Srinivashan to hit Indonesia roads

One of the most interesting results of president Susilo Bambang Yudhoyono’s visit to India is the commitment from the country’s investor to build a motorcycle manufacturing plant in Indonesia.

The anonymous investor would invest US$80 million in Indonesia, the fastest growing motorcycle consumer in the world. The investor would name the motorcycle Srinivashan. Sounds familiar, right?

Well, I guess everybody’s guessing whether the name has something to do with Marimutu Sinivasan, once one of the most powerful businessmen in Indonesia with Indian roots. But, Sinivasan’s diversified group of Texmaco, is in limbo due to huge debt to the state (US$3 billion).

I tried to google the name of Srinivashan, big zero! Then I tried to find out all the motorcycle producers in India. It is TVS Motor Company, formerly known as TVS Suzuki Limited. The Group's principal activity is to manufacture and sell automotive two-wheelers and automotive components. Its Chairman & Managing Director is Venu Srinivasan. That's the name come from.

Data shows that Honda is the largest manufacturer in India with 2.6 million units per year. Honda is also the largest manufacturer in Indonesia.

Last year, total motorcycles sold in Indonesian market almost reached 4 million units and is expected to grow 20% this year to around 5 million units, ranked third in the world after China (12 million units) and India (6 million). With average selling price of US$1,000, we are talking about US$5 billion market.

As gasoline price increasingly expensive amid poor public transportation, motorcycle is the most efficient mode of transportation in Indonesia.

Key players in the industry are trying to keep up the demand with new capacities. Honda, for example, has just opened its new US$100 million manufacturing line in Cikarang, West Java to bring the total capacity to 2.6 million units per year.

The second largest player, Yamaha, operates plants with combined capacity of 2 million units and followed by Suzuki at 1.5 million units per year. Kawasaki is ranked four.

Newcomers in the market are Lippo Group, Bosowa Motor (owned by Aksa Mahmud, brother-in-law of Vice President Jusuf Kalla), and some joint ventures between local and China motorcycle producers. The later produce what the local popularly called Mocin (motorcycle from China) to differentiate with the heavily dominating Japanese brands.

Should Srinivashan hit Indonesian roads, people might call it Moin (Motor India). With US$80 million investment, Srinivashan might perform better than Mocin and bite the market away, little bit from Japan brands.

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Import Rice: President said No Way, VP said No Problem

This is the latest conflict of opinion (and economic policy) between Indonesian president and vice president. This time on rice.

On his state visit to India, president Susilo Bambang Yudhoyono said the rice that already shipped from Vietnam should be kept away from Indonesian ports. But in Jakarta this morning VP Jusuf Kalla defended the policy saing it is just normal to import rice as government would not risk the national supply.

Yesterday, the house of representatives (DPR) decided to reject the import in a hearing with agriculture minister Anton Apriyantono. Most political parties rejected the policy and asked government to scrap the decision to import rice from Vietnam. Apriyantono also opposes the import.

Earlier this week, newspapers reported that minister of trade Mari Pangestu has decided to import about 70,000 tonnes of rice from Vietnam to ensure the national rice reserve. The decision was made following a rice deal between the two governments.

PT Bulog began importing rice from Vietnam despite some controversy over the Ministry of Trade's decision, made on Nov. 1, to temporarily lift the rice import ban, in order to avert a shortage and keep prices of the staple food affordable for the general public.
Bulog, the government's commodity regulator, will distribute the 68,900 tons of a total of 250,000 tons of imported rice to eight areas in the country, mostly outside of Java island, where there are potential shortages.

The Indonesian Farmers Association (HKTI) opposes the government's plan to permit the state logistics agency Bulog to import rice, HKTI chairman

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Wild, Wild, Haj Funds Scandal

The Haj Funds Scandal is going wild. Yesterday, Attorney General named four new suspects including Khairiansyah Salman, former auditor at Supreme Audit Agency who revealed the corruption at General Election Commission.

Khairiansyah, who won the Integrity Award 2005 from Berlin-based Transparency International just two weeks ago, named suspect for receiving US$1,000 of the controversial haj funds that amounts to hundreds of millions US dollars.

By law, the unused haj pilgrimage funds must be kept in one account and used for the benefit of the piligrims, however, the funds were found to be allocated for a number eyebrow-raising expenditures.

Todung Mulya Lubis, lawyer of Khairiansyah, criticized AGO for the selected and targeted naming of suspects in the haj funds scandal. "Whoever received the funds should be prosecuted, not only Khairiansyah," he said.

Khairiansyah lost his job as manager for anti-corruption unit at Aceh Reconstruction Body yesterday as a result.

The scandal has gone wild since the main suspect, former minister for religious affairs Said Agil Munawar, revealed that some high-level officers and legislatorsalso received the funds. The incumbent minister Maftuh Basyuni had admitted that he received US$8,500, a lot bigger than the amount Khairiansyah had received. But AGO don't name Basyuni as suspect.

"Regarding Minister Basyuni, we have to clarify further," said Hendarman Supandji, chairman of Corruption Erradication Team.

Mr Munawar also disclosed that 36 legislators from House Commission VI received the funds along with four children of Jimly Asshiddiqie, the chairman of Constitutional Court.

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Tax holiday for new refinery projects

Investors are asking for tax incentives to build oil refineries in Indonesia. Minister of Energy Purnomo Yusgiantoro supported the idea saying the country needs new refineries to meet at least 70% of national fuel demand.

While no details of kind of tax incentives demanded, I suspect that would be in the form of tax holiday for five to 10 years as deliberated by Tax Law for certain projects. But I am not sure whether such incentive would help the country attract investors given countless of problems in the oil and gas sector, including the declining crude oil production from 1.4 million bpd in 1997 to about 1 million bpd as of today.

In fact, no new refineries were built in the last decade while domestic fuel consumption increased by 6% to 7% per year in average despite efforts to lure in investors. State-owned company Pertamina is the only company with oil refinery business in Indonesia with seven plants at combined capacity of around 1 million barrel per day.

Some of these plants are too old to keep up the demand as most of them built in early 1970s and 80s. It is predicted Pertamina's refineries could only produce 800,000 bpd at the maximum, leaving the gap of around 500,000 bpd as demand already reached 1.3 million bpd.

The refinery in South Sumatra, for example, has maximum output of 145,000 bpd, far below its installed capacity of 180,000 bpd. Major refineries in Cilacap (Central Java) and Balikpapan (East Kalimantan) were also built in 1970s. Unexpected shutdown at one of these refineries easily disrupt Indonesia's fuel supply.

That's why in the early 90s, Soeharto regime awarded dozen of licenses to investors in the oil refining business but none of them materialized. So far only one refinery project could be considered 'most likely' to be built. The project is planned by Pertamina with China's Sinopec with capacity to process 150,000 barrel to 200,000 barrel per day of crude oil. The project is located in Tuban, East Java. Iran will supply the crude as Indonesia's crude oil production is in decline.

There are hopes that the giant Cepu oilfield, adjacent to Tuban area, with capability to pump out 170,000 bpd would be the future crude supplier for Tuban refinery. But doubts linger on the immediate start-up of the project as negotiation between Pertamina and ExxonMobil is not settled yet. Most likely the first drop of oil from Cepu would be the end of 2008 the earliest.

Elnusa, Pertamina's subsidiary, is also planning to build a 300,000 bpd refinery in Java. The company is reportedly talk to three local tycoon, Salim, Djoko Tjandra, and Prayogo as possible partner in the giant project.

Early last month, local company PT Intanjaya Agromedia Abadi (who own this company? Director of Intanjaya is HS Mappasule) signed a memorandum of understanding with Texas-based International Global Technologies (using Google, no information about this company) to build a 400,000 bpd refinery in Parepare, Sulawesi Island. Both companies claimed to start the construction of the project by early 2006.

The Parepare oil refinery in South Sulawesi was initially licensed nine years ago, but development stalled during the 1997-98 economic crisis. The companies established a joint venture called PT Kilang Minyak Intan Nusantara (KMIN) which also planned to build a huge refinery in Batam Island.

No refinery projects heard from major oil companies like Shell, Exxon or Chevron mainly because of limited access to retail fuel market. Pertamina maintained its retail and distribution monopoly for petroleum products, until July 2004 when the first licenses for a foreign firm to retail petroleum products are due to be awarded to BP and Petronas of Malaysia. Shell opened its first gas station in Karawaci, near Jakarta recently to be followed by Petronas next month. But both companies would only sell un-subsidized fuels.

The government is still promising to open the sector to full competition by 2005, although progress has been very slow to date as reflected by uncertainty over when government would scrap the fuel subsidy policy. Should Tuban refinery would go on stream by 2008, the gap between local supply and demand that should be imported, would go up to 700,000 bpd. That would surely put a lot of pressure on the national economy and its weak rupiah currency.

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Indonesia take De Soto's advise

Indonesian government is planning to implement the single identification number starting next year both for ID and social security system.

I should say this is a damn good start. It is no panacea for the complicated legal and property system in the country, but that would be an initial capital to improve the economy. Suddenly I remember Hernando de Soto with his famous book The Mistery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. (It has Indonesian language translation)

De Soto didn't mention in the book about the complicated ID (Kartu Tanda Penduduk or KTP in local term). I imagine the single identification number would be the first organized property owned by Indonesian. Some technical problems are questionable, especially to make sure that nobody would own two numbers, but it could be settled.

Below is the excerpt of an interview of De Soto with The Region, a publication of the Federal Reserve Bank of Minneapolis, Minnesota.

And when I was in Bali, your ambassador (US Ambassador) to Bali (Indonesia) called me and said that (president) Suharto and his Cabinet would like to see me if I'm available, because they know we're doing all this work on property rights in Peru. So, I went to see them. And they said, don't talk to us about the virtues of property; we know the virtues of property—most of them were, as a matter of fact, Ph.D.s from Berkeley and UCLA—we want to know how it gets done, because we figure that 92 percent of our people don't actually have property, they just have possessions. But start off with something concrete. How do you know who owns what? That was the concrete question. In other words, you've got all these masses of people; how do you warrant a property type in a systematic way to 160 million people (now 220 million)? You need systems.
And so, if I had to give them a long-winded reply, which means putting out my flow charts, it would have been impossible and I would have lost their attention. With politicians, you lose their attention very quickly. So a metaphor came into my head. And I said look, I've just been in Bali, that beautiful island, and all I've done during these 16 days is walk up and down Bali—because that's all you can do in Bali. It's got these rice fields and these palm trees and these pagodas, and I just kept on walking with my wife. We always knew when we changed properties because a different dog would bark. Therefore, all the information you need is in the hands of Indonesian dogs. So, get the Indonesian dogs organized. And everybody understood it. And then, of course, one of them said, "Hukum Adat," the people's law.

Basically, wherever we go, we find the symbol of the dogs barking; people have agreed on some form of law on how they're going to relate to each other regarding their assets. And what we do is we try to build up a legal system of property that is based on the realities already on the ground.

Main conclusion of the book is actually that arrange property rights (including the identification number) is not to have people's property connected each other but to have people connected. I hope that would happen to the identification number too. Please don't wait barking dogs arrange our chaotic ID system.

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Attorney General on The Hot Seat

Prosperous Justice Pary or Partai Keadilan Sejahtera (PKS) asked Indonesia president Susilo Bambang Yudhoyono to replace attorney general Abdul Rahman Saleh with PKS cadres. PKS has two candidates for the post.

First, Suripto, a legislator and former secretary general at the forestry ministry sacked by then president Abdurrahman Wahid for alleged involvement in some terrorist campaigns in 2001. Indicted in a heli-chopter scandal, Suripto was detained by Jakarta Police few years ago.

Second, Arif T. Surowidjojo, Chairman of The Supervising Council at Indonesia branch of Transparency International.

PKS criticized fiercely AGO’s performance under Mr Saleh especially the slow pace of corruption case prosecution. “Mr Suripto promised once he lead AGO, he will detain two ministers for corruption,” said Zulkiefli Mansyah, a member of parliament from PKS today as reported by Detik.com.

But PKS Chairman Tifatul Sembiring told Tempointeraktif.com few hours ago that the party will make decision on its position in the government next week in a two-day party executive meeting. "PKS wanted the AG position is not a new issue," he said.

Tifatul went on saying the current administration is actually better than the previous one. But that's only in the legal aspect, while the economic team is worse, he admitted. It means that PKS is not solid on its review on AGO.

Mr Saleh, 64, rejected to comment on PKS demand to takeover his post. Saleh gained popularity for his dissenting opinion in the trial of corruption case against Akbar Tanjung (former Golkar Party chairman and house speaker). Akbar was set free. In 1999, Saleh was member of General Election Committee (KPU) representing Crescent Star Party (currently led by MS Kaban, minister for forestry).

In the last few weeks, PKS publicly stated their intention to have four cabinet seats in a reshuffled cabinet scheduled this month. Currently PKS has three members in the cabinet.

In my interview with PKS leader recently, he disclosed that PKS is planning to withdraw three ministers with lesser-important portfolios and demanding four important portfolios.

“We can’t maintain our support for this government unless we involve in more important policy making portfolios, especially the economy team,” he said.

PKS argued that SBY and VP Jusuf Kalla had promised four cabinet seats in the run-off to second leg of presidential election last year. In the first leg, PKS endorsed Amien Rais as the president but Amien lost the race to SBY and Megawati Soekarnoputri.

Other parties are also demanding few more posts. Golkar Party led by Kalla, for example, is asking for eight seats (jump from two). But SBY had made it clear that he would only replace one or two ministers.

Summon Khairiansyah

In a related development, just two weeks after the Berlin-based Transparency International awarded Khairiansyah Salman an Integrity Award 2005, Deputy Attorney General Hendarman Supandji announced today that Salman would be summoned for receiving haj funds.

A former Indonesian religious affairs minister has been named as a suspect in a high-profile corruption case.

Said Agil Munawar, who was minister from 1999-2004, is the second suspect in the scandal involving more than US$70 million in leftover funds from Muslim pilgrimages to Mecca.
Mr Munawar revealed in court recently that Mr Salman was among the receivers of the funds at the amount of US$1,000.

Mr Salman is an auditor at the Supreme Audit Agency (BPK) in Indonesia who revealed grand corruption in the procurement activities of the General Election Commission and then exposed the bribery of the Commission’s members. This act angered the head of the BPK and Mr Salman was accused of violating the code of conduct. He was then openly accused in the media of entrapping the Commission member to bribe him. Mr Salman who is protected under the Corruption Eradication Commission’s witness protection scheme (KPK) is now working with the Aceh and Nias Reconstruction and Rehabilitation Agency (BRR). His cooperation with the KPK has enabled the Commission to uncover a USD 2.1 million scandal in the General Electoral Commission which involved virtually all of its members. Nominated by TI Indonesia, Mr Salman has shown that one whistleblower can tackle corruption. He is a role model for millions of Indonesians.

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APEC, agree to disagree later on

Do we still need APEC except for parade of presidents in a photo session with different styles each year and beautifully-crafted statements?

I mean it. This year in Busan, South Korea with Busan Roadmap. A decade ago in Bogor, Indonesia the declaration was named Bogor Goals. In Bogor, the leaders were with batik (Javanese traditional shirt) while in Busan with durumagi (traditional overcoat). Next year the leaders will meet again for a photo session in Hanoi, Vietnam with

But what is the real benefit of APEC to people in countries like Indonesia?

The leaders always agree on something at APEC but later on disagree in other multilateral regime and arrangements such as WTO, WHO, IMF, World Bank, etc. APEC is an organization with non-binding agreements and fully-loaded with empty declarations.

Pacific Rim leaders ended their annual economic summit Saturday with an indirect challenge to European countries to help revive global free-trade negotiations by cutting their hefty farm subsidies. That trade issue dominated the two-day APEC summit, just three weeks before a key WTO meeting in Hong Kong.

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No more whys, hows please!

Friday, November 18, I attended a panel discussion at Bandung Institute of Technology (ITB) organized by Indonesian Petroleum Engineers Association (IATMI). I missed the opening session (normally ceremonial) but as predicted nothing was so special from Energy Minister Purnomo Yusgiantoro's speech. Anyway, Kun Kurnely, president director of Pertamina EP (Pertamina's sub-holding for exploration and production business) is the chairman of IATMI.

The title of the discussion was Increasing Indonesia's Oil Production with four panelists. They were Novian M. Thaib (from Directorate general for oil and gas), Trijana (BP Migas, Up-Stream Oil and Gas Regulator), Bur Maras (legislator from Partai Demokrat), TN Mahmud (former Mobil Indonesia CEO), and Karsani Aulia (CEO of JOB Pertamina-Bumi Siak Pusako).
The three and a half hour discussion was designed to answer two major questions: Why Indonesia's oil production declined and how to raise that. To be frank, the discussion could be cut-short to one our only as most of the audience (my presumption) were aware of the first question on why. The first-four panelists repeated over and over the why issue with almost similar answers, most of them had been appeared in newspapers.
For almost two-hours of 10-minute each (expanded to 20-minute each), I keep complaining to my friend of how inefficient the way the panelists deliver their key messages. If I may make the score, 9 out of 10 of time available was used to explain the why. Poor research, hefty bureaucrazy, autonomy euphoria, legal uncertainty, depleting reserves, financing difficulties, etc. (I would list down the complete answer on this why later on).
Panelists agree on one-thing; Indonesia is in emergency situation to boost exploration activities. Key target: 1.3 million barrel per day by 2009. Some optimistic the target would be reached, provided that the giant Cepu oilfield (has the potential of 200,000 bpd) could start commercial operation immediately. Others believe the target is not realistic given the gigantic challenges in the industry and the politics.
But how?

Exploration, Exploration, and Exploration! But how to boost exploration activities? Most of panelists believed that Indonesia should attract foreign oil giants. Give them more incentives? Nope! High crude oil price inherently already an incentive, right? They won't come. So what?

One panelist proposed Indonesia Incorporation, the idea many people might think a mere dream. But he insist that Indonesia is not simply in the giant's portfolio anymore. "We are in the seller's market situation. The oil giants wouldn't come to a lesser attractive places like Indonesia. They have too many options at the moment. We shouldn't wait for them to come. We should start by ourselves," he said.
He elaborated further of how the Indonesia Incorporated should work. Government, universities and research institutes conduct the geological studies and exploration. Once they find oil reserve, open the bid to investors.
But such activities need a lot of money, right? Well, government could allocate, let say US$200 million out of its tens of billions oil and gas income for research and exploration.
For sure, it's going to take few more years should Indonesia adopt the idea. The fastest way, for sure, is to start immediately the Cepu block. But how?
Some panelists said it would be better and realistic to appoint ExxonMobil as the operator. They said implementing the rotating system would be stupid thing, ilogical, and applicable only for those who don't understand the petroleum activity.
How about a joint operatorship like in the form of Joint Operating Body (JOB) implemented by Pertamina with other oil and gas contractors?
"That is an ideal concept, but experience taught us that none of Pertamina's JOB works well as Pertamina simply put its people without financing support on the investment," said a BP Migas officer.
Go East, one panelist said. Easter part of Indonesia is underdeveloped. "But nobody would Go East if no basic data available. Provide the accurate basic data first," said other panelist.
Who should make the data available?

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Sri Mulyani: How cool?

Smart, sharp comments and good looking! These are ingredients of a perfect combination for talk shows and the best receipt to famous. No need to publish a book. No need to read books too! Many economists are simply like that in Indonesia.
How about Sri Mulyani Indrawati, the minister for development planning and the top candidate to replace Jusuf Anwar as the minister of finance?
Born in Tanjung Karang August 26, 1962, Ani married to Tonny Sumartono (an economist, recently some reports said Tonny is advisor to Astra Foundation/YDBA). Mother of three (Dewinta Illinia, Adwin Haryo Indrawan, and Luqman Indra Pambudi), Ani is the favorite student of professor Widjojo Nitisastro, Indonesia’s most prominent economist in the last few decades.
Graduated from University of Indonesia in 1986, Mulyani earned her master (1990) and PhD (1992) in economics from University of Illinois Urbana-Champaign before returning to Indonesia to become one of the foremost policy experts to guide Indonesia's economic reforms.
Under Abdurrahman Wahid administration, Mulyani was board member of National Economic Council.

Wahid’s successor, Megawati Soekarnoputri, was reportedly close to her. But she moved to Georgia, US in August 2001 as a visiting professor. During her years as visiting professor at the Andrew Young School of Policy Studies at the Georgia State University (2001-2002), Ani was the independent commissioner at listed automotive giant PT Astra International Tbk.

She was resigned from Astra in January 2003 and replaced by another economist Mari Pangestu who now become the trade minister. Juwono Sudarsono (minister of defense) was also appointed Astra commissioner in early 2003 with Mari Pangestu.
Ani was also commissioner at Unilever Indonesia for sometime. Public mainly accepted these commissioner appointments, a kind of ‘custom’ in Indonesia to have economists as commissioners. But her job as executive director at International Monetary Fund (IMF) in 2002-2004 cost Ani criticism, mainly from those who claimed themselves nationalists.

When president Susilo Bambang Yudhoyono was about to set up the cabinet last year, Mulyani was tipped to be the finance minister. But some rejects her nomination as she was (still?) stamped as a pro-IMF economist. This time, when her name repeatedly mentioned as the candidate for finance minister, no visible rejection. But could she be better than Jusuf Anwar and as cool as her face to guard the fiscal policy?

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High-Level Officers, Low-Level Phrases!

Anwar Nasution, chairman of Supreme Audit Agency (BPK), is popular for his sharp criticism and always cynical on things. He is a master of phrases. During Soeharto years, he called the central bank (Bank Indonesia) as the nest of robbers (sarang penyamun, local term). He gained popularity because of the term, not because of a new economic theory (Anwar is an economist from University of Indonesia).
But he did nothing to clean up the nest when he was appointed senior deputy governor of Bank Indonesia for so many years until his appointment to lead BPK late last year. It was during his years in Bank Indonesia, few banks were forced to close down and leaving huge loss to the state. Unibank (Anwar said Sukanto Tanoto as the owner) and Bank Global are among others that cost the state billions of US dollars. But neither Sukanto nor Irawan Salim (owner of Bank Global) held for accountability for the losses.
The central bank governor Syahril Sabirin was feel betrayed by Anwar during his 5.5 months detain over the Bank Bali scandal.
Without clear results as deputy governor of Bank Indonesia, Anwar got tremendous support from political parties for BPK chairmanship.
Few months ago, one of BPK’s auditors, Khairiansyah Salman revealed corruption within the General Elections Commission (KPU). While people praised Khairiansyah and call him a hero in revealing corruption, Anwar over and over call him boorish (kampungan, local term) and too-late-the-hero (pahlawan kesiangan, local term).
It must be a shame on Anwar when last week the Berlin-based Transparency International awarded Integrity Watch award to Khairiansyah.
Today it is the minister for state secretary Yusril Ihza Mahendra to fire back at Anwar. Yusril said Anwar was using the logic of motor bike taxi rider (Tukang Ojek in local term) in his statement of misuse of state-owned properties managed by the State Secretary.Why on earth high-level officers pick up low-level class of phrases?

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Blind eyes on Big-Fish Corruptors

Former Assembly Speaker Amien Rais criticized prosecutors for detaining small-time corruptors like the executives of The General Election Committee (KPU). "The amount corrupted are piece of peanuts," he said.
Amien challenged them to catch and prosecute big-time corruptors and crooks like those involved in the Rp600 trillion (US$60 billion) banking scandal since 1998 financial collapse. Most of them are free or being fugitives.

Let me refresh your memory of promises made by President Susilo Bambang Yudhoyono when he assume the office. Below is the excerpt of an interview with Time magazine on Yudhoyono's first day in office:

The eradication of corruption will be my priority over the next five years. We have to eradicate it structurally and culturally. I've ordered the police and the attorney-general that any corruption cases once held up be started again. I've also asked that preventative steps be put in place at all levels of government and that my office, the vice-president, ministers and governors be seen as clean in order for them to eradicate corruption in their own offices. I've also asked that the same steps be taken at the provincial government level. I've also asked the attorney-general to take legal action against any banks that are unhealthy or where there are indications of corruption, regardless of who is behind them. This country will be destroyed if we do not stop the growth of corruption. There needs to be some shock therapy so that the people know that this government is serious about corruption.

I would say, no shock therapy, so far!

Yudhoyono mentioned the war on corruption in every speech he makes. The year 2005 was even dubbed the “Year of Eradicating Corruption.” To reinforce the effort, the president even set up the Corruption Eradication Team led by Junior Attorney General for Special Crimes Hendarman Supandji.

But sadly, people’s hopes of seeing bank embezzlers and other big-time crooks in court have not been realized. Yes, the prosecution has been able to resolve some of the cases, but most of them involve the small fry. Of the major corruptors who obtained SP3s, or document ordering the suspension of an investigation, about 20 in total, not a single case has been reopened.

How about the Corruption Eradication Commission (KPK)?

Well, as Amien observed, only small-time corruptors!

But Amien should bear in mind (guess he didn't read the previous statements) that government had simplified the corruption eradication when the president told a meeting of provincial governors at the State Palace on Feb. 25, four months after he was sworn in as president, that his government was focusing its antigraft efforts on the prevention of corruption in the future rather than pursuing graft cases that took place in the past.
He argued that," If we only look to the past, it means delving into things that are far from certain. We would be better off preventing mega corruption cases from recurring in the future".

So Pak Amien, don't expect too much!

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Newmont won pollution trial

PT Newmont Minahasa Raya, a subsidiary of US-based mining giant Newmont Corporation, won the legal battle against Indonesian government over the charges that it polluted a bay near its mine in North Sulawesi.

This morning judges at South Jakarta Lower Court read the verdict saying the court has no legal rights to conduct the trial.

Judges panel led by Soedarto said Article 21 of the Working Contract between Indonesia government and PT Newmont Minahasa Raya (NMR) stipulated that any disputes should be settled in an arbitrary body. The ministry of environment, who filed the case, according to judges should honor the contract.

It is not clear whether Indonesian prosecutors would appeal to higher court. But NMR president Richard Bruce, as quoted by Tempointeraktif.com welcome the decision. "The verdict is good for investment climate here. The ministry of environment should honor the working contract," he said.
Environmental groups criticized the verdict saying the pollution case should not be ruled out by a business contract. The groups defended government's lawsuit and believes the arbitrary would reject to handle the case.
"This is not a contract dispute. This is a lawsuit by government on pollution that is against the law," said one NGO leader.

The case against Newmont - which hinges on claims that tailings from the Minahasa Raya mine caused chronic illness among villagers living in the area, has become a litmus test for Indonesia's troubled investment climate.
Key evidence in the case is in dispute - independent experts from groups including the World Health Organisation argue there is little evidence of pollution in the bay into which Newmont dumped tailings until August. But police claim their tests show that the bay's waters contain unhealthy levels of mercury and arsenic.

Newmont largest mining operation in Indonesia is through PT Newmont Nusa Tenggara.

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Govt threaten to handover Cepu to others

Chief economic minister Aburizal Bakrie said if ExxonMobil and Pertamina fail to reach an agreement before the end of next month, government might takeover the block and handover it to other oil and gas company.
"The end of the year is the deadline for both companies to have a deal. What the government can do in a continuing deadlock is takeover the block and give to other company," he said yesterday.
ExxonMobil and Pertamina signed a memorandum of understanding (MoU) in June to end the four-year dispute over the rich oilfields in East Java regencies of Bojonegoro, Tuban, and Blora. In September, government awarded both companies a cooperation agreement to develop the oil reserves that capable to produce 200,000 barrel oil equivalent per day. The state would get 70% to 85% of the oil output while contractors 15% to 30% depending on oil price.
Out of the contractors revenue split, Pertamina would get 45%, Exxon 45%, and a company to be established by local administrations 10%.
But commercial operation of the project is pending on a joint operating agreement (JOA) which elaborates the detail of cooperation. Most of the items under the JOA negotiation had been completed except the operatorship. Under the June MoU, Exxon explicitly declared as the operator, but Pertamina proposed a rotating system in which the company would be the operator for first five years to be followed by Exxon for the next five years. Pertamina said the system is applicable and has been implemented in other countries, while Exxon said that technically the system is difficult to be implemented as it would result in various transitions over the 30-year contract. Such transition would potentially delay the commercial operation and the risk would be higher. Risk perception in the eyes of lenders would high as well.
Both the MoU and cooperation agreement (KKS) actually dictated that all important decisions should be taken by a Joint Operating Committee (JOC) with representatives of Exxon, Pertamina, and 10% participating interest with proportional voting rights. With such scheme, actually the operatorship should not be an issue anymore.
But that's the fact. Deadlock of negotiation would end up with total mess for both companies. Some accused Pertamina for nursing the deadlock with the hope of government intervention i.e. takeover the block and give it to other company.
In the past, PetroChina was reportedly approaching government officers for a possible takeover of Cepu project from Exxon. Taufik Kiemas, husband of president Megawati Soekarnoputri, was rumored of having special relationship with PetroChina. Most of Pertamina's member of board of directors are appointed by Megawati's administration. Widya Purnama, Pertamina CEO, is a close confidante of Laksamana Sukardi (former minister for state-owned enterprises), while Mustiko Saleh (vice president director) is the big brother of Megawati's adjudant.
In this administration, PetroChina is also reportedly lobbying Vice President Jusuf Kalla through his brother-in-law Susanto Supardjo. PetroChina has two joint oil explorations with Pertamina in Tuban and Salawati, both in East Java.
Would it be PetroChina that finally get Cepu? How about Medco Energi, Energi Mega Persada (associated with Bakrie), Petronas, or other oil giants?
Surprisingly, Minister of State-Owned Enterprises Sugiharto denied the possible break down of Exxon and Pertamina negotiation. "I don't think so. The negotiation is underway. Legal drafting should be done line by line to prevent defects early on," he said.

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Hilton & Mulia Hotel sits on troubled lands

The Supreme Audit Agency (BPK) had completed its audit on assets under the management of The State Secretary and handed over the results to Attorney General's Office (AGO) for suspicious assets transfer, including the land of Hilton Hotel and Mulia Hotel at the heart of Jakarta's Central Business District.

"Who owns the lands that Hilton and Mulia sits on," Anwar Nasution, chairman of BPK questioned today.
Both Hilton and Mulia are five-star hotels. Hilton Hotel is owned by Sutowo family. The late Ibnu Sutowo, a former president director of Pertamina during Soeharto administration, built the hotel on a strategic land that was part of Senayan sport center.
Around his Pertamina years, the site on which the Jakarta Hilton now stands was lent to Ibnu by the government, which technically still owns the land---a claim that the family denies.
Meanwhile Mulia Hotel was built by a consortium led by Bambang Trihatmodjo (Soeharto's second son) and property tycoon Djoko Tjandra also on the land under the State Secretary management in mid-90s. Mulia was built as an emergency project to accommodate athletes but then emerged as a luxury hotel.
Unfortunately Anwar didn't disclose the detail of the audit on Hilton and Mulia. "I leave it to the President to decide," he said.

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The fight over Kiani Kertas

November 15 three years go new investor led by retired leutenant general Prabowo Subianto and funding from state-owned Bank Mandiri took over pulp company PT Kiani Kertas from Indonesia Bank Restructuring Agency (IBRA). The new creditor and owner was supposed to restructure Kiani's debt in one year. Both had failed and cost Mandiri a huge potential loss in its book.

Three years has gone without clear signs of who might be the next owner of the company established by Soeharto's golf buddy Mohammad 'Bob' Hasan and pave the way for a debt restructuring and revitalization of the pulp mill located in Mangkajang, East Kalimantan.

After so many names announced in the last three years as potential investors, some interesting names are circulated in Jakarta recently. First, Wisanggeni Lauw and his United Fiber System. Wisanggeni is the nephew of Prayogo Pangestu (owner of Barito Group) who work for Soeharto's step brother Sukanto Tanoto (owner of RGM International).

Late last month Bisnis Indonesia reported Deutsche Bank and United Fiber System had struck a deal in which they would pay US$200 million for all Prabowo's shares in Kiani plus debt payment of US$170 million to Bank Mandiri before 2007.

But late last week, Financial Times reported (as quoted by Dow Jones), that Bank Mandiri , Indonesia's biggest lender, has begun talks with the family behind the $14 billion Asia Pulp and Paper default and other potential investors over buying a Borneo pulp mill at the center of a dispute between J.P. Morgan and a Singapore-listed company.
J.P. Morgan and United Fiber System Ltd. announced in June that they planned to take over the dormant Kiani Kertas pulp mill from a consortium led by Prabowo Subianto, the former son-in-law of Suharto, in a deal worth $600 million in cash and debt.
According to FT, that deal fell apart in August, leading to J.P. Morgan and UFS each trying to negotiate their own deal with Subianto. J.P. Morgan, Kiani's biggest foreign creditor, on Thursday threatened legal moves to declare the company bankrupt if the deal to sell the paper mill proved unsatisfactory.
Since August, UFS, which has begun operating the mill under a temporary contract, has emerged as the apparent favorite.
Mandiri, Kiani's biggest domestic creditor, is understood to be growing concerned that the talks may go nowhere.
"If a good result does not happen shortly we will do something more actively," Ekoputro Adijayanto, Mandiri's corporate secretary, said in the FT report. "There are many investors that are really, actually, interested in buying Kiani Kertas."
Among those, Adijayanto said, was the Sinar Mas group, the holding company behind APP. Gandhi Sulistiyanto, a senior Sinar Mas executive, denied the group was interested in Kiani Kertas.
So, too, did a prominent member of the Widjaja family, which controls Sinar Mas.
But Adijayanto said "very preliminary" negotiations had been held with representatives for Sinar Mas and other investors.

Sources close to the deal said Wijaya family had met Bank Mandiri president Agus Martowardoyo in China few months ago during a state visit of President Susilo Bambang Yudhoyono.

"But Prabowo rejected Sinar Mas as the investor. To show his resistance, Prabowo invited Sukanto Tanoto to jump in the acquisition," he said.

Both Sinar Mas and RGM International are Mandiri's debtors. In the past, Mandiri had to restructure their bad debts. They are competing to control the world's pulp and paper business. They already controlled Indonesian market. Is it possible that they would let other guys take over Kiani? Could it be possible to have another player in the industry to prevent the increasing monopoly in the pulp and paper business?

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VP Kalla confirms cabinet members mediocre quality

Vice President Jusuf Kalla disclosed that two ministers, Hatta Rajasa (minister for transportation) and MS Kaban (forestry) got the highest score in the cabinet evaluation. "They got B grade," he said as quoted by some newspapers today.

Well, if B is the highest grade, then other ministers must got C and lower grades, right?

Kalla's statement should be a shame on chief economic minister Aburizal Bakrie who claimed an A grade for his performance. In an interview with Tempo magazine and newspaper last week, Bakrie said he deserved a 9 out of 10 score of performance. "If I were the president, I shouldn't be replaced," Bakrie said.

Kalla is the main supporter of Bakrie and the cabinet's economic team. He repeatedly defend the team saying they had performed better than what people think of. While critics said the team is worse than the previous cabinet, Kalla said the team is better.

But his latest statement seems to confirm critics that the economic team has mediocre quality and that the president should reshuffle the whole team. But president Susilo Bambang Yudhoyono had confirmed late last week that only one or two ministers would be replaced. The president's statement sparked speculation that he might keep Bakrie in his post and only replace the minister of finance Jusuf Anwar.

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Marty Natalegawa: New Ambassador to UK

President Susilo Bambang Yudhoyono had sworn in Mohammad Marty Muliana Natalegawa (popularly known as Marty Natalegawa) as Indonesian ambassador for United Kingdom and Ireland at the State Palace today.
Born in Bandung, March 22, 1963, Marty is a former spokesman for foreign affairs ministry. He is the youngest son of Sonson Natalegawa, a former director of a state-owned bank.
A father of three (Annisa, Anantha, and Andreyka) from his marriage with Thai-born wife Sranya, Marty has various diplomatic appointments including among others as chief of politic affairs of Indonesian representative at United Nations in New York.
Marty is familiar with United Kingdom where he enrolled the undergraduate and graduate schools of London School of Economics and Cambridge University. He earned his PhD from Australian National University in 1994.

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Sumitomo acquired 71.73% Summitplast

Sumitomo Shoji Chemical acquired 71.73% shares of listed plastic producer PT Summitplast Tbk from various shareholders.

Invesment Team Manager Kohei Takemoto in a letter to Jakarta Stock Exchange wrote that Sumitomo acquired shares owned by PT Dynaplast Tbk (the founder of Summitplast), PT Panca Teladan Interbenua and other shareholders.

Sumitomo has 12.12% shares of Summitplast prior to the acquisition. Other shareholders are PT Panca Teladan 28.52%, Dynaplast 21.38%, Sumitomo Corporation (Singapore) Pte Ltd 9.27%, Tensho Electric Industries 3.56%, PT Ciptadana Sekuritas 7.81%, and public 17.34%.

The acquisition is part of Sumitomo's effort to boost its presence in Indonesian plastic industry. Sumitomo would follow up the acquisition with tender offer of public-listed shares.

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Riau spending spree

Riau is one of the richest province in Indonesia thanks to its vast natural resources. Oil, gas, timber, pulp & paper, palm oil, you name it. In the past, under a heavy centralistic administration, most of the income went to the state coffers. Those days are over with the implementation of autonomy which gives more authority and financial freedom to provinces.
The idea was to empower local economy in an effort to narrow down the wealth divide between Jakarta and local administrations or between Java and other Islands. But look at how Riau province spend their new wealths.
They bought SUVs for all members of the local house of representatives (DPRD) with total spending of US$1 million. On top of that, just recently, the governor bought six luxury cars to be given to six high-ranking officers (military, police, prosecutor, and judge) in the province with total spending of US$220,000.
These local officers even drive a better car than high-ranking officers in Central Government. Wow!

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Daihatsu to double Indonesian capacity

PT Astra Daihatsu Motor, a subsidiary of Japanese Daihatsu, would invest another US$80 million to expand its car production facilities in Indonesia and boost export.
The new investment would increase Daihatsu's car production capacity from 78,000 units to 150,000 units per year.
Industry Minister Andung A. Nitimiharja said today that Daihatsu's new investment would also open up 4,500 new jobs to bring the company's total workers to 6,700 by 2007.
Andung said with the new production facilities, Daihatsu could boost its export to 4,500 units per month from the current 3,200 units. Daihatsu's Indonesia plant has exported cars to Malaysia, South Africa, Mexico, and Philippines.
Indonesia is the fastest growing automotive market in the region with total sales of 520,000 units this year and is predicted at the same size next year despite current hike in fuel price.

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Sukanto’s tardy LNG dream

Early this week, PT Pacific Oil & Gas Indonesia (PO&G), an affiliated company of RGM International led by tycoon Sukanto Tanoto, announced that it is ready to invest US$1.3 billion building the liquefied natural gas (LNG) plant in Bontang, East Kalimantan.
LNG is one of Sukanto’s big dreams in Indonesian oil and gas business. PO&G is also targeting oil production 80-fold of today’s output at 1.200 barrel per day (bpd) in 10 years to reach 100,000 barrel per day.
PO&G is in a hurry as the company had signed a contract to supply LNG to Jiangshu, China starting at the end of 2009. In Jiangshu, PO&G is working with PetroChina to build a 700 MW gas-fired power plant that needs 3.5 million tones of LNG per year.
But natural gas availability in Bontang seems are not enough to feed one more LNG plant. Yesterday, as reported by Koran Tempo, Upsteeam Oil and Gas Regulatory Agency (BP Migas) chairman Kardaya Warnika said PO&G should postpone its plan to build new LNG plant in Bontang.
BP Migas said gas production of Chevron (acquired all Unocal’s assets) and Vico, which supply PT Badak NGL's plant in Bontang, is also on the decline. The only producer still able to raise production in the area is Total E&P Indonesie, which supplies some 70% of the natural gas needed by the plant.
The agency said that although PT Pacific Oil & Gas Indonesia had secured a preliminary license to build an LNG plant in Bontang with an annual capacity of 3.5 million metric tons, the plan still required still government approval to go ahead.
"The company will have to get supply from one of the producers," said Eddy Purwanto, BP Migas deputy of marketing and finance as quoted by The Jakarta Post.
"They (the gas producers in the province) are having trouble already meeting their commitments (to the existing Bontang plant). Why should we have an LNG train in (the existing) Bontang plant lying idle while another plant is being built?" he asked.
The government would also take into consideration domestic demand for gas, particularly with given the plan to construct pipelines connecting gas-rich Borneo island to densely-populated Java, as well as state power firm PT Perusahaan Listrik Negara (PLN)'s plan to build an LNG receiving terminal in West Java.
Chief economic minister Aburizal Bakrie had asked the pipeline project as a priority. Subsidiaries of PT Bakrie & Brothers Tbk, a listed company controlled by Bakrie Family, are regular pipe supplier for gas pipeline projects in the country. Late last month, SEAPI, one of Bakrie's subsidiaries, bags US$84 million pipe contract from state-owned gas transmission and distribution company PT Perusahaan Gas Negara (PGN) Tbk.
But Kardaya reminded the natural gas reserves in East Kalimantan would not enough to meet the demands for LNG plants, petrochemical plants, and gas pipeline to Java. “Government should make decision, what’s the best for the country, as it is almost impossible to meet all the demands, not to mention the plan from PO&G to build LNG plant in Bontang,” he said.

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Cabinet Reshuffle as a Minus Malum

President Susilo Bambang Yudhoyono confirmed his plan to reshuffle his cabinet not in a big way as expected. Using his own words, only one or two ministers would not be in the cabinet anymore.
This is a minus malum approach by the president, a lesser evil than the pains of hell if he simply ignore the public outcry for a reshuffle.
Sources told me that minister of finance Jusuf Anwar is almost certain to be kicked out of cabinet. Candidates to fill the post are Sri Mulyani Indrawati (currently minister for national development planning) and Boediono (former minister of finance under Megawati Soekarnoputri administration).
Meanwhile the chief economic minister post is 50:50. Maintain Aburizal Bakrie in the post could be a 'hell' for SBY's public image, but replacing him could intensify political stand-off with Vice President Jusuf Kalla (Aburizal's key ally). A lesser evil, Aburizal would be moved to other cabinet post as, for example, as the minister of trade.
This could open the door for new guy to lead the economic team. Some economists are tipped to this post. Boediono, Sjahrir (economic advisor for the president), and Rizal Ramli (former chief economic minister and minister of finance under Abdurrahman Wahid adminstration) are the possible candidates.
Besides, Mari Pangestu (currently the minister of trade) might be moved to National Development Planning Ministry or Industry (currently Andung Nitimihardja). Andung might be out of the reshuffled cabinet should Mari fill his post.
Defense minister Juwono Sudarsono is said to resign due to health problems. That's it!

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Police confirmed terror leader Dr Azahari's death

Indonesian police confirmed the death of Malaysian terror leader Dr Azahari bin Husin in a shootout with police in Batu, East Java today.

Media Indonesia Online reported few minutes ago that Chief of Criminal Section of Police Headquarter Makbul Padmanegara had confirmed the death of Dr Azahari while other terror leader Noordin M. Top (also Malaysian) escaped from the raid.

The Jakarta Post meanwhile reported that seven militants were killed in the gun battle with Indonesian police.

A jounalist told ANTV Azahari blew himself up Wednesday after being cornered by the police at his hideout.

"The body was in pieces but his face could still be recognised by two members of the anti-terrorist unit from Jakarta," Karni Ilyas, who was with the police anti-terror unit when they entered the house, said.

"He blew himself up together with the house."

Batu police chief Sudijono told Reuters he had seen the bodies of seven militants he described as "terrorists", although they had not been identified.

"We have seen seven bodies," Sudijono said.

There was no immediate word of any casualties among security forces.

Dino Patti Djalal, a spokesman for President Susilo Bambang Yudhoyono, said it was not clear if Azahari had been killed.

"It was believed Azahari was hiding in this house, but there is no confirmation at the moment that Azahari was there," Djalal told Reuters, adding the president was following events closely.

Jemaah Islamiah bomb expert Dr Azahari has been fingered as the mastermind of the bombing of the JW Marriott Hotel in Jakarta which left 11 dead and 149 injured few years ago. Security agencies in Southeast Asia are also blaming the former Universiti Teknologi Malaysia lecturer for other bombing campaigns.

His other credentials include the Oct 12 Bali blast, which killed over 200 people, bombings of churches in Pekanbaru and Medan on Christmas Eve in 2000 and blast at the Atrium Plaza in Jakarta the same year.

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SOE dividend target

For a non-economist like me, with so limited ability of econometrics, it is not easy to digest the ministry of state-owned enterprises plan to raise dividend payment in the 2006 Budget to Rp23.5 trillion (US$2.35 billion), a 113% increase from 2005 fiscal year.

I only understand the theory that the current year's dividend are the fruits of the past year's profit and that next year's dividend would only come from this year's profit.

Most of my business journalist friends praised Sugiharto (Minister for SOEs) and his staffs for stopping the privatization of SOEs and prefers to boost dividend instead.

An analyst helped me with little math of how the 113% dividend hike might be reached. Several options. First, raise the pay-out ratio. Second, boost profits. Surprisingly, MSOE said pay-out ratio would be kept at the same level (50%) for only four big SOEs (mainly Pertamina & Telkom), while other SOEs would be lowered to 35% or 40%.

So I decided to review the latest balance sheet of listed SOEs. Telkom, PGN, Aneka Tambang (Antam), Bukit Asam, and Timah booked higher income in the first 9 months of 2005, but none of them grew higher than 100%.

Two state-owned banks, especially BNI and Bank Mandiri, would book significantly lower net profit this year or worse they book net loss. MSOE could rely on BRI, but still with lower profit this year.

How about Pertamina?

This year, Pertamina paid dividend well below Rp3 trillion. The company's net profit target is Rp6.37 trillion. With pay-out ratio of 50%, Pertamina could pay up to Rp3.15 trillion next year.

So where all the dividend will come from?

"Actually, Pertamina's book could be easily cooked. If you need higher dividend from Pertamina, just make higher profit with bigger subsidy payments," said one analyst.

How come a company that always in difficulty to maintain enough cash for its operation could be relied heavily for The 2006 State Budget?

But most of my friends believe that 113% growth in dividend payments reflects good work from MSOE to keep ownership of SOEs, improvement in real operation performance, and prevent further privatization.

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Indonesia Cabinet Reshuffle Round-up

Bisnis Indonesia quoted an executive from PDI-P, the second largest party in Indonesian parliament led by former president Megawati Soekarnoputri, saying president Susilo Bambang Yudhoyono implicitly offered cabinet posts to the party in a move to level Vice Presiden Jusuf Kalla's increasing influence due to his position as chairman of Golkar Party, the largest party in Indonesia.
Detik.com reported few hours ago that Partai Amanat Nasional (PAN), previously led by former Assembly Speaker Amien Rais, is not asking more seats in cabinet. PAN chairman Sutrisno Bachir, a close friend of president SBY, admitted he discussed the cabinet reshuffle with the president yesterday. PAN has two cadres in cabinet. They are Hatta Rajasa (minister for transportation) and Bambang Sudibyo (education).
My source said Sutrisno was lobbying SBY to keep chief economic minister Aburizal Bakrie in cabinet.

The Jakarta Post reported that political parties supporting the administration of Susilo Bambang Yudhoyono said on Tuesday they wanted more seats in any reshuffled Cabinet -- something that is creating a headache for the President who has been facing public pressure to choose technocrats rather than politicians for key Cabinet posts.
The deputy chairman of Susilo's own Democrat Party (PD), Muhammad Mubarok, said his party was given three seats in the current Cabinet, and had asked for at least one more seat.
Secretary-general of the Prosperous Justice Party (PKS) Annis Matta said his party would have no objection if its three members in the current Cabinet were replaced provided it obtained four seats in the reshuffled Cabinet.
"We are seeking four seats, including a strategic portfolio, to help this government improve its performance and cope with major problems in the political, security and economic fields," he said.
Golkar Party deputy chairman Burhanuddin Napitupulu said it would be reasonable and acceptable if the President give more Cabinet posts to Golkar people because of the party's crucial role in supporting his government.

Burhanuddin declined to say how many seats Golkar wanted in the reshuffled Cabinet, but a party official who requested anonymity said that the political vehicle of former president Soeharto wanted eight Cabinet posts.

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