Trade and Investment News, December 13, 2004 NEWS ON TRADE AND INVESTMENT IN INDONESIA 13 December 2004
POLITICS Anti-Graft Campaign Launched Describing the level of corruption in Indonesia as "alarming," President Susilo Bambang Yudhoyono outlined a major national action plan on Thursday (9/12/04), urging government officials to avoid family businesses and to ensure transparency in all state affairs. On the same day, the Corruption Eradication Commission (KPK) signed an agreement with the country’s 33 provincial governors under which they pledged to report their wealth and support the commission's efforts to curb corrupt practices.
In addition to the national action plan, Presidential Instruction No. 5/2004 instructs all state officials to promptly report their wealth to the KPK, promotes transparency in public services, reviews the feasibility of using an on-line procurement system that can be shared by different government departments, and provides stern sanctions for abuse of power by law enforcement officials. Eradicating corruption was one of Yudhoyono’s main themes during
the presidential
Presidential spokesman Andi Mallarangeng said the president has only recently signed authorizations for police and prosecutors to question two governors, Banten’s Djoko Munandar and West Nusa Tenggara’s Lalu Serinata, six House of Representatives legislators, four regents and two mayors.
According to police fraud squad director Brig-Gen. Indarto, there are more than 115 legislative council members implicated in corruption cases in 16 provinces -- Aceh, North and South Sumatra, West Sumatra, Jambi, Bengkulu, Riau, Jakarta, Central Java, South Sulawesi, Bali, East Nusa Tenggara, South, Central and East Kalimantan and Papua.
In a further indication of the scale of corruption in Indonesia, national police chief of detectives Suyitno Landung said Friday (10/12/04) that police had recovered only Rp139.7 billion out of Rp8 trillion ($889 million) lost to corruption over the past three years.
Anwar Demands Action Apparently irritated over a spate of recent reports highlighting corruption in the departments under his control, Finance Minister Jusuf Anwar on Friday (10/12/04) ordered the Directors General of Taxation and Customs and Excise to sign an anti-graft pledge under which they must resign if they fail to stamp out corrupt practices.
Anwar said the political contract would include a complete assessment of the capabilities of the senior officials to institute discipline and integrity down to the lowest-ranking tax officer or customs clerk, and fulfill their revenue targets for the state budget.
Corruption Eradication Commission (KPK) chairman Taufiqurrahman Ruki recently warned Director General of Taxation Hadi Purnomo to stamp out corruption within three months, or the commission would begin a formal criminal investigation.
War on Corruption President Susilo Bambang Yudhoyono’s call for a war on corruption appears to be aiming for its first battle in the regions. In a week when Governor of Aceh Abdullah Puteh was detained, the spotlight was strongest on dirty dealing at regional level across the country.
Puteh was charged Tuesday (7/12/04) over his alleged role in marking up the price of a Russian-made Mi-2 helicopter purchased by his administration. He has denied the charges, which carry a maximum sentence of 20 years in jail.
The Corruption Eradication commission expects to indict Puteh early this week for allegedly embezzling $1.3 million in state funds, deputy chairman Erry Riyana Hardjapamekas said Friday (10/12/04).
Police have said Puteh is also being questioned as a witness about a suspected mark-up in the provincial government's purchase of power generators.
Attention was also on West Sumatra, with the president giving permission for Governor Zainal Bakar to be interrogated, a requirement in any case involving senior officials.
Bakar is accused of involvement in a graft case involving losses of Rp6.4 billion ($711,111). Civic action produced the case against him.
East Kalimantan Governor Suwarna A.F. has been reported to the provincial prosecutor's office for his alleged involvement in two separate corruption cases, just the latest in a wave of anti-graft actions taken by civil society groups across Indonesia.
Banten Governor Djoko Munandar and West Nusa Tenggara Governor Lalu Serinata and six sub-district heads were also cleared for questioning by President Yudhoyono, apparently keen to make the public aware that his talk on corruption is not just rhetoric.
Meanwhile the secretary of the Lampung branch of Golkar Party was sentenced to four years jail on Thursday (9/12/04) and fined Rp200 million ($22,222) in a scam involving the provincial education office.
The Tanjungkarang District Court found Oktaviano guilty of embezzling Rp6 billion allocated for the procurement of textbooks. ECONOMY IMF Confirms Growth The International Monetary Fund (IMF) confirmed other predictions of stronger growth this year, saying strong consumer spending would push growth to 5%.
A statement issued after a nine-day visit to Indonesia to review the country's economic developments noted that despite the improvement, GDP growth remained below potential.
"This improvement has come about through continued sound policy implementation and a favorable market response to the peaceful election outcome and policy intentions announced by the new government," the statement said.
The IMF's latest forecast is in line with the prediction made by the central bank a week before and up on the budget target of 4.8%.
Earlier comments from the IMF team recognized the commitment of the new government to improvements in the business climate.
A visiting team from the International Monetary Fund (IMF) has recognized early signs that the administration of President Susilo Bambang Yudhoyono is serious about improving the business climate here.
"The policy priorities of the new government -- that is to continue the progress made in macro stability and to step up the drives to curb corruption and the high-cost economy, and efforts in legal reform -- are very appropriate and correct," Citrin said. "These are all something that we will fully support."
"Macro (economic) performance has been quite good, inflation is going down, GDP growth is picking up -- strong enough to start bringing the employment rate down," he said. "The overall economic performance, I think, has been quite favorable,"
The IMF visit was part of the dialogue program introduced after Indonesia completed the IMF’s rescue package.
Finance minister Jusuf Anwar told legislators that the government expects the economy to grow by 5.5% next year, up from the 5.4% forecast in the 2005 state budget, while inflation should come in at around 7%, up from the 5.5% level projected in the budget estimates.
Fuel price The IMF made no comment on the controversial plan to reduce expensive fuel subsidies, though it has long urged the government to cut the subsidies.
Economists and business interests continued to weigh the likely effects of what Minister for National Development Planning Sri Mulyani Indrawati said would be a single rise.
Thomas Darmawan, executive director of the Indonesian Food and Beverages Association (GAPMMI), told reporters that a 40% increase in fuel prices, as predicted by the government, would have a marginal effect on most goods.
In direct costs, "the fuel prices hike might increase prices for most foodstuffs and beverages by only 1.2-3.6%," he told reporters, but said packaging and distribution costs would raise more sharply.
He said transportation accounts for 5-8% of the total cost of production in the food and beverage production sector. Fish prices would also be likely to rise more steeply because of higher costs of ice.
Industry Minister Andung Nitimihardja said the government would also strive to reduce the cost of doing business in order to counteract the higher fuel prices and ask producers to improve efficiency.
Bank Indonesia said it will maintain its "tight bias" monetary policy in the coming months due to uncertainties over oil prices.
Big plans The government continued to push its ambitious program for the economy, predicting faster job growth.
Coordinating Minister for Economic Affairs Aburizal Bakrie said the government would push to raise $75 billion for infrastructure development in the next five years.
The government would only aim to develop non-commercial infrastructure, so that the development of commercial infrastructure will be entrusted to business companies, including state enterprises and cooperatives, he said.
Finance Minister Anwar predicted more jobs from next year’s predicted 5.5% growth. He was presenting revised projections for the budget to the parliament. He said investment was expected to see a revival of investment in line with an improved business climate.
BUSINESS BRIEFS Forex Bank Indonesia said its foreign exchange reserves as of December 7 stood at $35.81 billion, down $118 million from the previous week mainly due to outflows for foreign debt repayment.
Over the same period base money fell Rp1.17 trillion to Rp183.70 trillion as cash in circulation declined, the central bank said in a statement.
SBI Bank Indonesia said it auctioned Rp49.6 trillion worth of one-month Bank Indonesia Certificates (SBI) at a weighted average rate of 7.43%, up from the previous auction's average of 7.41%.
The central bank said it also auctioned Rp1.33 trillion of three-month SBIs at an average rate of 7.29%.
The auction absorbed 94.81% of bids for one-month SBIs and 86.91% bids for three-month SBIs.
BANKS Stanchart Raises Permata Stake The government sold another 20% stake in publicly listed Bank Permata Tuesday (7/12/04), with a consortium of Standard Chartered Bank and Astra International snapping up an additional 11.2% to add to the 51% bought directly from the government.
The sale by the Ministry of Finance's asset management company, Perusahaan Pengelola Aset (PPA), of the 20% share in the country's seventh largest bank raised Rp1.16 trillion ($128 million).
Investors demanded 1.77 times the 1.54 billion shares offered, PPA said in a statement. It sold the shares for Rp750 each, higher than the Rp703 paid by the Stanchart-Astra for its 51% stake last month. Shares were priced at the equivalent of 2.91 times Permata's book value as of June 2004. PPA president Mohammad Syahrial said the consortium had increased its ownership in Permata to 62.2%. The remaining 8.8% went to private investors.
Earlier this month, the government sold a 16.28% stake in publicly listed Bank Niaga to investors for Rp585.8 billion.
Banking Credits up 18.9% Banking credits in the first 10 months of the year rose 18.9% to Rp567.3 trillion compared to the same period last year, Antara reported.
Bank Indonesia (BI) Governor Burhanuddin Abdullah told a hearing with the House commission on finance on Wednesday (8/12/04) that the ratio of gross non-performing loans (NPL) and net NPL respectively stood at 6.7% and 2.1%.
Bank Global CAR Concern Bank Indonesia called on PT Bank Global Internasional to raise more capital after its capital adequacy ratio (CAR) fell under the minimum required level of 8%, AFX reported.
Bank Global was placed under special surveillance since October 27, the central bank said in an announcement on its website.
It said BI will examine Bank Global to assess its financial condition, adding that Bank Global must present a plan to boost its capital.
STATE CONCERNS Agreement on Logging After months of accusations, Malaysia and Indonesia have agreed to nominate a number of designated sea ports to handle timber in an effort to reduce illegal logging in both countries, Malaysian Deputy Prime Minister Najib Razak said Wednesday (8/12/04), Agence France-Presse reported.
Najib, on a four-day visit to Jakarta, said both governments agreed that the plan would reduce illegal logging -- a rampant problem in Indonesia.
"This way, we will be able to help eradicate illegal logging totally," Najib told reporters after a meeting with Vice President Jusuf Kalla.
The two countries will conduct government-to-government timber trading through the officially designated ports. Any logs sold outside the designated ports could be immediately identified as illegal.
In return for its cooperation, Malaysia will be allowed to invest in the Indonesian timber industry, Foreign Minister Hassan Wirajuda said.
Price Deal on CPO Indonesia and Malaysia have agreed to cooperate to stabilize the price of crude palm oil on international markets, Antara reported.
The agreement came at a meeting between President Susilo Bambang Yudhoyono and visiting Malaysian Deputy Prime Minister Najib Tun Razak.
Malaysia and Indonesia, respectively the world's largest and second largest producers of CPO, dominate supply of that commodity to the world market.
Presidential spokesman Dino Pati Djalal said details of the agreement will be discussed further between the two countries at the ministerial level.
Indonesia has attempted to maintain commodity prices in the past through agreements with other regional producers. A deal between Thailand, Malaysia and Indonesia last year to hold back rubber supplies collapsed when Thailand breached the agreement.
Meanwhile leading CPO producer Astra Agro Lestari said it would acquire 140,000 hectares of palm oil plantation land in the first quarter of 2005 at a cost of more than Rp3 trillion ($327 million).
President director Maruli Gultom said Thursday (9/12/04) the funds would come from internal resources. By the end of 2003, the company had nearly 200,000 hectares of palm oil plantation.
Capital Imports to Rise Imports of machinery, equipment and other capital goods are expected to increase 10% per cent in 2005 in line with the government’s push to boost investment and utilization of industrial capacity, Antara reported.
"Last year we spent $7 billion on imports of capital goods, representing 20% of the total amount of foreign exchange used to import non-oil/non-gas commodities," Industry Minister Andung Nitimihardja said at the Manufacturing Indonesia 2004 Exhibition Wednesday (8/12/04).
Andung expressed hope that in the future local machinery industries could meet the capital good needs of national industry so that imports could be reduced.
The minister called on foreign machinery makers to use Indonesian-made components in their production processes and increase investment in assembling in Indonesia. Capacity utilization in the national machinery industry currently stood at only 40%, he said.
Anti-dumping Duty on Paper The government has imposed additional duties on uncoated writing and printing paper products imported from Finland, South Korea, Malaysia and India after investigations indicated that the four countries had been dumping products on the Indonesian market, The Jakarta Post reported.
The Ministry of Finance said the policy was effective for five years as of Nov. 11.
The government imposed a 22.4% anti-dumping duty on products made by Finnish company UPM Kymmene Group, while other Finnish companies have to pay a 60.40% anti-dumping duty, the ministry said in a press release.
Indian companies Tamil Nadu Newsprint and Papers Ltd. and Seshasayee Paper and Board Ltd., have to pay anti-dumping duty of 7.41% and 6.19% respectively. Other Indian paper producers have to pay a 40.13% anti-dumping duty, while all South Korean firms must pay 59.64%.
All Malaysian manufacturers have to pay 24.33% anti-dumping duty, except for Sabah Forest Industries SDN BHD, which will only have to pay 6.20%.
WB to Aid Infrastructure The World Bank said it will support Indonesia in building and renovating battered infrastructure to help facilitate the country's economic development.
The bank will provide not only financial assistance but also advice for the government in its attempt to modernize the country's infrastructure, Andrew Steer, the bank’s chief representative in Indonesia said after a meeting with vice president Jusuf Kalla.
Steer said the country needs to build more toll roads and renovate and modernize other infrastructure such as schools, health facilities, bridges, and irrigation systems.
The government has asked for international support to raise $75 billion to finance development of the country's infrastructure in five years.
Steer said the World Bank will also encourage the private sector to take part in infrastructure development.
PRIVATE SECTOR Agreement from APP Creditors After protracted negotiations, 93% of the creditors of Asia Pulp & Paper (APP) agreed to restructure the debt of the company's Indonesian units, Antara reported.
With majority approval, the master restructuring agreement (MRA) will be fully effective as from January 31, 2005, with payment of the first installment.
Singaporean-based APP has four subsidiaries in Indonesia: Indah Kiat Pulp and Paper, Pabrik Kertas Tjiwi Kimia, Pindo Deli and Lontar Papyrus.
Lontar Papyrus was not involved in the restructuring agreement as it is facing litigation processes in Jakarta and New York courts.
APP, with total debts amounting to $13 billion, including around $6 billion owed by its Indonesian subsidiaries, is owned by the Sinar Mas Group.
Standard & Poor's withdrew its 'D' corporate credit and issue ratings on APP and its subsidiaries due to the lack of adequate information on its financial results, operating performance and progress on its debt restructuring.
A Statement said the 'D' rating reflected the company's failure to make principal and interest payments since early 2001, resulting in acceleration of total debt outstanding of $13 billion.
Auto Sales Leap Vehicle sales jumped 62% in November from a year earlier, Bisnis Indonesia reported Thursday 9/12/04), keeping the sector on track for a record year and underscoring the role of consumption as a key driver of economic growth.
Sales for the 11 months to November were up a third from the same period last year, and exceeded vehicle sales for the whole of last year, Bisnis said, quoting data from the national automotive industry association (Gaikindo).
The sales numbers took the number of vehicles sold so far this year to 434,581 -- well ahead of the 354,334 vehicles sold in Indonesia in the whole of last year. November sales totaled 35,141 vehicles, up from 21,683 a year earlier, reflecting the release of Toyota’s new Kijang Innova.
China Shipping to Enter China Shipping Group has agreed to serve container shipping from Jakarta International Container Terminal (JITC) to Europe, Antara reported.
According to an agreement to be signed later this month, China Shipping, the world’s fifth largest shipping company, will start sending ‘mother vessels’ with a carrying capacity of 4,500 containers measuring 20 TEUs to JITC in January.
In the past, China Shipping used only small ships to collect Indonesian cargo, transferring it to container carriers in Singapore.
SME Computer Push Computer processor company Intel, in association with Adira Finance, launched Thursday (9/12/04) a low-cost credit program to expand use of computers in the small and medium enterprise sector (SMEs).
Five hundred distributors across the country will offer the credit scheme to individuals and SMEs, are ready to reach not only individual users and households but, more importantly, small and medium enterprises (SMEs), The Jakarta Post reported.
Only 27% of SMEs currently use computers in Indonesia compared to levels of between 57-61% elsewhere in ASEAN, according to Intel Indonesia Corporation country manager Budi Wahyu Jati.
Three packages will be offered with prices ranging from about Rp3.1 million ($337) to Rp4.8 million.
Indonesia's computer penetration is among the lowest in Southeast Asia. Latest estimates show that only some 4% of the country's population of 220 million has access to computers.
The program will also encourage purchase of original software by discounting peripherals such as printers.
Asia Air-Awair Start Flights in Indonesia After lying idle for two years, an Indonesian airline company Awair has resumed operations serving domestic routes, Antara reported.
Awair resumed flights on Wednesday on the Jakarta-Medan and Jakarta- Balikpapan routes using a Boeing 737-300 aircraft.
The airliner was able to resume operations after a fresh cash injection of $10 million by Malaysia's Asia Air to PT Awair International, making it a 49% shareholder in the Indonesian airline company.
Tire Exports Rise Indonesian tire production totaled 29.72 million units in the first 10 months of this year, up from 25.26 million units in the same period last year, Antara reported.
The Association of Tire Companies (APBI) said growing demand in the international market has boosted production.
Chairman A. Aziz Pane said exports in the 10-month period were valued at $381.75 million, up 23.6% from the same period last year.
SOEs Indofarma Performs Publicly listed pharmaceutical company PT Indofarma booked an operating profit of Rp39.27 billion ($4.36 million) in the first nine months of this year, turning around a loss of Rp17.06 billion in the same period last year, The Jakarta Post reported.
The company said in a press statement Monday (6/12/04) that total sales during the period increased by 46% to Rp470.63 billion. Earnings before tax at September 30 stood at Rp15.12 billion on lower operating costs.
An unaudited financial report said Indofarma repaid Rp35.66 billion in loans to the government, as well as Rp90.82 billion in bank loans.
The company, which has three plants to produce pharmaceutical, herbal and baby food products, plans to expand its market and product line, with a launch of about 40 new products set for early next year.
INFRASTRUCTURE N. Sumatra Port Plans The North Sumatra government is planning major infrastructure projects in the transport sector, including two new ports and relocation of Medan’s airport, a US investment mission has been told, The Jakarta Post reported.
Governor T. Rizal Nurdin told the group on December 5 that ports would be built at Tanjung Beringin and Tanjung Sarang Elang, both in Labuhan Batu district.
He admitted that plans to move the Medan Airport from Polonia in the center of the city to Kuala Namu had not been realized since the plan was originally made seven years earlier because of the high cost of around $584 million.
Rizal said that the planned sea ports were needed to accommodate growing international trade, currently handled at Belawan and Tanjung Balai ports. "One or two ports is not enough," he said.
INVESTMENT Malaysian Interest in Milling A unit of Malaysia’s KBB Resources Bhd. is buying property in Indonesia as a first step to entering the rice flour market, Malaysia’s Business Times reported.
Wholly owned subsidiary PT Bersatu International Food Industries has agreed to spend Rp5.65 billion on the land, which totals around 31,000 sq. m.
"The rice flour business is in line with KBB's plan to expand into other businesses to complement its current business activity which is vermicelli manufacturing. Both the rice flour business and vermicelli manufacturing use the same raw material - rice chips," the company said in a statement to the Malaysian stock exchange.
The statement added that the ASEAN Free Trade Area (AFTA) and the World Trade Organization had created conditions conducive to allow KBB to become a diversified player in the food manufacturing industry and compete on a level playing field with foreign companies in the industry.
The Indonesian rice flour industry is currently controlled by PT Budi Makmur Perkasa.
Sedans to Get Incentives The government is to provide tax incentives to encourage the development of the sedan automobile assembly industry, Antara reported.
Industry Minister Andung Nitimihardja told legislators the government will offer a tax allowance for the industry and for new investments in the sector.
East Java and South Sulawesi have been selected as preferred investment sites for the industry.
Proton of Malaysia, Tata Motors of India, Fiat of Italy, Great Wall of China and Mahindra & Mahindra of India have announced plans to build automotive factories in Indonesia.
POWER YTL Buys into Jawa Power Independent Malaysian power producer YTL Power International Bhd has bought a 35% stake in Indonesia's PT Jawa Power and is keen to raise its stake, managing director Francis Yeoh told a press conference, AFX reported.
The company announced it has completed the acquisition of a 35% stake in PT Jawa for $139.4 million from PT Bumipertiwi Tatapradipta.
PT Jawa owns a coal-fired electricity generation plant with an installed capacity of 1,220 MW at the Paiton Power Generation Complex in East Java.
Yeoh said YTL Power is interested in expanding into other power- and water-related business in Indonesia as "the company is familiar with Indonesia”.
OIL & GAS New Review of Resource Split The government is promising a fresh review of incentives in the oil and gas sector in a bid to accelerate development, according to Director General of Oil and Gas Iin Arifin Takhyan, Antara reported.
Takhyan was reported as saying Monday (6/12/04) that both the split between contractors and government and tax regimes would be reviewed, while permit procedures would be simplified.
The government would review all the splits case by case based on facts in the field, he said, adding that before offering new work areas, the government would identify the reserves, risks and economic viabilities of the work areas to be offered.
“We have to know the economic viability of each field, and then we can calculate and determine what split to be offered to investor,” he said.
The new review promises to improve on last year’s announcement of new regulations, under which investors in high-risk and difficult exploration areas were offered a split of between 35-40% of revenues, up from the earlier level of 30%.
The government would also offer incentives in form of investment credits, Takhyan said. “Under common procedure we will offer any work area with credit incentive, for instance if an investment is $1, the investor will be reimbursed for $1.25 dollar at the commercial stage.”
Earlier, Takhyan said the government plans to speed up the VAT reimbursement process in the mining industry including the oil and gas sector.
New Oil, Gas Contracts The government signed 46 new oil and gas contracts valued at $4.24 billion including 15 new deals covering prospecting, and the managing of oil natural gas blocks across the nation; 18 contracts for gas sales and purchases, and; eleven for gas transmission operations, Antara reported.
The contracts are signed to coincide with the opening of an international conference on oil and gas investment.
Head of BP Migas Rachmat Sudibjo said the government will earn $3.5 billion from the gas sales over a period of 10-15 years, while the oil and gas field development for the opening of new areas valued at $200 million.
Oil Flows for CNOOC China's dominant offshore oil producer, CNOOC Ltd., said Thursday (9/12/04) it has successfully drilled well KE7-3 in the offshore West Madura Production Sharing Contract area, Reuters reported.
Wildcat KE7-3 flowed at a rate of over 1,000 barrels of oil and condensate per day, plus about 10.5 million standard cubic feet of gas per day.
"This discovery, together with previous ones, will help increase the value of this area," CNOOC senior vice president Zhang Guohua said in a statement. CNOOC owns 25% interest in the project.
MINING ‘Rule of Law’ on Projects State Environment Minister Rachmat Witoelar says the government’s determination to pursue with its case against PT Newmont Minahasa Raya on pollution charges represents the beginning of a new ‘rule of law’ in the resource sector.
In an interview with Radio Australia, Witoelar said the prosecutions of Newmont executives were a step forward where the rule of law will be applied uniformly and the environment protected, even though they may affect investor sentiment.
“I have talked with the Newmont leadership who came in from Denver,” he said. “I have stated my case plainly and we are in total agreement that the conflicting reports and the conflicting .. other differences of opinion, the only thing we can do is present to the court and let it be judged by its merits.”
He said that while some investors may be warned off by the prosecutions, “it may make some investors confident that we are going to a court of law and are not going to take action irrespective of any law existing in this country.”
Newmont says it will vigorously defend the charges of causing arsenic and mercury pollution from its system of ocean dumping of mine waste during the operational phase. Villagers in the area claim they have been poisoned and are pursuing a separate case for compensation.
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