THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA

Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4 Jakarta 10710Tel: (021) 351-1178    Fax: (021) 351-1186    Website: http://www.ekon.go.id

Trade and Investment News1, 18 August 2008

Highlights

Politics President SBY: anti-graft, poverty reduction on track, while risk of terrorism still high Government commits to allocate 20% of budget to education in 2009 Regions Defense minister calls for ‘level of tolerance’ in Papua 13 Marines jailed for human rights abuse in East Java incident Economy Coordinating economics minister says growth levels can be maintained International Monetary Fund says economy ‘unscathed’ by global turbulence Business briefs Macroeconomy Growth accelerates to 6.4% in second quarter Government to launch new retail bond offering Investment South Korea, Vietnam and China show interest in shoe industry investments Waterford in talks on move to Indonesia State concerns Indonesia cocoa output tipped at 1 million tons by 2013 Losses to illegal fisheries cut by half, ministry saysSOEs Government to pump $2 billion into rail sector to boost capacity Bank Mandiri ready to fund PT Semen Gresik expansion plan Private sector Toyota-Astra says car sales jumped 13% in July Advertising spending at four-year high in first half Banks Malaysia’s Maybank in talks with regulator over BII deal Mideast investors look at role in BRI shariah unit Power Alstom wins contract for Muara Tawar power plant near Jakarta PLN to share power with Malaysia, Singapore Oil & gas Lower fuel prices will save up to Rp2.6 trillion in subsidies Pertamina to buy up to 1.5 million barrels a month from Libya Mining Government may allow coal producer to trade proposed domestic sales quotas Stock market woes cause drop in Bayan shares after IPO raises $532 million

1 This Trade and Investment News is a publication of the Coordinating Ministry for Economic Affairs of the Republic of Indonesia. Readers are welcomed to forward it in its original form but no reproduction is allowed without permission

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POLITICSAnti-graft, poverty reduction on track, while risk of terrorism still high: SBYIndonesia's President Susilo Bambang Yudhoyono on Friday gave a rosy assessment of his government's performance over the past four years, Reuters reported. Yudhoyono, a reform-minded ex-general, is seen by many people as the most accomplished of Indonesia's post-Suharto leaders, due to his sound economic management and focus on reform, although his popularity plummeted after he hiked fuel prices in May, hurting millions of people who live on $2 a day or less.

In an annual address to parliament ahead of the Aug. 17 independence day, he pledged peaceful elections for the country's 226 million people next year, a decade after protests swept former president Suharto from power.

"Our democracy is again put under test. Can we pass the election year well and safely? I think we all agree to respond: Yes, we can," said Yudhoyono, dressed in a dark business suit and traditional black Indonesian hat.

Yudhoyono, 58, has not formally said whether he will stand for re-election in 2009, but is widely expected to do so. He has consistently been ranked the most popular presidential candidate, well ahead of his rival, former President Megawati Sukarnoputri, until recently, when she took the lead.

In his speech, he pointed to Indonesia's success in resolving many of its religious and secessionist conflicts in hot spots such as Poso, Aceh, and Papua, although he said vigilance was needed since the "country is still unsafe from terrorist acts."

Under Yudhoyono, Southeast Asia's top economy has had its best sustained performance since the Asian financial crisis, but has also been buffeted by high food and fuel prices.

"Even though law and security aspects are great, the thing that will pave his way to be re-elected is the economy," said Muhammad Qodari, director of pollster Indo Barometer.

Yudhoyono forecast economic growth of 6.2 next year, against the government's forecast of 6.2-6.4 percent for this year.

Growth of six-plus percent, while high for Indonesia, is still below the country's potential given its abundant natural resources -- palm oil, tin, nickel and coal -- and lags the pace seen in China and India.

Many of Yudhoyono's policies, particularly a focus on economic management and reform, have been welcomed by investors, although red tape and worries about contracts has stalled new investment in the key mining and energy sectors.

To control fuel subsidy costs, “the government will expedite the program of converting kerosene to liquefied petroleum gas,” Yudhoyono said, according to Bloomberg. The government will keep amending its subsidy policy “based on current developments of global oil prices,” he added.

Govt. vows to allot 20% of 2009 budget for educationThe government on Thursday promised to earmark 20% of the 2009 state budget for education, bowing to the latest Constitutional Court verdict, reported The Jakarta Post, and to do so the government is considering reducing budget allocations for other sectors.

"The president is committed to allocating 20% of the budget for education next year in accordance with the Constitution," presidential spokesman Andi Mallarangeng told a news conference at the State Palace.

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"It has been the government's intention to meet the constitutional mandate, but we can only accomplish it gradually in line with our financial ability," he added.

The Constitutional Court on Wednesday declared the 2008 state budget in violation of the Constitution because it allocated less than the mandated 20% for education.

It ruled that the government and the House were guilty of deliberate defiance of the Constitution and demanded the full allocation be met in the 2009 budget.

The panel of judges still allowed for the current underfunding to stand until the 2009 budget takes effect, arguing a delay was necessary "to avoid governmental disaster".

The verdict was the third time since 2004 the court has found the government and the House guilty of a constitutional violation in education spending.

This is the first time, however, that the government has pledged to honor the full allocation. This year's spending on education stands at Rp154.2 trillion ($16.76 billion), or 15.6% of the Rp989.5 trillion state budget.

Speaking at the same news briefing, Finance Minister Sri Mulyani Indrawati said the government would strive to meet the requested allocation.

"The president has instructed the 20% allocation for education be fulfilled despite our limited budget. We will calculate and discuss this issue with the House," she said.

KPU allows four more parties to join 2009 electionsThe General Election Commission (KPU) said on Friday it will recognize verdicts from the State Administrative Court allowing four previously disqualified parties to participate in the 2009 legislative elections, Antara reported.

The parties are the Labor Party, Islamic United Party, Independent Party, Indonesia Nahdlatul Ummah United Party. Their involvement will take the number of parties participating in the polls to 38.

On Wednesday, the court ruled that the four political parties are allowed to participate in the 2009 elections following a lawsuit they lodged against the KPU.

The four parties were participants in the 2004 election but did not pass the electoral threshold requirement.

S. Jakarta court to begin trial of former BIN deputyA former deputy chief of State Intelligence Agency suspected of involvement in the murder of a prominent human rights activist Munir Said Thalib will be formally charged in court next week, Reuters reported.

South Jakarta District Court spokesman, Eddy Risdianto said on Friday that the panel of judges is set to try Maj. Gen. (ret) Muchdi Purwopranjono, on August 21.

On Friday, spokesman at the Attorney General's Office (AGO) Bonaventura Daulat Nainggolan said the prosecutors had handed over the dossier for Purwopranjono to the court on Thursday.

The AGO had earlier said it will seek the death sentence for Purwopranjono if he is found guilty of involvement in Munir’s murder.

“The evidence brought by the police is solid enough to prove Purwopranjono's involvement," Nainggolan said, adding that a letter connecting BIN to the murder was material evidence linking Purwopranjono with the high-profile case.

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The letter, which had been reported missing, was first mentioned in the trial of former Garuda pilot Pollycarpus Budihari Prijanto, who was sentenced to 20 years in prison for his role in the murder.

Govt. rejects US appeal to block Hezbollah TV stationThe government says it has no reason to terminate the service of the country's Palapa satellite for Hezbollah-linked TV station Al Manar, saying the deal with the Lebanese broadcaster is based purely on business considerations, The Jakarta Post reported.

The government will not intervene in the business agreement between the country's second biggest telecommunication operator Indosat and Al Manar, Communications and Information Minister M. Nuh said Thursday.

"It is not within the government's authority to interfere in this matter.... We will just stick to the regulation," Nuh said.

"We don't want intervention from any country that would change the basic principles of our independence.... We just leave it to Indosat as an independent business entity."

Officials at the US Embassy in Jakarta reportedly sent a letter to the ministry's office and the Indonesian Broadcasting Commission asking the Indonesian government to cancel the services provided to Al Manar.

Prisoners get sentence cuts for Independence Day At least 55,000 prisoners who have completed at least a third of their sentences on Sunday would have several weeks or months shaved off to mark Independence Day. Another 5,700 will walk free, The Associated Press reported.

The Director General of Correctional Institutions, Untung Sugiyono, said those convicted of terrorism, illegal logging, corruption and drug-related crimes will not benefit.

"The government has decided that certain crimes need to be treated differently, that some have a wider impact on society," said Sugiyono, adding that the total number of convicted prisoners today is around 82,000.

REGIONSGovt. should show tolerance in Papua: Defense Minister Indonesia does not face any organized resistance to its rule in Papua and there should be a degree of tolerance responding to cases of banned separatist flags being hoisted, the defense minister told Reuters in an interview on Monday.

A group of 40 US Congress members recently sent a letter to President Yudhoyono calling for the "immediate and unconditional release" of two jailed Papuan separatists and warning that the human rights situation there was deteriorating.

Filep Karma and Yusak Pakage were sentenced to 10 and 15 years respectively for raising a separatist flag in 2004.

"I'm trying to persuade my colleagues in government...that these outbursts of flag-raising or cultural dignity should be tolerated at a certain level," Juwono Sudarsono said.

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"It's more of an outpouring of grievances. That the Papuans feel they're still not being treated well by us from the central authorities," he added.

President Susilo Bambang Yudhoyono has pledged to end conflict in resource-rich Papua and speed up development under an autonomy deal.

Sudarsono said there was no sign now of armed resistance. "So far we don't see anything. There is no external support in terms of military and weapons."

In Aceh, another area that suffered a separatist revolt for decades until a peace deal on August 15, 2005, he said that "I think that on the whole it's quite stable".

But he also said that Aceh was having some problems trying to absorb former rebels, who also sometimes struggled to adapt after decades of conflict.

"They're used to raising their fists or picking up arms, which is much more romantic and more idealistic," he said.

Sudarsono said a key need for the cash-strapped security forces currently was more patrol boats to help police Indonesia's huge coastline and more than 17,000 islands.

13 marines jailed for shooting E. Java villagersSurabaya Military Court in East Java on Thursday sentenced 13 marines to prison terms of 18 months to three-and-a-half years for their involvement in a fatal shooting incident which killed four villagers and wounded eight others last year, The Jakarta Post reported.

The marines were found guilty of violating military laws by shooting to death four villagers following a dispute between villagers of Alas Tlogo in Pasuruan, East Java, and the Navy over ownership rights to a plot of land.

"Each of the defendants has been dismissed from the Marine Corps and sentenced with different prison terms," presiding judge Lt. Col. Yan Akhmad Mulyana said in the verdict.

The shootings occurred on May 30, 2007, as angry villagers reportedly threw objects at the 13 marines as they were patrolling on foot around the Navy's combat exercise compound in Alas Tlogo.

S. Sumatra deploys 12,000 police for election South Sumatra Police have prepared around 12,000 personnel to secure the province’s gubernatorial election on September 4, Antara reported.

South Sumatra Police chief Insp. Gen. Ito Sumardi said police and Army personnel will be deployed at a number of voting venues across the area.

Sumardi said he also planned to install CCTVs at the voting venues to record any possible foul play.

The officers will also escort the distribution of ballots and voting boxes to all areas across the province, he added.

"A successful election is not only in the hands of the police but all people in the province, especially the governor and deputy governor candidates," Sumardi said. "We understand their aspirations but we call on them to do it peacefully."

The two candidate pairs in the election are incumbent governor Syahrial Oesman and celebrity Helmi Yahya versus former Musi Banyuasin regent Alex Noerdin and former Ogan Komering Ulu regent Eddy Yusuf.

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The candidates will hold a campaign in the city from August 18 to 31, Sumardi said.

ECONOMY GDP growth can be maintained: MinisterThe growth rate of the economy, which the Central Agency of Statistics (BPS) said reached 6.39% in the second quarter, can be maintained throughout the year, Coordinating Minister for Economic Affairs Sri Mulyani Indrawati told a press conference on Friday.

She said that despite a declining global economy, Indonesia continued to produce strong growth figures.

The second quarter figure demonstrated that the economy had grown more than 6% for the past eight quarters.

The non-oil and gas sector had grown by around 7% since the second quarter of 2006, she said, adding 6.9% in the second quarter of this year.

Growth of 5.3% in the sector of agriculture, stock-raising, forestry and fisheries was particularly heartening, she said, while productive sectors include plantations, electronics, motorcycles and automotives had all demonstrated growth. Export of goods and services set the highest rate of growth at 15.8% during the second quarter, BPS deputy head Slamet Sutomo said separately.

Of exports, five primary commodities – crude palm oil, crude oil, gas, coal and rubber – made up 45.17% of the total.

BPS also revised upward the first quarter growth figure to 6.32% from 6.28%.

The highest growth in the second quarter occurred in the areas of distribution and shipping, power and gas, financial services, real estate and company services.

While growth in these areas had dominated the economy over the past few years, the level of growth in these sectors was now accelerating, BPS said. Transport and shipping had grown by 20% in the first half of 2008, compared to growth of 11.6% in the same period a year earlier.

Growth in processing industries grew by only 4.1% in the first half of 2008, down from 5.4% in the first half of 2007.

M. Chatib Basri, head of the Economic and Social Research institute at the University of Indonesia, said the figures showed that Indonesia’s economy was on a positive track and investment was improving, although there remained a concentration of investment in capital-intensive industries.

In its annual economic review, the International Monetary Fund (IMF) said overall, the Indonesian economy has been relatively unscathed by turbulent global market conditions and the fallout of the US sub-prime mortgage crisis.

It forecast Indonesian annual growth would ease to 6.1% in 2008 and return to 6.3% next year, the same level as in 2007 and the highest growth rate in a decade.

The fund said strong domestic demand and higher commodity prices have helped Indonesia maintain a strong pace of growth. The country exports large volumes of palm oil, rubber and cocoa.

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BUSINESS BRIEFS MACROECONOMYGrowth accelerates to 6.39%Annual economic growth accelerated to a higher-than-expected 6.39% in the second quarter, despite higher interest rates, and analysts said the strong growth could prompt further monetary tightening, Reuters reported.

The statistics bureau said the economy expanded 6.39% in April-June period from a year ago, and revised up the first quarter figure to 6.32% from 6.28%.

Analysts said full 2008 growth should still be solid at around 6%, allowing the central bank to raise interest rates again.

"We expect economic growth to slow in the second half, but we still see 6.1% growth can be achieved this year. Our domestic fundamentals are quite good compared to other countries which are experiencing a steeper decline in growth," said economist Juniman at Bank Internasional Indonesia.

"If interest rates remain within single-digit range, consumer demand, property and real sector would still be growing."

The central bank raised rates four times this year by a total one percentage point, bringing its benchmark to 9.0% earlier this month.

Inflation may slow to about 6.5% by mid-2009 Inflation may slow to between 6.5% and 7.5% by the middle of next year, central bank Governor Boediono said, Bloomberg reported.

Bank Indonesia has raised it policy rate four times to reach 9% to slow inflation, which accelerated to a more-than-estimated 11.9% last month.

Indonesia's economic growth in the second quarter was probably "good," Boediono told reporters in Jakarta Wednesday night.

Asked about the Government’s 2009 budget, Governor Boediono said: “The macroeconomic assumptions are realistic, and I look at the budget with confidence.”

Govt. to sell bonds to retail investors The government plans to sell treasury bonds to retail investors on September 3, the second such sale this year, as the government seeks to widen the base of investors and cover its budget deficit, an official said, Bloomberg reported.

Indonesia will market the bonds to individual local investors, rather than institutions such as banks, pension funds and insurance companies, starting August 19 through August 29, Bhimantara Widyajala, a director at the Ministry of Finance, said in a telephone interview.

The debt will be offered in smaller amounts to make them more affordable, he said.

"We are hoping that there'll be demand," Widyajala said, without giving details of the debt's indicative size or tenor.

Meanwhile the finance ministry sold almost twice its target from bond sales, underlining market expectations that inflation would remain manageable despite inflationary pressures ahead of the Muslim fasting month, Reuters reported.

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The ministry raised a total of Rp5.45 trillion ($594 million) in its bond auction on Tuesday, almost double its target of Rp3 trillion.

The ministry sold six-year, 11-year and 20-year bonds in the auction, with firm demand reflected by high bid-to-cover ratios especially for the six-year bonds.

Govt. to launch domestic sukuk to rise $545M The Finance Ministry will launch a Rp5 trillion ($545 million) offering of Islamic bonds, known as sukuk, this Friday, a director general at the ministry said, Reuters reported.

Rahmat Waluyanto, Treasury Director General at the ministry, said that the government had not set the target return for the offering. Conventional treasury bonds with the same maturity will be used as a proxy to set the return on the paper.

The book-building and offering period for the shariah-compliant paper will be between August 15-21 and the securities will be listed on August 27.

Waluyanto also said the government will start a roadshow for its global Islamic bond in the fourth week of October.

PT Mandiri Sekuritas, PT Trimegah Securities, and PT Danareksa Sekuritas were appointed as the selling agents for the domestic offering.

Indonesia plans to sell a dollar-denominated sukuk in November. The proceeds from both rupiah and dollar issues will be used to help plug the budget deficit.

The Finance Ministry aims to use Rp18.371 trillion, or about $2 billion worth of property, as the underlying assets for the Islamic bonds, setting the maximum amount of such bonds that the government can issue.

Sukuk bonds comply with shariah, or Islamic law, which bans charging interest. Investors are instead paid income derived from assets such as rent from property or commercial transactions such as trade in goods and services.

INVESTMENT Rush to invest in shoe industry South Korean, Vietnamese and Chinese shoemakers are reported to be planning to set up shop in Indonesia, boosting an industry that already makes some $400 million in export earnings.

"All the companies have already obtained principle licenses from the Investment Coordinating Board," Eddy Widjanarko, chairman of the Indonesian Shoemakers Association, told reporters at the Ministry of Industry.

Three unnamed South Korean firms are set to invest $200 million in Indonesia, with two planning to build new factories and the third to expand output of Adidas shoes at an existing site.

Two new factories are planned for Tangerang, Banten, and Surabaya, East Java, and the one set to undergo expansion is in Sukabumi, West Java, The Jakarta Post reported.

"They said they chose Indonesia because its (economy) was growing well," Widjanarko said.

The three South Korean companies will reach full production capacity of up to 1.4 million pairs of shoes per month between the end of this year and mid next year.

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Indonesia has two other factories producing shoes for Adidas, the world's second-largest sports apparel company, both with monthly outputs of 600,000 pairs of shoes.

The association chairman told Bisnis Indonesia that three Vietnamese companies will invest in the shoe making industry in Indonesia this year.

The two companies will add 900,000 pairs to the country's monthly production and sales, he said.

And, he said, at least 20 Chinese shoemakers are also looking to open factories in Indonesia to evade duties. "Those 20 companies are big, employing between 30,000 and 60,000 workers," he said.

"Taiwanese companies have also expressed their interests in investing in and developing a shoe hub in Indonesia."

The country's shoe industry has been on the rise since the European Union in 2006 began imposing anti-dumping duties on leather shoe imports from China and Vietnam as a way to protect European industries from low-priced imports.

The industry recorded shoe export revenue of more than $400 million in the first half of this year, 8.6% higher than the $396 million recorded at the same time last year.

Waterford in talks on move to Indonesia Waterford Wedgwood Plc, the Irish crystal maker controlled by billionaire Tony O'Reilly, is in talks that may lead to a relocation of UK jobs to Indonesia as part of an effort to shift production to lower-cost nations, Bloomberg reported.

Dublin-based Waterford is holding discussions regarding its site in Stoke-on-Trent in central England, spokesman Michael Dennehy said by telephone, confirming a British Broadcasting Corp. report. About 250 jobs may be affected, the BBC said.

STATE CONCERNS Indonesia may produce 1M tons cocoa by 2013Indonesia may be able to double its current annual cocoa production to 1 million metric tons in the next five years as steps are taken to rejuvenate existing plantations, a senior industry official said, Dow Jones reported.

The cocoa plantation rehabilitation scheme is slated for completion by 2011, and it is possible that production will reach one million tons of cocoa by 2013, said Litha Brent, vice chairman of the Association of Indonesian Coffee Exporters.

However, output is expected to remain flat over the next in the short term due to damage from the cocoa pod borer and a lethal fungal disease.

Of the 450,000 hectares of cocoa crops in Sulawesi, 70,000 hectares have come under serious attack by pests and disease, 235,000 hectares have been half-damaged and 145,000 hectares slightly damaged.

The association estimates that this year's cocoa crop will be around 500,000 metric tons, compared with last year's 530,000 tons.

Indonesia, the world's third-largest producer of cocoa after the Ivory Coast and Ghana, targets cocoa output of two million tons by 2020, but output has been declining over the past few years.

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Fisheries losses cut in first half: Department The Department of Marine Affairs and Fisheries (DKP) was able to prevent the country from losing Rp489 billion ($53.30 million) to illegal fishing during the first semester of this year, an official said, Asia Pulse reported.

"DKP captured some 175 illegal fishing vessels that were carrying poached fishes worth a total of Rp439 billion," said Aji Sularso, DKP's Director General of Marine Resources Surveillance and Control.

The Indonesian Navy and Marine Security Coordination Board had also caught illegal fishing vessels, so that the overall number of illegal fishing boats caught in the first half of 2008 was actually higher, he said.

Illegal fishing mainly occurred in three areas: the South China Sea around Natuna, Halmahera and in the Arafura Sea.

Sularso said the perpetrators of illegal fishing in Natuna waters were mostly fishermen from Vietnam, Thailand and Malaysia.

In the waters around Halmahera, almost 100% of illegal fishing was committed by vessels from the Philippines. In the Arafura Sea, most of the fish poachers were Chinese and Thai vessels.

Sularso said DKP was still struggling to combat illegal fishing in Indonesian waters as it did not have enough patrol boats and still meeting operational difficulties.

SOEs$2B boost for struggling rail companyThe government has allocated Rp19 trillion ($2.09 billion) from the state budget for a three-year revitalization of troubled state railway operator PT Kereta Api Indonesia (KAI), a minister said, according to The Jakarta Post.

State Minister for State Enterprises Sofyan Djalil said he had requested KAI's management take immediate action to improve the company's service, including updating infrastructure and increasing rail capacity.

"The government is very serious about revitalizing the rail service. Rail is among the country's main transportation arteries and should be nurtured," Djalil said at the KAI headquarters in Bandung, West Java.

Djalil said a portion of the funds would be used as working capital for a planned joint venture with private companies to transport cement, coal and containers by rail.

In 2007, more than 90% of goods transported in the country went by road, while 0.6% was transported on trains, Transportation Ministry data shows.

More of the money will be used as start-up capital for the spin-off of KAI Greater Jakarta division, which will operate a commuter rail service in the capital.

Djalil said the development of the independent company would be accelerated this year owing to the pressing need to ease traffic congestion in Greater Jakarta.

The planned city railway network is expected to carry 30% of Jakarta's 30 million commuters within five years.

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A recently passed revision to the railway law allows international companies to operate trains in several big cities in Indonesia.

United Arab Emirates-based RAK Minerals and Metals Investments has set aside $1.5 billion to operate a rail network in South Sumatra.

Bank Mandiri ready to fund Semen Gresik Bank Mandiri has expressed interest in channeling Rp4 trillion ($436 million) in loans to cement maker PT Semen Gresik to build two cement factories and 10 power plants, Asia Pulse reported.

"Bank Mandiri has agreed to extend Rp4 trillion in loans to finance the construction of the new cement and power plants," Bank Mandiri president director Agus Martowardojo said.

Semen Gresik plans to build two cement plants in Central Java and South Sulawesi and 10 electric power plants at a combined cost of $1.6 billion until 2012.

Nearly $1.2 billion of the funds will come from foreign sources and the rest from domestic sources.

"We are ready to meet the need for funds from local sources," he said.

PRIVATE SECTOR Toyota-Astra Motor July car sales 20,529 in July Car manufacturer PT Toyota-Astra Motor, (TAM), said new car sales in July rose 13% month-on-month to 20,529 units from 18,172 units a month earlier, Dow Jones reported "The sales figures in July were impressive and hit an on-month record high since 2006," TAM president director Johny Darmawan said in a statement.

Darmawan said that the record sales in Indonesia are also among the highest in the Southeast Asia region

TAM didn't say what drove the increase, but analysts attributed it to the offer of new models from Toyota.

TAM, a joint venture between Toyota Motor and car distributor PT Astra International, the nation's largest automotive company by assets and sales, said it sold 119,232 new cars in the January to July period, compared with 82,019 units a year earlier.

1st-half ad spending highest in four yearsAdvertising expenditure jumped the most in four years, helped by increased spending from mobile-phone operators and political parties, Bloomberg reported.

Total spending rose 24% to Rp19.56 trillion ($2.1 billion) in the six months ended June 30, the fastest pace of growth since a 50% increase in the first half of 2004, according to Nielsen Media Research Indonesia.

Spending by political organizations may increase further before general elections in April, boosting earnings at companies such as PT Media Nusantara Citra.

Parties contesting regional polls raised expenditure by more than six-fold in the first half, according to Nielsen. Price wars among mobile-phone providers led to a tripling of ad spend by Excelcom, Indonesia's third-largest cellular-phone operator, in the period.

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Spending by political organizations and the government increased 79% in the first half to Rp769 billion. Political parties' spending peaked at Rp131.1 billion in March 2004, a month before general elections that year, according to Nielsen.

Mobile-phone companies spent Rp1.98 trillion in the first half, 57% more than the year-earlier period. Excelcom tripled its expenditure to Rp139 billion, helping the company boost net income 15-fold in the period.

Qtel says has not requested new Indosat directors Qatar Telecommunications Co (Qtel) said it had not made a request to replace any directors at PT Indosat after it bought a stake in the mobile telephone operator in June, Reuters reported.

The Qtel comment came after Qatari media reported that Indonesia had turned down Qtel's request to replace government-appointed directors at the firm.

"Qtel has not made any request to replace any directors at Indosat," it said in a statement. "The board of directors is appointed by Indosat's board of commissioners, not Qtel."

Qtel bought the entire stake of Singapore Technologies Telemedia in PT Indosat, gaining a 40.8% stake.

It is studying new regulations by Indonesia's markets watchdog to determine their impact on a tender offer it had made for Indonesia's second-largest mobile telephone firm.

Qtel said Indosat shareholders will meet on August 25 in Jakarta to appoint a new board of commissioners.

Explosive maker Orica expects revenue by 2012 Orica Ltd, the world's largest commercial explosive maker by volume and sales, expects its Indonesian ammonium nitrate joint venture to start generating returns in 2012, managing director and chief executive Graeme Liebelt said, quoted by Dow Jones.

"We expect probably ammonium nitrate will be coming out of the plant in 2011. Typically speaking, a plant like this takes six months to come up to its full production, so 2012 should see it generating good returns," Liebelt said.

Orica plans to invest up to $550 million in the project, which is expected to produce 300,000 tons per annum of ammonium nitrate.

Despite owning only 49% of the joint venture - PT Kaltim Nitrate Indonesia - the Australian company will provide most of the financing, Liebelt said.

The remaining 51% is owned by Armindo Group, one of six companies licensed by the government to import and transport commercial explosives.

Ammonium nitrate is commonly used as an oxidizing agent in explosives and as a high-nitrogen fertilizer.

Kaltim Nitrate Indonesia's product will replace imports into the Indonesia market, which is estimated to be worth around $350 million annually.

KNI said in a separate press release that it has already spent $60 million for purchasing and reclaiming land, and building the long lead time plant items such as the compressor, which is being constructed in Germany by Mann Turbo.

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Hutchinson invests $1B in telecom facilities PT Hutchinson CP Telecom Indonesia, operator of the '3' brand cellular service, has invested $1 billion in the development of its telecommunications facilities in Indonesia, Asia Pulse reported.

"We plan to become the biggest operator in Indonesia next year," marketing director of Hutchinson Suresh Reddy said.

He said Indonesia is an important market for Hutchinson, especially with its population now reaching more than 230 million. "The telecommunications sector here has been growing very rapidly. We need to meet their wishes," he said.

ICGR director of Hutchinson Indonesia Sidik said that operator 3 has controlled the company's networks in Sumatra, Java, Bali, and West Nusa Tenggara.

Priority of this year's infrastructure expansion will be on Kalimantan and Sulawesi, he said.

"We will aggressively expand our networks in Kalimantan and Sulawesi until the end of 2008. We will also enter other islands in Indonesia," Sidik said.

The company's subscribers have now reached 2.3 million, and the increase in the number of to the 3 network is largely due to network expansion in the last 18 months. Sidik said that Hutchinson currently operated 6,000 base transceiver stations (BTS).

Golden Agri 2Q profit more than doublesGolden Agri-Resources Ltd., a unit of Indonesia's largest oil-palm grower, Sinar Mas Group, said second-quarter profit more than doubled as prices and production gained, Bloomberg reported.

Net income rose to $582 million in the three months to June 30, or 6 cents a share, compared with $228 million, or 2 cents a share, a year earlier, Singapore-based Golden Agri said in a statement to the stock exchange. Sales doubled to $817 million.

Golden Agri and rival growers such as IOI Corp. are taking advantage of higher demand from countries including China.

Palm oil used in cooking and as a fuel additive, averaged 3,513 ringgit ($1,054) a metric ton in the three months, 44% higher than the year-earlier quarter, according to Bloomberg data.

Profit "will likely be up and sales volume should also go up because of higher production and better weather," Ivy Ng, plantation analyst at CIMB Research Sdn., said before the results were announced.

Demand for palm oil will be "well-supported into the medium to long term by the burgeoning consumption of edible oils, particularly by the growing middle class in the major developing economies such as China, India and Pakistan," the company said.

"The strong global demand for palm oil, especially from developing countries, is expected to continue," Golden Agri CEO Franky Widjaja said in the statement.

Demand for biodiesel "acts as a floor" for palm oil prices provided that the price of crude oil remains high, he said.

Powertel to finish fiber optic cable project in 09PT Power Telecom (Powertel) hopes to finish construction of a 3,400-km fiber optic cable system between Jakarta and the East Java capital of Surabaya early next year at the latest, Asia Pulse reported.

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Powertel president Dicky Tjokrosaputro said the company had already finished construction of 500 km of the network between Jakarta and the West Java capital of Bandung.

The company started building the network, estimated to cost Rp1.2 trillion ($130 million), earlier this year, the newspaper Investor Daily said.

The network is expected to be linked with international networks from Jakarta and Surabaya, Tjokrosaputro said.

The company also plans to build fiber optic cables in Kalimantan and Sumatra, but at present the company is focusing on Java where demand is much higher, he said.

Firefly to serve regular flights to Indonesian cities Firefly, a low cost concept airline owned by Malaysia Airlines, will soon serve regular flights to three Indonesian cities, Asia Pulse reported.

Firefly will cooperate with PT Gapura Angkasa, which will provide ground handling service for its aircraft in Medan, Banda Aceh and Pekanbaru.

Firefly will schedule regular daily flights to Medan and four times a week to Banda Aceh starting October 26, said A. Soebagyo, president of Gapura Angkasa.

Soebagyo said Firefly also plans regular flights to other cities including Palembang, Padang, Jambi, Pangkal Pinang and Bengkulu in Sumatra and a number of cities in Kalimantan.

Firefly already serves international flights to Thailand, the newspaper Bisnis Indonesia said.

BANKS Maybank meets regulator over BII dealMalaysia's top lender Maybank met with Indonesia's capital market watchdog, Bapepam LK, following its stalled plan to gain control of Bank Internasional Indonesia (BII), officials said, Reuters reported.

Maybank chief executive Abdul Wahid Omar, who is keen to push for the acquisition following endorsement from both his company's board and shareholders, said after the meeting that the Malaysian bank was "looking for various options." He declined further comment.

"They are looking for the best solutions so that this transaction will go ahead. Bapepam LK cannot yet make any comments at this stage," Fuad Rahmany, the head of the market watchdog said.

Malaysia's central bank revoked last month its approval of the $2.7 billion deal as it was concerned a new Indonesian takeover rule could lead to material losses for Maybank.

The rules require Maybank to cut its stake in BII by 20% in two years after the takeover.

Wahid Omar had been expected to lobby for Bapepam to give the Malaysian bank a longer period of up to five years to comply with the rules, something the Indonesian regulator has hinted it may be willing to do.

Maybank shares sold off heavily when the acquisition was announced in March as investors and analysts believed it was paying too much for the share in BII.

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Mideast investors eye stake in BRI's shariah unit Two Middle East investors are interested in investing in the shariah banking unit of state-owned lender PT Bank Rakyat Indonesia (BRI), Asia Pulse reported.

Islamic Development Bank (IB) and Islamic Corporation for the Development of Private Sector (ICD) want to have a share in PT BRI Syariah, which will be launched soon, BRI director Sulaiman A Ariyanto said.

The newspaper Investor Daily reported that Sulaiman said IDB had already met with the management of BRI to discuss the possibility of investing in PT BRI Syariah.

He said IDB is especially interested in having business with BRI as the state bank is known to be strong in the small and medium enterprise credit market.

Earlier, BRI corporate secretary Hartono Sukirman said PT BRI Syariah will be established next month, before investors are invited to take part.

POWER Alstom to build power plant Alstom said it has won a contract worth about Euro160 million with national electricity utility PT PLN in a consortium with Marubeni Corporation for the construction of a combined cycle power plan, Dow Jones reported.

The power plant is located at Muara Tawar, 35 km from Jakarta, on the northern coast of Java.

The project consists of extending the existing power plant with a fifth unit. The Alstom-Marubeni consortium already built the combined cycle plant unit 1 and the gas turbine peaking plant unit 2 in 1995.

New unit 5 will increase the total output of the plant by 235 MW from the current 1,800 MW, thus helping the country to meet the current high electricity demand on the Java/Bali grid.

The plant will be operated with natural gas, thus helping the country to reduce its dependence on liquid fuel.

PLN announces power sharing with Singapore, Malaysia Indonesia will conduct an electricity exchange program with Malaysia and Singapore through an $800 million interconnection system between Sumatra and Malaysia, Fahmi Mohtar, director of state-owned power company PT PLN said, quoted by Detik Finance.

Mohtar said that PT PLN had already conducted a feasibility study and was following up on building power transmission facilities from Malaysia to Sumatra and Batam to Singapore.

Mohtar said the agreement between the countries was signed at an ASEAN energy meeting in Bangkok last week.

PT PLN will cooperate with Tenaga Nasional Bhd. of Malaysia and the Public Utility Board in Singapore for the power cooperation project.

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OIL & GAS Govt. to save up to Rp2.6T if oil price stays at $120 The government will be able to save up to Rp2.6 trillion ($283 million) if the average oil price stays at $120 a barrel until the end of 2008, a Finance Ministry official said, Asia Pulse reported.

"The current oil price is $124 per barrel. The finance ministry calculates that the state will be able to save up to $2.6 trillion if the oil price could be maintained at an average of $120 a barrel," Anggito Abimayu, head of the ministry's fiscal policy affairs, said.

The saving of up to Rp2.6 trillion was made on the assumption that all ministries / state institutions used up to 100% of their expenditures in the 2008 state budget, he said.

"With the expenditure surplus of Rp2.6 trillion the state budget deficit which is estimated at 1.9% in 2008 will be reduced to 1.8%," he said.

He said that the realization of the 2008 state budget deficit would depend on the realization of ministries and other state institutions' expenditures amounting to Rp290 trillion.

"Naturally, about 10% could be saved from ministries and state institutions' unspent budget but it is probable that they would absorb over 90% of the budget," Abimayu said.

The deficit of the revised 2008 state budget was set at 2.1% of the gross domestic product (GDP) or about Rp2.1 trillion.

Pertamina buys Libyan oil as domestic output falls State oil company PT Pertamina will buy as much as 1.5 million barrels of crude oil a month from Libya as the output of Southeast Asia's only OPEC member declines, Bloomberg reported.

The shipments will start in October under a 20-year contract, Ari Soemarno, president director at Pertamina, told reporters in Jakarta.

The crude oil will be processed at Balikpapan refinery in Indonesia's part of Borneo as well as Cilacap plant in Java, the country's biggest refinery, he said.

Crude output has dropped about 40% in the past 12 years amid aging fields, turning Indonesia into a net oil importer and prompting it to consider leaving the Organization of Petroleum Exporting Countries.

Disputes with companies including Exxon Mobil Corp. have delayed field developments and deterred investments, adding to the production slump.

Daily crude output has been less than 1 million barrels since February 2004, according to Bloomberg estimates.

Indonesia, Southeast Asia's biggest oil and gas producer, plans to shorten approvals for exploration to two weeks from as long as nine months to help reverse the output decline.

Pertamina imported an average of 247,775 barrels of crude a day in the first five months of the year, according to a presentation from the company in June.

MINING Govt. may allow coal producers to trade domestic quotas The government may allow producers to trade in coal to meet proposed domestic sales quotas, a move

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that may limit overseas sales, Bloomberg reported on Friday.

The government will determine annually the minimum percentage of coal production that must be sold in the domestic market, according to a copy of a draft ministerial decree obtained by Bloomberg News.

Domestic coal demand for power generation will jump by 32 million metric tons annually by 2010, when most of the 10,000 MW of new coal-fired generators start operation.

The sales quotas may affect exports unless Indonesia, which doubled output in five years, boosts production.

"Anything that damages the ability of Indonesia to supply to the export market will have very severe ramifications," said Michael Dixon, executive general manager at AME Mineral Economics. "The market is currently very, very tight."

The domestic obligations may be applied starting next year and companies that don't meet their quotas may be fined, according to the draft.

"We're still talking with stakeholders" about the proposed decrees, said Bambang Gatot Ariyono, director of coal and mineral resources, who confirmed that companies may be allowed to trade quotas. "No decisions have been made."

The Indonesian Coal Mining Association forecasts production may increase 9% to 235 million tons in 2008. Mining companies may export 180 million tons this year to benefit from record global prices.

Prices of coal sold in term contracts must be adjusted monthly to follow global prices, according to another draft decree, also obtained by Bloomberg News. Companies will have three months to renegotiate long-term contracts to comply with the new rule, it said.

Companies will have to report and seek approval from the energy ministry for the coal they sell, according to the draft.

Bayan IPO falls on market debut Shares in coal producer PT Bayan Resources fell in their debut on the Indonesia Stock Exchange on Monday after raising Rp4.83 trillion ($532 million) in the nation's second-biggest initial public offering this year, Bloomberg reported.

The stock dropped 2.6% to Rp5,650, mirroring recent losses by other Indonesian coal producers.

Declining coal prices have hit the shares of mining companies such as PT Adaro Energy. Indonesia's second-largest coal producer has fallen 10% since its debut on July 16, while PT Indika Energy, a stakeholder of the nation's third-biggest coal mining company, is 16% below its IPO price.

"With coal prices falling and the market under pressure, it may be a bit scary for investors," said Mardesiana, an analyst at PT Kresna Graha Sekurindo.

PT Bumi Resources, Asia's biggest exporter of power-station coal, has declined 40% since reaching an all-time high of Rp8,550 on June 12.

Coal prices at Australia's Newcastle port, a benchmark for Asia, have dropped 20% since the week ended July 4, when they reached a record $194.79 a metric ton.

Meanwhile, Dow Jones reported that Italy's Enel SpA bought a 10% stake in Bayan Resources for some EUR150 million, Italy's Corriere della Sera reported, citing unnamed sources.

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Indo Tambang to set aside $50M to acquire coal mines PT Indo Tambangraya Megah said it will set aside $50 million to acquire a number of coal mines in Kalimantan, Asia Pulse reported.

The company will use funds it has raised from an initial public offering to finance the acquisition of mines in East, Central and South Kalimantan, finance director Edward Manurung said.

Most of the mines are not yet developed, Manurung said, adding the company is also seeking to acquire a number of other small mines.

In the first half of this year the company reported a 227.4% rise in net profit to $69.38 million from $21.19 million in the same period last year.

The surge in net profit was attributable to 51% increase in net sales to $516.36 million, the newspaper Investor Daily said Friday.

United Tractors plans rights issue Heavy equipment manufacturer PT United Tractors said it plans to issue 475.27 million new shares priced at Rp7,500 each in a rights offer, Dow Jones reported.

The company said in a statement that it will seek approval from shareholders on August 19 for the planned issue.

Shareholders are entitled to buy six new shares for every share held, it said.

United Tractors said it plans to use the proceeds from the rights issue to repay debt, strengthen working capital and help finance capital expenditure at its coal miner unit PT Pama Persada.

Shareholders who don't subscribe to the rights shares will have their holdings diluted by 14.3%, it said.

PT Astra International owns 58.45% of United Tractors.

Inco Indonesia first-half net income declines 58% PT International Nickel Indonesia, the country's largest producer of the metal, reported a 58% drop in first-half profit because of lower prices, Bloomberg reported.

Net income fell to $295.6 million, or 3% a share, in the six months ended June 30, from $707 million, or 7 cents a share a year earlier, the Jakarta-based company said.

Sales dropped to $819 million from $1.3 billion a year earlier, the company owned by Cia. Vale do Rio Doce said.

Rising supplies of nickel and reduced demand from steelmakers have led to a 35% decline in prices in the first half from a year ago period. Parent Vale is seeking to expand in coal and copper, helping to offset the nickel slowdown.

Bukit Asam sells coal at record price PT Tambang Batubara Bukit Asam, holder of a quarter of Indonesia's coal reserves, sold coal to the Tanjung Jati B power plant in Java at $80 a ton, a record price for the domestic market, Dow Jones reported.

Bukit Asam shipped 60,000 metric tons in August and may sell a further 120,000 tons to the power plant by year end, president director Sukrisno said.

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Coal prices have more than doubled in a year as demand from Asian utilities increased.

Indonesia, the world's biggest exporter of power-station coal, is drafting regulations to tie contract prices to the international market to benefit from rising global rates, Simon Sembiring, former director general of coal and mineral resources, said June 20.

Bukit Asam plans to sell 13 million tons of coal this year, including about 22% mined by other producers, Sukrisno said on July 14. The Suralaya plant will receive 5.1 million tons of the fuel.

Local coal producers are currently prohibited from selling to domestic buyers at a price higher than their lowest export agreement.

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