reuters that it had recently taken Indonesian government officials to its coal seam gas fields in Queensland, Australia to encourage the development of the fledgling industry in Indonesia. "We certainly have an interest in potential coal seam gas development in Indonesia," said Santos' spokesman Christian Bennett. Media reports in Indonesia have said the government plans to issue tenders in March to look for and produce coal seam gas in Sumatra and in Barito, south Kalimantan, areas which are estimated to hold 183 trillion cubic feet (tcf) and 103 tcf of coal seam gas deposits respectively. The Jakarta Post quoted a senior Indonesian energy minister saying that six investors were interested in bidding for the tenders, including Santos and state oil and gas firm Pertamina. Bennett declined to comment directly on whether Santos was going to bid for the tender. Sumatra-Java Pipeline Complete: PGN State-owned oil and gas company PT Perusahaan Gas Negara (PGN) has finished installing a new gas pipeline between South Sumatra and West Java provinces, and will start pumping natural gas at the end of March, the company said Wednesday (14/2/07). On January 12, the company lost $1.2 billion in market capitalization, almost a quarter of its value, after management announced a three-month delay to the pipeline project. The pipeline is expected to help PGN's gas sale volume increase by 64% on year to 555 million standard cubic feet per day in 2007 from 338 mmscfd in 2006. PGN had previously said it would begin pumping gas through the new pipeline sometime in March but didn't elaborate further. The government owns 54.06% of PGN. A second pipeline connecting South Sumatra and West Java is expected to come online in June. Indonesia Unlikely to Support “Gas OPEC” Indonesia is unlikely to support the idea of a cartel comprising the world's top natural gas producers, a government official said Tuesday (12/2/07). "I don't know what's the goal (to form a cartel)," Dow Jones quoted Indonesia's Governor for OPEC Maizar Rahman as saying. "Our gas is already sold on long-term contracts." Rahman said that in fact gas-exporting countries such as Indonesia and Qatar are already meeting regularly to exchange information on gas "technology." His comments echoed the skepticism shown last week by Minister of Energy and Mineral Resources Purnomo Yusgiantoro over the feasibility of Russia and Iran's recent expression of interest in forming a "gas OPEC." Industry experts and a US government spokesman have also cast doubt on the likelihood of such a grouping. But Qatar Monday joined Russia in expressing support for the creation of a natural gas cartel to represent the interests of producer countries in controlling the global market. Russian President Vladimir Putin and Qatari Emir Sheik Hamad bin Khalifa Al Thani said at a meeting in Doha, Qatar, that they wanted competing gas producers to cooperate more. Putin said he would send a team of experts to a natural gas conference in Doha in April, where they would discuss details of building a cartel. KNOC Strikes Oil in Papua Korean National Oil Corporation (KNOC) has discovered oil at the Wokam Block, offshore of Papua province, Platts Commodity News reported. The block might contain 670 million barrels of oil, but the company will have to drill two delineation wells to appraise the discovery, a senior official said Friday (16/2/7). "Oil was struck at the Bumerah-1 well, but it's still a preliminary figure. KNOC will have to appraise the oil reserves to confirm it. It will drill two delineation wells for this," said the deputy planning chief of upstream regulator BP Migas, Achmad Luthfi. The discovery of oil was made late last year BP Migas expects KNOC to complete its drilling of the delineation wells soon. KNOC holds an 80% interest in Wokam block, while the rest is held by GS Holding Corp. MINING No Problems with Tin Shipment: Timah The world's biggest integrated tin miner PT Timah said on Friday (16/2/07) there were no interruptions to its tin shipments from Indonesia. "Tin exports are still ongoing. There is no problem with our shipment. We are now working to complete requirements to export tin before the deadline on February 23," president director of PT Timah Thobrani Alwi told Reuters in Jakarta. The statement follows reports that PT Timah might not be able to export tin for several weeks due to an oversight in complying with new export regulations. Alwi said the company was working to complete documents needed for tin exports such as permits from the Bangka Belitung governor and the trade ministry as well as verification by surveyor PT Sucofindo. "But we think we can make it. Besides, we would have trouble with customers if we suspend shipments," Alwi said. On February 19 the firm expects to receive the result after submitting all the necessary documents to the trade ministry, London-based manager Agung Soeratno, who is responsible for PT Timah customers in Europe, Africa and the United States, said. "On Monday we will get the result from the ministry, ahead of the export date which is February 24," Soeratno said. Indonesia last month issued regulations limiting refined tin exports in an effort to curb unchecked shipments of the commodity used in solders, tin plate and chemicals. The government will only allow exports of refined tin by smelters that have a mining permit or if they team up with mining permit holders. Antam, BHP Sign Nickel Deal Indonesian state-owned nickel miner PT Aneka Tambang said Tuesday (13/2/07) that it has signed an agreement with BHP Billiton Ltd. to develop an "extensive" nickel laterite deposit in Indonesia. The proposed joint development would represent BHP's first nickel asset in Indonesia. Antam president director Dedi Aditya Sumanagara and BHP's president for stainless steel materials, Jimmy Wilson, signed an agreement to "investigate development of pyrometallurgical and hydrometallurgical processing routes for the Buli deposit on Halmahera Island and other ore bodies," a statement from Antam said. The statement didn't give details on the estimated volume of the nickel deposit, or on the amount either company intended to invest to develop it. Antam's sales of ferronickel in 2006 rose 92% to 13,389 metric tons from 6,988 tons in the previous year. Antam said its revenue in the fourth quarter of 2006 was Rp2.17 trillion, a 106% on-year increase. Churchill Mining Signs Deal With PT Techno Churchill Mining announced Thursday (15/2/07) that it has signed an exclusivity agreement with PT Techno Coal Utama to enable it to conduct due diligence work on a thermal coal project located in the East Kutai regency of East Kalimantan, Dow Jones Newswire reported. The company said two rigs would be sent to East Kutai to test coal seam outcrops ranging from two to seven meters thick as part of due diligence. The East Kutai project area covers approximately 399 sq km made up of two blocks and is situated 110 km northwest of Sangatta. BDI Mining: More Diamonds at Cempaka BDI Mining Corp said Tuesday (13/2/07) that recent drilling at the Cempaka alluvial diamond mine in Indonesia has identified additional diamond bearing gravels in the Danau Seran channel, west of current mining operations in South Kalimantan. This newly identified western extension of Danau Seran adds an initial 1 km to the known strike length, representing a 37% increase in linear length of the mineable area of the palaeochannel. At present, the downstream continuity of these gravels remains open with drilling continuing to identify additional resources to the west. Based on drill-hole results to date, these newly discovered diamond-bearing gravels are considered to be comparable in terms of higher in-situ grades and economic strip ratios as those encountered in other recently mined upstream areas of the channel. The additional resources have the potential to extend the life of mining operations in Danau Seran, which were originally expected to cease in the first half of 2007. Mine planning is now being undertaken on these new resources with the aim of mining Cempaka and Danau Seran concurrently, allowing greater operational flexibility.