Freeport Protection Money: Military denies, Police admits

On December 27, The New York Times published an amazing investigative report on Freeport Indonesia's operation in Papua province. The report titled The Cost of Gold, The Hidden Payroll; Below a Mountain of Wealth, a River of Waste.

Freeport, one of the world's largest mining companies, according to the Times, has dumped tons of waste into one of the world's last untouched landscapes while digging for gold in Indonesia.

That's not a brand new finding. Tons of reports about environmental problems from the company's operation have been published.

But what makes the report distinctive and valuable is the finding on US$20 million payment made by Freeport to Indonesian military and police high-ranking officers during the period of 1998-2004 alone. One field commander even got US$150,000 from Freeport.

Earlier report Global Witness titled Paying for Protection disclosed some payments appears to had been made by Freeport fo general Mahidin Simbolon (US$247,705 in the period of Mary 2001-March 2003), Colonel Mangasa Saragih (US$44,000), Colonel Togap Gultom (US$12,213), and Captain Margus Arifin (US$46,000).

Institutionally, Indonesia military denied such report. As reported by Tempointeraktif.com today, Col. Ahmad Yani Basuki, spoke person at TNI (Indonesian military) said "institutionally, TNI never received such security payment."

But Indonesian Police spoke person Anton Bahrul Alam admitted such payment. "Freeport is a vital object for the state that should be protected. It is just normal if pocket money is given for security arrangement there," Anton is quoted by Koran Tempo today.

In March 2003, The Jakarta Post published an article Freeport paid Indonesian military US$5.6 million in 'protection money' based on the company's disclosure to US Securities and Exchange Commission.

Freeport paid the TNI about US$5.6 million in 2002 to to protect employees of its giant copper and gold mine in Papua province. Sadly, no detals of whether the money went to the TNI institutionally or person in charges only.
The TNI, which is combating a sporadic and low-level separatist revolt in Papua, has been accused of widespread abuses in the province, including the killing of pro-independence leader Theys Eluay.
Freeport also said that in 2001 it paid the military $4.7 million for the employment of about 2,300 "Indonesian government security personnel".
The money covered costs for housing, fuel, travel and vehicle repairs for the military, Freeport wrote in the document. It also paid 400,000 dollars in 2002 for "associated infrastructure" in Indonesia, according to the document.

Freeport is not alone. Back in June 2001, The Indonesia Human Rights Network applauded a lawsuit filed in Washington naming the oil giant ExxonMobil Corporation as responsible for murder, torture, kidnapping and twelve other charges at its liquefied natural gas operations in Aceh, a region on the northern tip of Sumatra, Indonesia.
The suit, filed on behalf of eleven Acehnese villagers, claims that ExxonMobil hired the Indonesian military to provide security for the corporation's facilities in Aceh. These troops, under the employ of ExxonMobil, committed human rights abuses against the local population.
Troops stationed at the ExxonMobil facilities tortured villagers in buildings on ExxonMobil property, according to the filing by the International Labor Rights Fund. So, far no information available on this case.

Beyond Petroleum (BP), which has begun a liquefied natural gas project in the Bintuni Bay area of West Papua, has taken pains to avoid the problems that havedogged Freeport by advocating a community security force instead of the Indonesian military. But the future of such arrangement yet to be tested as the construction is just about to start.

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PGN awarded another pipe supply contract to Bakrie

PT Bakrie & Brothers, a diversified group with companies in the infrastructure, plantation, property and telecommunications sectors, announced on Tuesday that its unit and partner had sealed a contract worth Rp 374 billion (US$38.1 million).
The contract was hammered out between state-owned gas utility firm PT Perusahaan Gas Negara (PGN) and a consortium consisting of PT Bakrie Pipe Industries and PT Bumi Kaya Steel Industries, in which the latter would supply gas pipelines.
The pipelines will be used for the construction of PGN's gas distribution facilities in West Java, which will have a total length of around 272 kilometers and diameter of between 4 inches and 24 inches.

Two months ago, PT Perusahaan Gas Negara (PGN) Tbk awarded a US$84 million contract to PT South East Asia Pipe Industries (Seapi), a subsidiary of PT Bakrie & Brothers Tbk, to supply pipes for the Labuhan Maringgai-Muara Bekasi undersea gas pipeline project.
Seapi will work with Indian company Welspun Gujarat Stahl Rohren Ltd to supply 32 inch diameter pipes for 160 km. Contractor for the project is in the bidding process.

Meanwhile, PT Bumi Kaya Steel Industries, also a member of the consortium led by PT KHI Pipe which won the contract to supply 272 kilometers of steel pipe with diameter 32 inches at total contract value of US$120 million from PGN in June.

No information available of who control Bumi Karya Steel. But one of its executive is the chairman of Indonesia Pipe Industry Association (Gapipa).

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Indonesia govt to buyback Indosat from Temasek

Indonesia government had sent a letter to Temasek Holdings to buyback 41.8% shares of telecommunication provider PT Indosat Tbk from the Singapore government-owned company.
Source at the ministry of state-owned enterprise (MSOE) said the letter was sent in December 14, 2005, almost two years after Temasek, through its wholly-owned subsidiary ST Telemedia, acquired 41.8% shares of Indosat, that time was state-owned company, at the cost of US$650 million.
It is not clear why Indonesia government decided to buyback Indosat or whether Temasek is willing to sell it back.
But even if Temasek is willing to sell Indosat back to Indonesia government, the price would likely be double the price it paid two years ago.
Indosat is the second largest telecommunication company in Indonesia behind PT Telkom Tbk, a state-owned company. Temasek has significant stakes in PT Telkomsel, a subsidiary of Telkom, through SingTel. Telkomsel is the largest cellular operator in Indonesia.

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OCBC to merge Indonesian subsidiaries

OCBC Bank, one of the largest regional banks based in Singapore, is ready to merge its two banks in Indonesia in a move to comply with the single presence policy to be implemented next year.

Investor Daily reported today that president director of Bank NISP (a subsidiary of OCBC) Pramukti Surjaudaja indirectly signalled the merger of NISP and OCBC Indonesia (another subsidiary of OCBC).
OCBC, through its subsidiary OCBC Overseas Investments Pte Ltd, increased its shares in Indonesian Bank NISP to 70.62% in June 2005. NISP is a medium-size bank with total assets of 19 trillion rupiah (around US$2 billion), while OCBC Indonesia has total assets of 2.08 trillion rupiah (US$200 million).
OCBC has combined assets of S$128 billion and a network of 112 branches and representative offices in 14 countries and territories including Singapore, Malaysia, Indonesia, China, Hong Kong, Japan, Australia, UK, and USA.
Yesterday the newspaper also reported a possible merger of two Indonesian banks owned by Temasek Holdings (Singapore), the BII and Bank Danamon, a move that could create a fifth largest bank in the country.
Singapore-based UOB Group is not yet responding to the possible consolidation of its Indonesian subsidiaries, the UOB Indonesia and Bank Buana. UOB has increased its ownership at Bank Buana to 61% through a tender offer of another 8% shares with US$45 million.

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Garuda Indonesia to be privatized next year

The flag carrier Garuda Indonesia is scheduled to be privatized next year in a bid to revive the debt-ridden airline.
Minister of State-Owned Enterprises (MSOE) Sugiharto surprised investors today with his statement that government would sell some of its shares in Garuda Indonesia to make it more competitive. He made the statement after an inter-ministerial meeting on Garuda today.
Government decided to postpone privatization of SOEs and failed to achieve the target of Rp3.5 trillion (US$350 million) for the budget year 2005. MSOE tend to completely scrap the policy with zero income target from privatization to the 2006 state budget and set the higher dividend payment instead.
The previous economic team led by Aburizal Bakrie (currently coordinating minister for people's welfare) actually demanded the privatization should be conducted this year. Then minister of finance Jusuf Anwar (sacked early this month) also supported Aburizal. But Sugiharto rejected the privatization arguing dividend payment from SOEs already far above target for the state budget and there was no need for selling government shares. Further privatization of listed-SOEs have been postponed accordingly.
But that might not be the case of Garuda. The company has been forced to restructure its huge debts for a second time few months ago. In 2001, the airline signed a US$1.5 billion debt restructuring with European Credit Agencies (ECA) and other creditors such as state-owned Bank Mandiri to extend the payment period to 16 years from 12.
Garuda's annual principal and interest payments amount to some US$110 million . But rising fuel costs and tighter competition have made it difficult for the carrier to comply with the repayment schedule.
As a result, Garuda would suffer financial losses for 2005 but the management claimed it would be less than last year's loss of 811 billion rupiah (US$80.6 million ). The company largely blamed the impact of the October 1 triple suicide bombing on the resort island of Indonesia, which killed 20 bystanders. Foreign tourist arrivals to Bali, Indonesia's top destination, fell 48.4% in October 2005 compared to a month earlier.
So, what's the privatization plan?
First of all, government should ask the House of Representative's approval. Maximum amount of shares to be sold would be 49%. There are several options. First, selling the shares to strategic investors, either financial institutions or airline companies. "We open the opportunity to financial investors or airline companies. But we prefer airline companies to bring in new culture," Sugiharto said.
Other option is initial public offering (IPO), selling the shares in stock market. Under the 2001 debt restructuring, Garuda was supposedly commence the IPO in 2003.
What's wrong with Garuda?
Garuda used to be the monopolist, which control the market. Garuda, named of Hindu God, is depicted as an immensely big and strong bird of golden or sometimes white colour who can take any shape he pleases.
But, following the deregulation in the aviation business, the competition among airlines has become even stiffer. There are around 27 Indonesian carriers compete against Garuda in local market.
Consumers seems to get benefit of the competition with step increase in number of passengers from 12.5 million in 2002 to almost 25 million this year. But those 27 airlines are in big trouble due to cut-throat price war. Most of them are undercapitalized. On top of that, regional carriers such as Malaysia's Air Asia, Singapore's Tiger Airways, and Australia's Virgin Blue, have gained access to Indonesia market.
Combined with poor management and cultural problem, Garuda has continually shrinked into smaller and weaker bird like Merpati, also an ailing state-owned airline. It's market share drops to below 25%.
Surprisingly in early October 2005, Garuda signed an agreement to buy 28 airplanes from Boeing (10 of Dream Liner and 18 New Generation) with total cost of US$2 billion, during a visit of President Susilo Bambang Yudhoyono to New York.

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Indonesia's president under threat

Indonesia's president is under threat of assassination, his spokesman said Monday, amid stepped-up security nationwide for the New Year holiday period over fears of extremist attacks.

Asked whether reports that President Susilo Bambang Yudhoyono was under threat of assassination were correct, his spokesman Andi Mallarangeng responded: "Yes."

"We received the information from the intelligence agencies," he said. "According to the report, the information is quite valid and they have a reason to believe it."
Yudhoyono's outdoor activities had been "significantly reduced" by his guards until the situation improves.

Tempointeraktif.com reported today that SBY would reduce activities with the crowd (photo courtesy of Antara).
"But I will move on with my activities as usual. Nothing has changed despite stringent security arrangement in respond to the intelligence report," SBY was quoted by Kompas.com after a meeting with Aceh leaders in Banda Aceh this morning.
Late last week, General Sutanto, the National Chief of Police, said that he was ready to provice special security for state officials and foreign citizens. He made the statement in reltion to information from State Intelligence Agency (BIN) that terrorist operational targets has changed from bombing buildings and churches to the kidnapping of state officials and foreign citizens.
Although Indonesia's most-wanted terrorist, Malaysia-born Azahari bin Husin, was killed in a police raid last month in Malang, East Java, his compatriot Noordin Moh Top remains at large.
Police believe Noordin will launch a revenge attack and has recruited more followers in the past few weeks.
A document found during a raid at one of Noordin's hideouts said the group planned to bomb unspecified targets in Jakarta.
But why the President is the target?
Andi suspect the leader's policies to erradicate corruption and crackdown terrorist groups in the country are the main motives. "There are people who feel their interests ruined by the policies," he said. It is easier to point the fingers to terrorist groups. But that's not the case with those who protect the corruptors, right?

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Lafarge rebuild Aceh cement plant in 2006

French construction giant Lafarge SA, the world's largest cement supplier, is planning to rebuild the Aceh cement factory damaged by the tsunami next year with investment up to US$90 million.
Batara, communication manager of PT Semen Andalas Indonesia, Lafarge subsidiary that operate the plant, said to Antara yesterday that the company is in the process to prepare the bidding that would start early January 2006 to be followed by construction the next month.
The plant will have installed capacity of 1.3 million tones per year, most of it to meet the demand from construction activities in Aceh and other parts of Indonesia.
Lafarge supplies cement to Aceh reconstruction project from its plant in Langkawi, Malaysia. In the second half of 2005, demand for cement in Aceh jumped to 417,000 tones which is equal to total consumption in 2004.
As Aceh reconstruction is gearing up in higher speed next year, cement consumption would significantly increase as well.
Lafarge new plant will be operational by mid-2007 and is expected to help economic recovery in the area. Indeed it is a good business both for Aceh people and Lafarge. Imagine that half a million houses should be built in the next few years plus the construction of public infrastructures. They need a lot of cements.

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Temasek exercise the merger of Indonesian banks

Temasek Holdings is reportedly exercising the merger of two of its subsidiary banks in Indonesia, the Bank International Indonesia (BII) and Bank Danamon, ahead of Central Bank's plan to implement single presence policy sometime next year. The policy would ban cross-ownerships in banks.
Investor Daily reported today that Temasek is preparing the plan to merge BII and Danamon. "Discussions are underway, but they are purely for internal purpose," said a source to the newspaper.

Temasek controls 59% of Danamon and 31% of BII. The merger of BII and Danamon would create a bank with total assets of Rp110 trillion (US$11 billion) and ranked fifth in the country behind Bank Mandiri, Bank Central Asia, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI). Temasek has another subsidiary PT Bank DBS Indonesia. A three-way merger of BII-Danamon-DBS would create a bigger bank than BRI.

Other shareholder that might be forced to merge their banks is Khazanah Nasional Berhad, Malaysia. The company has shareholdings in Bank Niaga (indirectly through Commerce Asset Berhad) and Bank Lippo (through Santubong Investment).
Standard Chartered (UK) might also have to merge its recently acquired Bank Permata with Standard Chartered Indonesia.
Djarum Group should merge BCA (Djarum is the co-owner of Farindo Investment which controls 51% shares) with two banks, Bank Haga and Hagakita, controlled by founding family of Djarum Group. Panin Group also has cross-ownership in Bank Panin and Victoria.
While it is positive to consolidate the banking industry, opposition may come from minority shareholders, especially for publicly-listed banks. Besides, there is controversy surrounding the state-owned banks. If the policy should be implemented accross-the-board, government should merge five state-owned banks (Mandiri, BNI, BRI, BTN, and BEI) with most likely huge political shakeups.

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Indonesia's new military commander battle heats up

Indonesia most likely will have new military commander by early 2006 to replace General Endriartono Sutarto. Several names tipped to the very important post. They are General Ryamizard Ryacudu (former Army Chief of Staff), General Djoko Santoso (Army Chief of Staff), and Rear Marshall Djoko Suyanto (Air Force Chief of Staff).
Chairman of PDI-P faction (second largest) in the House of Representatives (DPR) Tjahyo Kumolo said today that the party led by former president Megawati Soekarnoputri is firm to support Ryamizard.
It was Megawati who proposed Ryamizard as the candidate to replace Sutarto at the end of her term last year. But the newly elected president Susilo Bambang Yudhoyono, a classmate of Ryamizard in military academy, withdrawn the letter to parliament sent by Megawati that told legislators of Sutarto's resignation and proposed Ryamizard, that time was army chief of staff, as his replacement.
Sutarto, 58, admitted that time that he tendered his resignation to Megawati in September 2004 because he was already past retirement age and there was a need for new leadership in the armed forces.
But SBY, supported by some polical parties, rejected Sutarto's resignation. House Commission I, in charge of military, however maintain its support for Ryamizard.
In February 2005, the President picked Santoso---who holds master degree in management---as the army chief of staff in a move analyst believed could dash Ryamizard's hope to be the military commander.
Santoso won praise for helping implement a peace pact between warring Muslims and Christians in the volatile eastern Moluccas islands. Santoso took over as military commander after the deal was signed in 2002.
National Awakening Party (PKB), a party of former president Abdurrahman Wahid, was also behind Ryamizard. But Effendi Choirie, one of the party's top executives and chairman of House Commission I, said today it is up to the president to propose the candidates for the military commander.
"If possible, it should be Ryamizard. But if the President won't propose Ryamizard, it is up to him," he said.
Choirie predicts the president would propose Air Force Chief of Staff Djoko Suyanto as the candidate based on the rotating system implemented since 1999. "Navy chief of staff already got the chance to lead the military. Now we have from the army. So, it would be Air Force's turn," he said.
But President SBY argues such system is not absolute, a sign that he might propose Santoso to replace Sutarto. What about Ryamizard? Well, he will enter retirement age next year.

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Tsunami in Aceh & Nias, One Year After

The tsunami and its aftermath demonstrated both the fragility of human life and the strength and generosity of the human spirit when we work together to begin again, former US president Bill Clinton and currently the UN Special Envoy for Tsunami Recovery wrote in an article Where we stand one year later published late last week by the International Herald Tribune.

Clinton put it right. One year later, around 100,000 people in Aceh and Nias alone, still live in unacceptable conditions and with minimal access to job opportunities.
Other humanitarian agencies reported half a million people are still homeless in Indonesia, however. Almost 100,000 houses will have to be built to accommodate them.
Indonesia's Rehabilitation and Reconstruction Agency (BRR) for Aceh and Nias planned to build 35 thousand units of new houses this year, but so far only 19,200 have been completed. It would take three more years to build more than 100,000 houses.
Meanwhile, Unicef survey shown that recovery on Indonesian kids influenced by the tsunami is the slowest among other countries hit by the catastrophe. The survey found one third of Indonesian kids believe their future would not be better off. Children in Aceh Jaya regency, for example, still studying in emergency school tents (photo courtesy of Acehkita.com)
Bureaucratic delays and concerns about corruption have stymied efforts to rebuild the communities destroyed in last year's tsunami.
There are more than 400 NGOs involved in Aceh aftermath of tsunami, but they are facing security problem in delivering humanitarian aids.
"When they brought in the food supplies, officers in uniform took it away. Sub-regency leaders even asked for fuels from NGOs and contractors," said Kuntoro Mangkusubroto, chairman of BRR.
Low quality of land available for housing complex is also a crucial problem. As a result, out of a commitment to build 13,364 units in West Aceh alone, only 625 units are completed. Habitat for Humanity, for example, committed to build 3,000 houses but only seven units completed.
Some 2500 teaching and non teaching staff died because of the tsunami. About 2000 schools were destroyed, leaving about 260,000 students without a place to learn. Rehabilitation of teaching facilities is simply not enough as many schools are lack of teachers.
INDONESIA'S military has announced plans to send more than 10,000 troops in Aceh to speed up tsunami reconstruction efforts.
But representatives of the Free Aceh Movement (GAM), which has staged a bloody 30-year independence struggle with the military, expressed alarm, stating the deployment would undermine a peace deal sined in August.
On top of that, few huge plants in North Aceh regency are struggling to survive and feared to be closed down soon due to scarcity of natural gas as raw materials. These plants are two fertilizer companies, PT Asean Aceh Fertilizer and PT Pupuk Iskandar Muda, with thousands of workers might lose their jobs. A higher jobless rate would worsen the overall situation in the fragile province.

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Indonesia finally impose 5% coal export tax

Government finally decided to implement the controversial 5% export tax on coal despite opposition from coal mining companies. The final decision was taken yesterday during a limited cabinet meeting chaired by coordinating minister for the economy Boediono and attended by trade minister Mari Pangestu, finance minister Sri Mulyani Indrawati, industry minister Fahmi Idris, and high-level officer of the energy ministry.

In October, the finance minister decided to impose a 5% export tax on coal. The decision, however, drew strong opposition from coal producers saying that would serve as a disincentive to investment in the industry.

Indonesia has targeted total coal production at 155 million tons for 2005, about 70% of which would go to the export market. High international coal prices accounts for the current rise in Indonesia’s coal output. With export volume well above last year’s 100 million tones, the country’s coal export value could reach US$4 billion this year. A 5% export tax means a potential income of US$200 million to the state budget.

With reserves at 5.9 billion tones, over the next five years, Indonesia intends to double coal production, mainly with the intent to export it. But analysts argues that government should revise onerous regulations on VAT, royalties, and autonomy rift in order to make the country’s coal mining sector more competitive in the long run.

In 2000, the Indonesian government created a regulation that changed coal to a non-taxable commodity. This means that coal producers are unable to charge the end-users VAT despite the fact that they have to pay VAT for imported capital goods and services. This has also lead to a drop in foreign investment.

Older coal companies (first generation companies) have VAT reimbursement rights, and as such have not lost out too much by this regulation. Newer coal companies do not have the same rights and as a result pay an additional 8 to 10% on their production costs.

Key Players

1) PT Bumi Resources Tbk., a company affiliated with Bakrie Family (controlled by Aburizal Bakrie, the coordinating minister for people’s welfare) is the largest producer through two main coal subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia. Bumi Resources committed to sell 43.7 million tones of coal this year, about 27.5 million tones from KPC and 15.7 million tones from Arutmin.

2) PT Adaro Indonesia, a company controlled by Indonesian businessman Edwin Soeryadjaya, GIC Special Investments (a Singapore government agency that manages its long-term foreign reserves), private equity units of Citigroup Inc and Goldman Sachs. The company produces 27 million tones per year.

3) Banpu, Thailand. Over the last decade, the company has developed a significant presence in Indonesia, ranking as the fourth largest Indonesian coal producer with full production capacity of 19.4 million tonnes a year from 4 concessions companies, PT Jorong Barutama Greston, PT Indominco Mandiri, PT Kitadin Coporation, and PT Trubaindo Coal Mining. The company also has another two concessions namely Barasentosa and Bharinto, which are in the exploration stage.

4) Kideco Jaya Agung, owned by Samtan Co Ltd, South Korea (49%), Indika Group (41%), PT Sumber Mitra Jaya (5%), and PT Muji Inti Utama (5%). KIDECO is the third largest coal company in Indonesia in terms of coal production with a substantial reserve base of approximately 1.25 billion tones. KIDECO produced 16.9 million tones of coal in 2004.

5) PT Tambang Batubara Bukit Asam Tbk., a listed company majority owned by Indonesia government. Combined production capacity is 10 million tones per year.

6) PT Berau Coal, owned by Indika Group (controlled by Sudwikatmono family) at 60%, PT Armadian Tritunggal 30%, and Nissho Iwai Corporaton 10%. Berau Coal might surpass Bukit Asam as the fifth largest producer with projected output of 11 million tones per year, a significant increase from 8.5 million tones last year. Indika is rumored in the process to acquire another coal mining company.

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Titan acquired Indonesian petrochemical company

Malaysia's Titan Chemicals signed the agreement to acquire 100% shares of Indonesian polyethylene producer PT Petrokimia Nusantara Interindo (Peni) from Indika Group on Thursday (December 22) at undisclosed price.
Indika bought 100% shares of Peni three years ago from Beyond Petroleum, Sumitomo Corporation, and Mitsui Inc at US$50 million.
Peni is the largest polyethylene (plastic raw material) in Indonesia with combined capacity of 450,000 tones per year. But the company always in raw material problem as the country has only one ethylene cracker PT Chandra Asri Petrochemical Center which also its main competitor with 300,000 tones per yer polyethylene plant.
With the divestment, Indika would focus on coal mining and energy business. Indika is a diversified business group owned by tycoon Sudwikatmono family.

Donald M. Condon, managing director of Titan Chemicals Corp. Bhd told me after the signing ceremony that the company is conducting a feasibility study to build olefin cracker in Indonesia to feed Peni. But he didn't disclose the timetable for the plan.

Ethylene supply is the main problem for Peni. Titan is planning to supply ethylene feedstocks to Peni from its Pasir Gudang, Malaysia facility.

Dedi H. Sudarijanto, president director of Peni, admitted out of 450,000 t/y capacity, utilization rate is well below 50%. "We're running at 200,000 t/y," he said.
Both Indika and Titan declined to comment on the price of the acquisition pending on the completion of transaction which is expected by first quarter 2006.
Arsjad Rasyid, managing director of Indika Group also denied rumors of Peni's bad debts as the main reason behind the decision to exit petrochemical business.
"We're not exiting the petrochemical business as we still hold investment in other chemical plants. Peni is also in good shape," he said.
Agus Lasmono, chairman of Indika Group, admitted the group would focus on energy business. Agus and Arsjad reluctant to disclose Indika's next move. But one investment banker disclosed the group's plan to acquire another coal mining company to strengthen its energy ventures.
Indika is involved in a huge power plant project in South Sumatra and new project in West Java.
As for Titan, the acquisition would boost its polymer production capacities to 1.4 million tones per year and make it the largest in South East Asia.

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Minority shareholders vote against Aqua’s go private

Listed bottled water giant PT Aqua Golden Mississipi Tbk, indirectly controlled by Danone Group (France), found it is so hard to exit from Jakarta Stock Exchange (JSX) after majority of independent shareholders rejected the company’s plan to go private in a third meeting yesterday.

The meeting, attended by 76.88% of independent shareholders, failed to approve Aqua’s go private as 51.05% of minority shareholders who held 6.4% of the company’s stakes voted against the plan.

PT Tirta Investama is controlling 91% shares of Aqua. Danone holds 60% shares of Tirta.

Antara reported that independent shareholders rejected the management’s offer of acquisition price at Rp100,000 (almost US$10) per share. The offered price was 69.5% premium to the highest price in the past 90 days of trading.

No details about the price asked by independent shareholders. But some says they’re looking for US$100 per shares, ten times the tender offer price.

As a result of the rejection, the company has decided not to make another tender offer even though Capital Market Supervisory Body (Bapepam) allows it to do so 12 months after the meeting.

Aqua might use different strategy, for example, through a voluntary de-listing.

Aqua argues it going private to consolidate and integrate its operation in line with the global policy of Danone. The French company acquired Aqua, the leading brand, which held over half of the Indonesian home and office delivery (HOD) market, in 2001.

The company submitted the go private plan in 2001. But every time it failed to conduct the shareholders meeting, in the absence of necessary percentage of independent shareholders. Last month, the company failed to conduct shareholder meeting as less than 75% of independent shareholders shown up. Last week, Bapepam reduced the quota to 50%, but Aqua failed to get majority approval from minority shareholders.

Some says this is a tyranny of minority, but others claimed that as a big win for small and independent shareholders in a capital market with the dominance of issuers.

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The Royal Family of Indonesia's Central Bank

About a year ago, my wife took me to Begawan Giri Estate, a secluded, luxury resort in Bali, close to Ubud, set amidst acres of lush tropical greenery. Add in forests and rice-fields wrapped in mountain mists, and lovingly landscaped gardens and water gardens. I was fall in love at the first sight with the scene.
“Can we just stay here for a night?" I asked my wife.
“ Let’s just see first, who knows you would change your mind,” my wife answered calmly.
We decided to politely ask the manager to have someone take a short tour to the residences. The main part of the estate, set on 20 acres on the tip of a promontory between the Ayung river and a side stream, comprises five "beyond your dreams" residences - that might sound cliched but believe me, it isn't.

Each residence, which contains a master suite, three or four further suites and the rooms listed above, is completely unique. The prices are suitably frightening - US$500 a night (including taxes) for the smallest suite to US$4,500 for the whole of Umabona - but compared to the cost of staying at some of Bali's other top-end hotels, in my opinion, much better value for money.

Spending US$4,500 per night, Hell No! Even my whole year income would not enough! So, we decided to just enjoy the sight-seeing.

The management refuses to discuss guests, but other staff are not so secretive. The singer Barbra Streisand reportedly booked the entire estate (£11,000 a night), as did an Italian footballer earlier this year for his wedding. Sting, Brooke Shields, the Beckhams, designer Donna Karan and members of most major royal families have all stayed.
“We have a lot of local riches as guests. One of them, a deputy governor of Indonesia Central Bank (Bank Indonesia), stayed here for three nights,” said one of the staffs at the most expensive residence Umabona.
I was complaining of how come that a civil servant could afford to stay in such an expensive resort?
“That guy may have embezzled the state money or took the bribes from fugitive bankers,” I said.
“Have you checked the central bank governor salary,” my wife trying to drive me into positive way of thinking.
“Nope. How could we know. Central Bank is not a publicly-listed company where we could see bank executives salaries and bonuses. So, for the time being, I keep my negative thinking on that,” I said.
Leaving the resort, we kept discussing the Central Bank officer until my wife fall asleep.
Remembering that, I wasn’t surprised at all when The Jakarta Post run a headline story today that the board of governors of Bank Indonesia has submitted a proposal calling for each of its eight members to receive an annual salary of over Rp2.5 billion (US$272,296).
This was the first time the central bank had to consult the House of Representatives on pay for officials and employees, a consequence of the newly amended Law No. 3/2004 on Bank Indonesia.
In previous years, the central bank was able to determine its own pay for officials. The bank's website, however, does not contain any information on the current salaries of the board of governors. This is an irony as all banks under its supervision should announce every quarter the financial report, including the salary of bank executives.

I believe the numbers that BI are proposing to the House already discounted from what the governors received in the past for political reason. Well, if board member of governors of Bank Indonesia received annual salary above the US$272,296 in the past, they surely deserved to stay in Begawan Giri like the other royal families.

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Indonesia immigration mafia embezzled US$20 million per year

Immigration mafia, consisted of brokers, immigration officers, and security guards managed to embezzled at least US$20 million per year of tax payments from Indonesian passengers with overseas destination. Who are the beneficiary owners?
This is how the mafia works. First of all, a broker come after a passenger at the airline check-in counters and offer the service, i.e. pay tax at discount of 20%. By law, people have to pay the tax of Rp1 million per overseas trip. The broker will fill the form, tax-free, but passengers should pay Rp800,000. As a bonus, passengers with such service are excempted form long queue at the immigration check-point.
According to minister of finance Sri Mulyani Indrawati, every year around US$20 million of the tax payments went to the mafia coffers in Jakarta's International Airport alone.
President Susilo Bambang Yudhoyono said that the government is set to fight against irregularities at the immigration offices which have become a very serious problem.
He said that immigration affairs is a fundamental and serious problem that needs serious, fast and accurate handling.
"I have received reports on irregularity practices in the ranks and files of the immigration office at home and abroad," Yudhoyono said.
Police is investigating the mafia. Thouh I'm bit skeptical, I reserved hope that police could uncover and punish The Dons, not just small-time brokers and security guards at the check-point. Police should investigate the flow of the embezzled money down to the beneficiary owners.

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Minister Mar'uf scandals

Mar'uf is an Arabic word means good. Someone bears such name was supposed to be good. But it seems home affairs minister Mohammad Mar'uf, a retired leutenant general, is not good enough to bear that.
In my previous article, this guy already spent US$150,000 for ten consecutive days of ads in five newspapers just to tell people that he is good enough as home affairs minister in conducting direct election for local leaders.
Those ads, most likely would continue until the end of this month, are published almost at the same time with public scrutiny over the the minister's decision to quote billions of rupiah from the subsidized kerosenes sold in the last two months (total amount is expected at US$9 million) and huge mark-up of security printing project. Investigation on these scandals is underway.
The first is known here as Gocap (Chinese word means 50, as the minister quotes 50 rupiah per liter of subsidized kerosene) Scandal. The minister argues that the 50 rupiah charge is part of government's effort to finance the supervising activities and to prevent losses in distribution of susidized fuels.
PDI-P, second largest party in the House of Representatives (DPR), asked Corruption Eradication Commission (KPK) to seriously investigate both scandals and suggested to President Susilo Bambang Yudhoyono to temporarily freeze his authority.
Well, I am not sure SBY would do that considering close relationship between the president and the minister. Both were military leaders and side-by-side during the election last year.
Besides, early this month, Aburizal Bakrie (currently coordinating minister for people's welfare) disclosed the decision to quote Rp50 per liter of kerosene was taken in a cabinet meeting. While minister Mar'uf said the decision was based on proposal from Downstream Oil and Gas Authority (BPH Migas) and state-owned oil and gas company PT Pertamina. BPH Migas denied. Others follow suit in chorus of denials. Surprisingly, consumers, mainly low-level income households, remain silent on the issue. They are hopeless, I guess, because they have no energy to protest, exhausted by broken promises.

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EMP buyout Indra Bakrie's oil business

Listed-energy company PT Energi Mega Persada announced few days ago a US$300 million rights issue to primarily fund the acquisition of 99.99% shares of PT Tunas Harapan Perkasa (THP) for a total cash consideration of approximately US$284 million.

THP is a holding company of with five fully-owned subsidiaries with interests in various oil and gas production sharing and technical contracts in Indonesia. THP assets have combined proven and probable reserves of 435 BCF of gas and 31 million barrels of oil.

Subsidiaries of THP are PT Sembrani Persada (100% working interest in Sembrani TAC), PT Insani Mitra Gelam (100% of Sungai Gelam TAC), Costa Int'l Group (Gebang PSC), Kalila (Bentu) Ltd (Bentu PSC), and Kalila (Korinci) Ltd (Korinci Baru PSC). Bentu and Korinci PSCs were initially developed by Australian company Santos.
Shareholders of PT Energi Mega Persada are PT Kondur Indonesia (30.99%), PT Brantas Indonesia (30.99%), Julianto Benhayudi (3.31%), Rennier Abdul Rahman Latief (4.71%), public 30%. CSFB Singapore owns 14.75%, almost half of EMP's floating shares in Jakarta Stock Exchange (JSX). Kondur and Brantas are owned by Bakrie family and some business partners.

The acquisition is deemed a conflict of interest transaction as THP's major shareholder is also one of key shareholders of PT Energi Mega Persada. Who is he? Indra Usmansyah Bakrie, the youngest brother of Aburizal Bakrie, coordinating minister for people's welfare and former coordinating minister of the economy.
He holds the majority share of PT Austral Byna, a logging company with concession area of almost 300,000 hectares in Kalimantan. He was business partner of Jopie Wijaya in transportation company PT Infinity Indomarga. Few years ago, he was the CEO of PT Bakrie & Brothers, flagship company of Bakrie Family.

Indra Bakrie through Kalila is the main financier for basketball club Kalila, co-found the famous Twilight Orchestra and just recently Magenta Orchestra. With US$284 million cash, I hope Indra would invest more in basketball and orchestra, so we could have more funtastic society.

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Rejects the verdict, president legitimacy is in question?

The convicted chairman of election commission (KPU) Nazaruddin Sjamsuddin (photo courtesy of Tempo) declared the 2004 president and vice president election is not legitimate anymore after he was sentenced for 7 years behind the bars on alleged corruption yesterday.

“Election should be repeated as the consequence of the verdict,” the University of Indonesia professor said arguing the decision to legalize the questioned ballot papers was taken without a plenary meeting.

Nazaruddin stands trial on corruption charges arising out of an insurance scheme for all KPU officials. He is accused of directly appointing PT Asuransi Bumida, instead of putting out the project to competitive tender. He also allegedly received US$45,000 in kickbacks from the insurance company.

He rejects the verdict and would appeal to higher court. “I legalized the invalid ballot papers without plenary meeting because of time constraint. The same applied to the appointment of the insurance company. If judges decided the direct appointment as a wrongdoing, it means the decision to legalize invalid ballot papers would be wrong as well. In that case, we have to repeat the presidential election,” he said.

During the election, there was continuing confusion about KPU’s decision to count ballot papers with two holes punched through them. This happened because voters failed to unfold them completely before using a nail to make a hole through the name of their preferred candidate.

That time KPU didn’t say how many votes had initially been declared valid and then needed to be included in the count. But such invalid punch-through was happened in the first round with five candidates. Susilo Bambang Yudhoyono and Megawati Soekarnoputri secured the top two to contest in the second round. I never heard of such invalid ballot papers in the second round with SBY as the clear winner.

Would the election give completely different result if Megawati failed to pass the first round and SBY have to fight with his former boss general (retired) Wiranto (ranked third in the first round)?

I am not a legal expert. But I do believe Nazaruddin’s decision on invalid ballot papers and insurance coverage should be treated separately. Personally, I missed the second round of election last year, but I believe we’re just too tired to have another election this year or next year.

As for Nazaruddin, even though he might not received kickbacks from the insurance company, such a direct appointment without an open bidding, is an act against the law of fair business competition. In that case, he might have a normal life and give lectures in political science and only pay fines under the competition law.

Born in Bireun, Aceh in November 5, 1944, Nazaruddin graduated from University of Indonesia in 1970. He got master degree and PhD from Australian Monash University.

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Peculiar places of condom dispensers in Indonesia

Eighty years ago, Richard Carlisle, English publisher and bookshop owner, invented the the first vending machine for selling books. In 1927, William Rowe, an American, invented the first cigarette-vending machine. That was the start of a trend toward selling soft drinks, milk, soap, newspapers, and recently condom, the capsule of love.
Estimates suggest there are 5.6 million vending machines in Japan alone which works out to be one for every 20 people. Sales from vending machines in 2000 totaled $56 billion! No details about how big is the market for condom vending machines.
In England, more than 38,000 condom vending machines (in Indonesia it cost US$700 to US$1,000 per unit) have been installed at bars, hotels, and amusement centers.
In Spain, condom dispensers are located in every public bathroom, including those in schools. Seven years ago, China has the first condom vending machines operated in Shenzen and it was a hit.
That’s not the case in Indonesia, a country with the largest Moslem population in the world, even though a step ahead of the neighboring Malaysia without one single condom machine.
Indonesia’s Family Planning Coordination Agency (BKKBN), silently introduced seven condom vending machines in Jakarta, the capital city. With three coins of 500 rupiah, you could get a pack of condom with three choice of flavor, strawberry, vanilla, and chocolate.
Detik.com found two machines in the agency’s building, one unit each at Gatot Subroto hospital (at the gyneacology department), Indonesia Military Headquarter, Indonesia Police Headquarter, Jakarta Police Headquarter, and a clinic at Pasar Baru traditional market.
Why they put this vending machines at strange places?
It was by design, to hide them from public eyes, in contrast to the original idea of such machines. But that’s for reasons, as condom vending machines are thought by some to be encouraging moral degradation among youths and legalization of prostitution.
So far, 15 out of 32 provinces in Indonesia have installed the dispensers locally dubbed Kondom ATM (as it works like ATM). But acceptance of these machines variably between areas.
In Jayapura, capital city of West Papua province, the ATM operates normally and at the right place of red-light district called Turki at Tanjung Elmo-Sentani. Such machines also available at six regencies in the province, i.e. Mimika, Sorong, Biak Numfor, Manokwari, and Merauke.
“This ‘ATM’ machine is really helpful in curbing HIV/AIDS in Papua. Many times people are reluctant to buy condoms at drug stores but with this machine, they won’t be ashamed to get one,” said Papua deputy governor Constant Karma to The Jakarta Post few months ago.
The World Health Organization estimates the number of people living with HIV/AIDS in Papua, at between 13,000 and 15,000 people out of the eastern most province’s 2.4 million people. Papua is a largely Christian population province.
In West Nusa Tenggara, a largely Moslem population province, the existence of such machines had angered local leaders, both formal and informal, especially religious leaders. In July 2005, local legislators formally rejected the existence of Condom ATMs. Two such ATMs were already in operation, installed at hospital and police headquarter. But they are dormant since the July decision even though government insists to operate them with better protection.
Surprisingly it is not easy to put the machine in the tourist Island of Bali, a mainly Hindu population province. Instead of installing the machine at red-light district, local administration lay it dormant at a clinic. “If we install the machine at red-light district, it could be seen as legalization of prostitution here.”This is in contrast with India, a country with largest Hindu population in the world. Just recently AIDS prevention society in India has placed an order for 11,000 condom ATMs which will be installed throughout the country.

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Indonesia is going nuke!

Korea Electric Power Corp. (KEPCO) said on Tuesday (Dec. 13) that it has signed a memorandum of understanding with an Indonesian state-run electric company PT Perusahaan Listrik Negara (PLN) on the construction of the Southeast Asian country's first nuclear power plant.
Under the MOU, KEPCO plans to devise an overall plan for one year for the construction of the plant jointly with the Korea Hydro & Nuclear Power Co. and PLN. Korea Hydro & Nuclear Power operates nuclear power plants in four areas in South Korea.
Details on the planned construction of the plant, including its venue and costs, were not immediately known.
“We hope to introduce our OPR-1000 class reactor in Indonesia,” KEPCO's spokesperson Park Yong-Seong said. KEPCO has developed the OPR 1000 class reactor, which refers to an optimized power reactor with a capacity of 1,000 megawatts. KEPCO, the nation's power monopoly, had been building two light water reactors in North Korea until construction was suspended in 2004.

Would it be so soon for Indonesia to have nuclear power plant?

I remember few months ago when State Minister for Research and Technology Kusmayanto Kadiman said the government would develop nuclear technology by 2017 for various peaceful purposes, including power generation.
"The energy policy strategy is focused on the plan to develop a nuclear power plant by 2017," Kusmayanto was quoted in May.
The plan, which did not specify a possible location for the plant, required a more detailed assessment, the minister said after opening a maritime industry exhibition in the East Java capital of Surabaya.
When asked about the dangers of nuclear power, the official said any technology could pose dangers, which was why serious study and preparation were required. "Even coal-fired power plants have the potential to explode," he said.
"About the location, the possibilities include Madura (East Java) or Muria (Central Java), but if these proposals are turned down it will be no problem to move to earthquake-free Kalimantan," he said.

Atomic and Nuclear Energy Agency said in April that the Muria peninsula on Central Java province's north-east coast, was chosen for its tectonic and volcanic stability - a major concern in a country that sees regular eruptions and earthquakes.
The project will be tendered in 2008, for start of construction in 2010 and production in 2016. The project, which was shelved in 1997 due to mounting public opposition and the discovery and exploitation of the large Natuna gas field, involves the construction of four plants, each with a 1,000 megawatt capacity.
Under the original plans, 12 nuclear power plants were slated for the northern coast of Java, with a total capacity of 7,000 megawatts.

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Decentralization of corruption

Early this year, I attended a lecture of Professor Tommy Firman at UC Berkeley. He was visiting professor for urban studies at the university known in Indonesia as Mafia Berkeley for its alumni. He said goot thing about decentralization as one of key results of former president Soeharto's downfall is that local and regional administrations have more power in their hands to do a city planning.
They have the freedom to design urban infrastructures, for example. They could synchronize with local budget and more importantly, a greater participation of the society. In short, local administrations tend to take bottom-up approach in urban planning, in contrast with top-down model under Soeharto.
The problem, he said, the more the money flows from central government to local administrations, the more corruptive those local officers. That's what people call it the decentralization of corruption. Under Soeharto's regime, corruption was centralized in Jakarta. But now, as the local leaders emerged as kings in their territory, corruption spreads to the provincial cities and the districts.
Imagine how people in West Papua complaining about the irregularities over the spending of special autonomy funds amounts to US$500 million in the last three years. Look at how local administrations bribes house of representatives (DPR) to have escallated budget approved? Reports in the local media would be the best evidence of rampant corruption at local levels.
This is contrast with World Bank's research in 2000 saying fiscal decentralization in governments expenditures is consistently associated with lower corruption. Someone has to test this thesis empirically in Indonesia.

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Famine in Papua, shame on us!

President Susilo Bambang Yudhoyono said he would punish government officials who had failed to prevent 55 people in Papua from dying and 112 others from falling seriously ill by food scarcity.
"I ask that this problem be overcome. We must save our brothers (in Papua)," the head of state told participants of a regular course of the National Resilience Institute`s 38rd generation at the State Palace here Friday.
Well, Mr President, Papuans saved our life for so many years thanks to their generosity to let us exploiting the region's rich natural resources. They should be the beneficial owners of the resources and do not deserved such humiliation of famine.
The President made the statement following news reports that 7 out of 14 subdistricts in Yahukimo district at the center of Jayawijaya mountain were suffering from a food shortage which had already killed 55 people and make more than 100 others sick.
The food scarcity is threatening the lives of some 15,000 to 200,000 Yahukimo residents.
Shame on us! Officers are bussy to polish their image, spending a lot of money from the state budget to place advertisements for their own good. One of ministers is willing to pay US$10,000 a day for ads in five national newspapers only to say that he is good enough as a minister. He spent US$40,000 in the last four days already.
Our legislators enjoy super-high salary that enough to feed thousands of people. Our officers enjoy trillions of rupiah from illegal logging in Papua. Hundreds of millions US dollars in tax and non-tax flows to Jakarta each year. We should not let one single person in Papua to die of famine.
House Speaker Agung Laksono put the blame on leaders negligence. But most likely the problem is worse than that. Poor infrastructure for example. Agung was right when he said that if natural disasters such as floods affected the people, it would be understandable. But if what happened was famine, then it indicated that there were mistakes in the government`s infrastructures so that the incident was taking place undetected.
Agung suggested that the government should improve the existing infrastructural facilities to open isolations of villagers in remote areas so that they would no longer experience protracted shortage of food.
More money, off course not necessarily solve the problem in Papua. Newspapers reported involvement of Indonesian military and police officers in illegal logging operations in West Papua, and noted its corruption of local officials to facilitate the operations.
In fact the more the money flows back to Papua, the bigger the amounts corrupted. Remember sometimes ago when a regent in Papua involved in a US$10 million corruption case and Papua governor accused minister of forestry took US$5 million from reforestration fund?
In August 2005, Papua legislators asked President SBY to immediately establish a team to investigate irregularities in the spending of around US$600 million funds disbursed by central government under the special autonomy arrangement in the last three years.
A stupid math would result a US$4,000 per Papuan, three times the national per capita income and that would ensure no Papuans should die for hunger.
Multinational companies like Freeport McMoRan made huge profits from their mining operations. Next year Beyond Petroleum would start the US$3 billion liquefied natural gas (LNG) project.
Oh, shame on us!

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Minister Mar'uf, costly image!

If you happen to be a reader of one of these newspapers (Kompas, Suara Pembaruan, Koran Tempo, Seputar Indonesia, and Rakyat Merdeka), you should have easily identify the man I am writing about, for one simple reason. Advertising!

Remember the ad with a graph with big head shot photo of M. Mar'uf, minister of domestic affairs at left? Well, the full colour one quarter page size ad has been in the above newspapers for four consecutive days.

What's in the ad actually? Well, as shown in the graph, the minister wants people to know that local leaders election has gone smoothly (92%).

With a simple check, the cost of such ad varies from 24 million rupiah (US$2,400) to 48 million rupiah before tax (10%). Make it 35 million rupiah average per newspaper per day. For sure, the department of domestic affairs paid all these media buying.

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Single Presence Policy

As I mentioned in the previous article, Indonesia has too many banks and desperately needs a consolidation through merger and acquisitions. But I am afraid the Central Bank's plan to enforce a single presence ownership policy wouldn't do any help to force the consolidation and then improve local banks.

Today, newspapers quoted Bank Indonesia deputy governor Siti C. Fadjrijah saying the single presence policy is actually intended to be implemented on private banks, which are considered to be too numerous.
I've done extensive research on banks ownership in the country. I found that only two privately-owned local banks (Haga and Hagakita) have the same shareholders. Most of these medium to low size banks owned by hundreds of different shareholders. A single presence wouldn't work in that sense.

Government of Indonesia owns controlling shares in five banks (Mandiri, BNI, BRI, BTN, and BEI). I doubt the central bank could enforce single presence policy on these banks. Look at how difficult to merge even two state-owned banks BNI and BTN only to get the president's decision to drop the plan.

Fadjrijah seems to confirm that by saying state-owned banks may be exempted from the single presence policy. "For the state-owned banks, from what I know, there is a plan to release all (the government's ownership) in them, apart from several banks. So the government will in the end own two or three banks," she said.

Again, I am afraid this not the case for the government. Minister of State-Owned Enterprises Sugiharto once supported the BNI-BTN merger plan, but president SBY decided to stop it. Sugiharto also rejects any plan to divest more government shares in several banks.

Foreign banks and investors ultimately would be the prime target of this single presence policy. Standard Chartered, for example, might have to merge with Bank Permata (31% shares) even though it is not easy, as Astra International also owns 31% shares of Permata.
Singapore-based United Overseas Bank (UOB) might also have to merge its Indonesian wholly owned subsidiary (UOB Indonesia) with the recently acquired Bank Buana (53%) or OCBC Indonesia should merge with Bank NISP (70,66%). UOB and OCBC are Singapore-based banks.
Temasek Holdings, Singapore government's investment company, owns shares in three banks, directly or indirectly. (Remember that Central Bank Rule No.5/25/2003 stated the bank's ultimate shareholders/beneficiary owners are those who control directly more than 25% shares or in combination with others).
The Temasek-linked banks are DBS Indonesia, Danamon (through Asia Financial Holdings), and BII (through Sorak Financial, a joint venture with South Korean Kookmin Bank).
Malaysia's Khazanah Berhad also owns directly 52,05% of Bank Lippo through Santubong Investment and indirectly control Bank Niaga (through Commerce Asset Berhad in which Khazanah owns 25%).
In reality, I should say, it is not easy and potentially face legal battles. Today central bank officers admitted the single presence policy was still in its early stages of discussion and need a lot of reviews. But Central Bank believe the policy would help minimize the potential for fraudulent banking practices. There were many cases in the past where those owning more than one bank used these banks to shift funds around for the purpose of covering up irregularities in their bookkeeping, the Central Bank argued.

Well, it was particularly true to state-owned banks. Look at the amount of recapitalization bonds issued to bailout the state-owned banks in 1998-1999. So, I don't understand why state-owned banks should be exempted if the reasoning behind the single presence policy is too minimize fraudulent banking practices.

OK. Let say that Bank Indonesia will go ahead with the plan. Most likely the single presence policy would only consolidate the foreign-owned banks. They will be bigger and stronger. Imagine a merger of Danamon, BII, and DBS or Standard Chartered-Permata, UOB-Buana, OCBC-NISP, and Lippo-Niaga. They would pose a bigger threat to state-owned banks and make life even more miserable for local-owned medium or smaller banks.
An analyst, meanwhile, told me other possibility that stand-alone banks like BCA and the state banks might get better opportunity to takeover the remaining local banks. But I am afraid the chance is slim for this to happen.
I prefer an acceleration of minimum capital requirement as arranged in Indonesian Banking Architecture (API). The timing is just perfect when banks are struggling to deal with high inflation and narrow interest margin. It would be difficult for these banks to grow the capital from accumulated profits. The room for sub-debt issuance to raise capital adequacy ratio (CAR) is also limited.

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Metro Ikram's huge housing project in Indonesia, elsewhere

Malaysia's Metro Ikram Sdn. Bhd., a company controlled by businessman Tan Sri Halim Saad, Wednesday said it has launched the first phase of its affordable-housing project in Indonesia.
On Aug. 18, Metro Ikram and Perumnas, Indonesia's national urban development corporation, signed a deal to build about 100,000 affordable homes throughout Indonesia. The homes are targeted to be completed within a 10 year period. Metro established Indonesian subsidiary PT Metro Ikram Indonesia for that purpose.
Under the deal, Metro Ikram would finance the working capital, while Perumnas take care overhead costs. No explanation on how and why Perumnas chose Metro as its partner. Never heard of bidding process on this. But Metro Ikram's mode of operation is typical i.e. work with state-owned companies.
Early this year, Metro Ikram clinched another major deal to build 70,000 houses in Senegal with total sales of around US$2 billion in next to seven years. Pursuant to the agreement, Metro Ikram would have a 51% shares and the Senegal government at 49% in the JV company, La Pierre SA, to build affordable medium and premium cost homes.
Last year, it sealed similar multi-billion dollars JV deals to build 100,000 homes each in Turkey and Ghana. In Ghana, Metro is building houses on behalf of Ghana's Social Security.
Early this year, Metro Ikram proposed to construct 100,000 low-cost houses in Pakistan provided a local public sector entity joins hands as joint venture partner. Total project development cost is about US$2 billion.
How Metro Ikram would finance all of these projects?
Tan Sri Halim Saad is the former boss of the Malaysian equipment group Renong. His business empire includes some energy ventures.
In March 2005, Sterling signed a farm-out deal with Markmore Energy (L) Ltd, a private oil and gas company wholly owned by Tan Sri Halim Saad for the Dome Flore offshore petroleum license held by Sterling.
The Dome Flore block is located in West Africa, offshore Senegal and Guinea Bissau, in the area administered by the Agence de Gestion et de Cooperation (AGC). The Dome Flore block contains an estimated 800 million barrels of heavy oil in place. Thirteen wells have been drilled into the block, and several have penetrated 10-13 API heavy oil deposits, with thickness of 20-35 metres, in shallow Oligocene reservoirs.

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A Cabinet with Celebrities Complex

This is the advice of noted economist Faisal Basri to Dr Sri Mulyani Indrawati, the minister of finance. "Shut your mouth!" Not exactly like that, off course. Basri praised president Susilo Bambang Yudhoyono's decision to appoint Mulyani and Dr Boediono as coordinating minister for economy.
"They would make a good team. They know exactly what to do," Basri said.
But one advice for Sri Mulyani. "Please do not talk too much. Let the chief economic minister as the spokeperson."
Journalist hate that! Dr Boediono was tight-lipped on most questions as minister of finance.
As for Dr Sri Mulyani, that would be a hard call. She emerged as 'noted economist' because of her regular comments and appearance in the glass box, radio, newspapers, magazines, and seminars. She is a kind of celebrity economist. She loves to entertain public, even though she is not a publicity seeker. Media loves to interview her and she enjoy that.
I don't know how she could handle that.
A celebrity tend to has narcissist behaviour, and according to psychology studies, she/he is concerned with the reactions to her fame: people watch her/him, notice her/him, talk about her/him, debate her/his actions--therefore she/he exist.
I am afraid that in the cabinet, so many ministers are acting like celebrities. They care to much on their personal public image. Look at how they become stars in TV or newspaper ads? Education minister paid one full-page of advetorial at Kompas on his performance. Minister of agriculture is the star of a TV ad campaign to prevent bird flu. Minister of domestic affairs paid regular ads on his achievement on local leaders election. Minister of health for dengue fever prevention campaign.
Look at how news outlet full with their statements? All news would start with...government will do this and that...
And, this one is even more complicated. Their bosses, the president and vice president, are celebrities type of leaders too. They entertain almost every questions from journalist and the rumors. Look at how SBY respond the rumor that he announced the cabinet reshuffle in Yogyakarta State Place because of superstitious belief. The Vice President also easy to comment on everything, even though sometimes ridiculous. And our Central Bank Governor is far away from a Greenspan-type of officer.
In the age of media dominance, together with the declining trust on political parties, leaders tend to mobilize policy support via the media. The interest of politics merge with the interest of media. The problem is when policy makers tend to make statements only to create good image and fantasies. Then you get a politic-publicity-complex.
You know the risk when they easily open their mouths? They would easily change their statements along with conflicting indicators and numbers. They would risk the continuing depreciation of statements. So, my advice, this cabinet should take a short course on public communication.

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Banks forced to merge

For a country with per capita income of US$1,000 something, Indonesia ultimately has too many banks. We have 131 banks with total asset of US$130 billion. On average, it looks good with US$1 billion assets per bank. With total equity of US$10 billion, average equity is less than US$80 million.

But almost half of Indonesian bank assets are in terms of government bonds issued to recapitalize the almost-bankrupt-banks during 1998-1999 financial crisis. We, the taxpayers, support these banks. Without our tax, these banks would have collapsed. So, if you happen to be a banker or owner of these banks, better say thanks to the generous Indonesian people.

They sacrificed with higher fuel price (as government scrap the subsidy), but the state keep subsidize these banks through interest payment of government bonds. And Indonesian people (taxpayers) never default on their payments through State Budget.

But I don't want to write about that, this time. We're discussing the recent statement by Siti Ch Fadjrijah, deputy governor of Bank Indonesia (central bank). The lady said banks would be forced to merge through a new policy called single presence. The new rule will be implemented sometimes mid-2006.

What is single presence?

Well, if you are the owner (ultimate owner) of two or more banks in Indonesia, you should merge them. Such policy, the bank central argues, had been implemented in Thailand, Malaysia, and India.

Bisnis Indonesia put some banks with same owner like Bank Haga & Hagakita, Bank Danamon & Bank International Indonesia (BII), Bank Niaga & Lippo. Singapore's Temasek Holdings owned Danamon and BII, while Khazanah owned Niaga & Lippo.

Indonesian government owned all the state banks like Bank Mandiri, BNI, BRI, BTN, and BEI. I am not sure if central bank could force government to merge all these banks. Remember the cracks in cabinet recently on the proposed BNI-BTN merger?

Surprisingly, when journalists asked Fajdrijah about Danamon & BII, she said, "correct me if I'm wrong, both banks owned by two different companies. We have to look at that first."

What?

Go to Temasekholdings.com.sg and we will find Temasek owns 56% shares of Danamon and 35% of BII. On top of that Temasek owns 28% shares of DBS with operation in Indonesia as well.

How about Malaysia's Khazanah Nasional Berhad? Khazanah has 100% Santubong Investments BV which acquired controlling shares of Bank Lippo. The Malaysian government investment arm also has 25.95% shares of Commerce Asset which control Bank Niaga.

The problem with Bank Indonesia's plan is definition on who should be considered ultimate owner of the banks. As for us, the taxpayers, the least Bank Indonesia can do is to make these banks more efficient and prevent lousy investors to control the bank like in the past.

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Lady Politician to lead Indonesia Moslem Intellectuals

Dr Marwah Daud Ibrahim, a South Sulawesi-born politician and former candidate for vice president (she was the running-mate of Abdurrahman Wahid, one of the presidential candidates last year), has been elected as chairwoman of a presidium that would lead the Indonesian Moslem Intellectuals Association (ICMI).
In a voting early morning on Wednesday Dr Marwah defeated Hatta Radjasa (minister of transportation), Dr Muslimin Nasution (incumbent chairman), and noted sociologist Prof. Azyumardi Azra.
What a sweet birthday gift. Marwah born in November 8, 1956. Marwah's last name is her husband’s (Ibrahim Tadju).
Dr Marwah is the first woman elected to lead the heavily male organization since its establishment 15 years ago. Mother of three, Marwah graduated from Hassanuddin University in 1981 majoring in communication. She earned master degree in communication from International American University, Washington (1982) and PhD with distinction from the same university in 1989.
It was BJ Habibie (that time as minister of research and technology) who awarded a scholarship for PhD program to Marwah. Back from US, she work closely with Habibie, that time also as the chairman of ICMI.
ICMI enjoys huge political grip during last terms of Soeharto’s 32 years in power when its founder Prof BJ Habibie become the vice president. The organization’s influence heighten during Habibie’s presidency, following the downfall of Soeharto in 1998. As for Dr Marwah, she was active at Golkar Party as one of executives. And as a close aide to Habibie, she serves the national board of the party and as a member of the House of Representatives (DPR).
But a humiliating defeat of Habibie in 1999 election cost the organization’s declining influence in the country’s politic and economy. But Wahid stunned everyboddy with his maneuver to name Marwah as his running-mate in last year’s election. They failed even before the first round was started.
But that’s not the end for Marwah. She was one of candidates to replace Golkar Party chairman Akbar Tanjung, but failed in the last round to Jusuf Kalla. Now, she won the presidency of ICMI.

The organization regained the momentum to revitalize its influence since Jusuf Kalla (member of ICMI) became vice president. And it is interesting to see how Dr Marwah revive its political muscle. Golkar and ICMI were so close during Soeharto and Habibie years. Could it be the same during Kalla’s years?

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Indonesia Cabinet Reshuffle Aftermath

No decisions could make everybody happy, that's for sure. No exception to president Susilo Bambang Yudhoyono's decision to reshuffle his cabinet. As for now, all I can do is summarize what people said last night and today. I leave it to readers to analyze.

Golkar Party, the largest party in the House of Representatives (DPR) clearly upset even though they secured one more seat in the cabinet. Prosperous Justice Party (PKS) is most likely upset too, because they demanded four cabinet seats including Attorney General post. But at least they keep three (some says four, including MSOE Sugiharto) ministers. Don't worry. There will be no political shakeup.

At the other side of the isle, the splinter National Awakening Party (PKB) cheered the decision as the appointment of Erman Suparno (treasurer for PKB Muhaimin Iskandar) and keeping Saefullah Yusuf (secretary general for PKB Alwi Shihab) could pave the way for a reconcilliation. What about PDI-P, the second largest party in DPR, led by former president Megawati Soekarnoputri?

Some says SBY is trying to soften PDI-P through Dr Boediono's appointment. Boediono was minister of finance under Megawati's administration. Imagine if the strategy works? With PKB, PDI-P, PKS, PAN, Demokrat, PBB, and PPP behind him, SBY could tell everybody that 'actually I am not in the position to serve Golkar's interest.'

But that is a mere speculation. We just have to see what's happen after the new team starts their regular policy discussions with DPR.

What people said in the media?

On Dr Boediono, the new coordinating minister for economy, replacing Aburizal Bakrie (businessman and politician). Why Vice President Jusuf Kalla (chairman of Golkar party) let Boediono's entry at the expense of Bakrie (a Golkar figure)? Two reasons, the party executives claimed. Nobody at Golkar with better quality in economy than Bakrie, and second to save Bakrie from conflict of interest accused on him. Kalla tried to save the day with appointment of another Golkar figure, Paskah Suzetta, as minister for national development planning.

Former Speaker of People's Consultative Assembly (MPR) Amien Rais said Boediono could bring back the IMF-style of economic policies. He shared the view with National Mandate Party (PAN) chairman Sutrisno Bachir. PAN, in which Amien still the patron, is reportedly rents a seven floors building owned Aburizal Bakrie for almost zero paycheck. Economist and also legislator from PAN, Dr Drajad Wibowo said Indonesian economic policies might be more conservative under Dr Boediono.

Meanwhile economist Muhammad Ikhsan, one of expert staffs at the coordinating minister for economy and a close aide to Bakrie, said Boediono shared the same thoughts with Aburizal in managing the economy.

What the businessmen says? Overall they are optimistic about Boediono's capability to maintain macroeconomy stability and fiscal discipline, even though some doubted his capability to revive the ailing manufacturing sector.

People in the streets? Sorry, what's the hell is reshuffle? Why TV stations and journalists are so bussy asking people's comments? Would that change our life?

No more questions please. Let's move to other guy.

Paskah Suzetta, minister for national development planning/chairman of Bappenas. Oh, what a shame on economists. Where are the great Indonesian economists? I forgot what newspaper run this story. Rarely we have chairman of Bappenas as a non-economist. Mainly were PhD holders, right? But not all of them. Kwik Kian Gie for example. He is smarter than PhD. We had Ginandjar Kartasasmita, an engineer. But Paskah is a political scientist graduate with a master degree in business administration (MBA) (I am sorry, forgot the name of the university). His colleague at Golkar said Paskah's appointment is beyond the party's expectation. What did they expect? Minister of Finance. Well, it's happen already. Is that means Paskah would not able to chair the agency?

Well don't ever tell Paskah that he is not capable. He declared this morning that he knows every little thing about Bappenas and national development planning. Uh! Wanna have more? Paskah promised to reorganize the country's mount of overseas debts. Let's just see!

How about Dr Sri Mulyani Indrawati, minister of finance. This is her first statement: Next year, Indonesian economy would grow 6.2%. Is she talking about the economic prospec as a not-yet-swear-in minister of finance or an economist? Other comments are the same like on Dr Boediono.

Everybody is making business of comments at the moment. It would last for a week, if my experience proved right. I don't want to waste your time to read more on other comments as it would open more mouths to talk. Let's back to work!

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Sinar Mas to acquire Mobile-8 from Bimantara

Sinar Mas Group, a company owned by Indonesian Wijaya Family, is in negotiation with PT Bimantara Citra Tbk to acquire cellular operator Mobile-8.
Sinar Mas plans to merge Mobile-8 with its own cellular company PT Wireless Indonesia (Win). The recent development would scrap Bimantara's plan to offer Mobile-8 shares to public investors. Bimantara owned 76% shares of Mobile-8.

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Paskah Suzetta, minister for national development planning

Legislator Paskah Suzetta has been appointed minister for national development planning/chairman of National Development Planning Agency (Bappenas) on Monday, December 05, 2005.

Paskah, a deputy treasurer of Golkar Party led by Vice President Jusuf Kalla, is the chairman of House Commission IX in charge of economy and national planning.

Born in Bandung, April 5, 1953, Paskah graduated from political science at Padjajaran University in his hometown. He is a businessman in property and real estates with various housing projects in Wes Java cities such as Bandung, Cibinong, and Padalarang. He established two companies, PT Perisai Daya Usaha (property) and PT Perisai Daya Cipta (trading). He is also the president commissioner of Triniti Group (property business).

Paskah entered politics since his appointment as a member of the house of representatives (DPR) in 1992. A Moslem, Paskah married to Nyanyu Ranni Zahindrun with three children.

As a staunch critic of government's policies, now he should convince public that he has something.

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Indonesia: New Cabinet Line-Up

Below is the new cabinet line-up announced Monday night in Yogyakarta by president Susilo Bambang Yudhoyono and Vice President Jusuf Kalla. The decision was made after a limited cabinet meeting led by SBY and attended by VP Kalla with some ministers.

1) Coordinating minister for Economy: Dr Boediono (professional, former minister of finance). He is expected to bring back the macroeconomy stability to the country hurt by high inflation rate. Economist from Gajah Mada University Dr Sri Adiningsih optimistic Boediono would be able to deliver people's high hopes on him to revive the economy saying Indonesia's current situation is a lot better than in 2001 when Boediono was appointed minister of finance.

2) Coordinating minister for People's Welfare: Aburizal Bakrie (Golkar Party, led Bakrie Group, a diversified business).

3) Minister of Finance: Dr Sri Mulyani Indrawati (former minister of national development planning, professional)

4) Minister of National Development Planning/Chairman of Bappenas: Paskah Suzetta (chairman of the House Commission IX from Golkar Party). Paskah established two companies, PT Perisai Daya Usaha (property) and PT Perisai Daya Cipta (trading). He is a property businessman with various housing projects in West Java cities such as Bandung, Cibinong, and Padalarang. He is also president commissioner of Triniti Group (property business).

5) Minister of Industry: Fahmi Idris (former minister of manpower, Golkar Party). He is the owner of Kodel Group, one of biggest debtors to Indonesia Bank Restructuring Agency (IBRA). Born in Jakarta, on 20^th September 1943, Fahmi failed to graduate from the University of Indonesia, majoring in economics. He was the deputy chairman of the Golkar Party. Fahmi was a student activist before becoming involved in politics. He started his political career as the chairman of the Golkar Party's Business and Economic Enterprise Department (1993-1998). He was manpower and transmigration minister in the Habibie administration. He was dismissed as the deputy chairman of Golkar during November 2004 for defying the party's order to support the reelection bid of President Megawati Soekarnoputri.

6) Minister of Manpower: Erman Suparno (Chairman of House Commission V from PKB). Erman is on old buddy of vice president Jusuf Kalla and deputy speaker of People’s Consultative Assembly (MPR) Aksa Mahmud since 1970s when Erman was chief of South Sulawesi branch of PT Pembangunan Perumahan.Graduated from Newport University, California, Erman was president director of PT PP Tasei Indonesia Construction.

Ousted ministers:
1) Alwi Shihab (PKB, to be appointed as special envoy and advisor for president on Middle East, Islamic Conference Organization, and Islamic Development Bank)
2) Jusuf Anwar (Professional, to be appointed as ambassador, most likely to Japan)
3) Andung Nitimihardja (professional)

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Round-up on cabinet reshuffle

Vice President Jusuf Kalla denied earlier reports today about the possibility to have two coordinating ministers in charge of economic affairs in a reshuffled cabinet to be announced tonight in Yogyakarta. Kalla will fly to the city at 5 PM to discuss the reshuffle with President Susilo Bambang Yudhoyono. Kalla admitted he don't know the reshufle details.

President Soeharto once divided the economic portfolio into two coordinating ministers, one for finance/state budget/supervision and one for production/distribution. But that was a total mess that partly led to the financial crisis in 1997.

Detik.com claimed its source told that coordinating minister for welfare affairs Alwi Shihab would almost certain be ousted from the cabinet. The incument coordinating minister for economy Aburizal Bakrie will take Alwi's place as the incoming Dr Boediono will takeover Bakrie's post.

Bakrie seems to had raised the white flag with his statements that whoever replace him would not make difficult decisions anymore. "Difficult decision, raising the fuel price, has been taken. No more difficult decisions," he told regional representatives council (DPD) in a meeting this morning.

"I have no problem to be outside of this administration," Bakrie said.

Senior politican and DPR member Sarwono Kusumaatmadja (former minister under Soeharto, Habibie, and Wahid administrations) advised Bakrie that if he wants certainty, stay out of politics. "In politic, we have to deal with uncertainty. Whatever happens, let it go," Sarwono was quoted by Detik.com.

Tempointeraktif.com, meanwhile, reported that Alwi expressed that he is ready to be ousted and would accept an ambassador post as long as not for East Timor."That would be too cruel (to be Indonesian ambassador to East Timor)," Alwi said when asked about his next assignment.

House speaker Agung Laksono warned president Susilo Bambang Yudhoyono that any move to oust Bakrie and Fami Idris (minister for manpower), both are Golkar Party cadres, would be dangerous.

Rumors this hours said economist Anggito Abimanyu, currently one of top officer at the ministry of finance and confidante of Dr Boediono when the later was the minister, might be promoted to chair the National Development Planning Agency (Bappenas). Sri Mulyani Indrawati, the chairwoman of Bappenas, is tipped to replace Jusuf Anwar as minister of finance.

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