Rajawali failed to close the deal, one week extension needed!

Rajawali Corporation failed to close the US$330 million deal to acquire 24.9% shares of PT Semen Gresik Tbk from Cemex SA this afternoon as no formal approval given by government.

"We've asked one week extension to Cemex SA. We hope we could get government approval next week," said Darjoto, managing director of Rajawali Corporation few hours ago.
The closing deadline for the deal was supposedly this afternoon, but Rajawali didn't get letter of approval from Ministry of State-Owned Enterprises (MSOE), the majority owner of Semen Gresik.
Actually, Rajawali could close the deal without formal government approval (MSOE Sugiharto had given verbal approval this week), but that would put the company in an ackward situation. On the other hand, without formal letter from government, Cemex will unlikely to drop the arbitrary suit against government.

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Market Watch

Stock market is waiting the closing of two important deals scheduled today. First, the US$3.25 billion acquisition of PT Bumi Resources Tbk's subsidiaries (PT Kaltim Prima Coal and PT Arutmin Indonesia) by PT Borneo Lumbung Energi. Second, the US$330 million acquisition of Cemex SA's 24.9% shares in PT Semen Gresik Tbk by Rajawali Corporation. Updates will be available in this blog by afternoon.

Besides, PT CP Prima is about to announce the decision on its IPO amid rumors that it might drop the plan on weak market respond. Meanwhile minority shareholders of PT Tunas Baru Lampung Tbk had lost the battle to block the rights issue as 74% shareholders endorsed the plan to raise Rp400 billion that will dilute significantly their shares ownership. Sinarmas Sekuritas, a subsidiary of PT Sinar Mas Multiartha (sub-holding of Sinar Mas Group in financial business), could be a significant shareholder in Tunas Baru pursuant to the rights issue plan as the standby buyer.
Morning trading session at JSX seems pretty good with the composite index increased 29 points, triggered by Central Bank's plan to cut rates instead of raising it following The Fed's decision to raise the rate by 25 basis point yesterday. Rupiah gained in morning trading of weaker greenback as a result of the increasing Fed rate.

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Jakarta Governor Candidates: Sarwono Kusumaatmadja (3)

Senior politician Sarwono Kusumaatmadja might be the oldest candidate to run in next year's Jakarta governor election. But he has immense of energy and lots of affections to be one of the strongest contenders.

Born in Jakarta, July 24, 1943, Sarwono graduated from the prestigious Bandung Institute of Technology (ITB) in 1974. Served as minister for environmental affairs and state apparatus during Soeharto regime and maritime-fishery affairs minister during Abdurrahman Wahid's administration, Sarwono is known as Mr Clean and Mr Simple for his modest lifestyle.
He won one of five seats of Jakarta's representative at Regional Representative Council (DPD) in 2004 with second biggest voters (10%) behind businesswoman Mooryati Soedibyo. I will not do profiling on him or his views on things because you can easily access his personal web at www.sarwono.net.
He had registered as governor candidate under PDI-P banner along with noted economist Faisal Basri and forver VP candidate Agum Gumelar. Sarwono was once the secretary general of Golkar during Soeharto years.
Despite his 'bad habit' as heavy smoker (like me), Sarwono has close relationship with grassroot movements and the poorest in the city. Like Basri, he is a pluralist campaigner and has good relationship with non-Moslem society. Do you think Sarwono could win?

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Kardaya Warnika on the hot seat

"He is just like 'God' for oil and gas executives in Indonesia," a friend said. But the most powerful man in the country's oil and gas business is obviously on the hot seat especially since Lapindo Brantas Inc failed to stop the flow of hot mud from its Banjar Panji-1 well that forced thousands of innocent people in Sidoarjo, East Java live in tents for weeks already and no sign of an immediate settlement.

Kardaya's men, Lapindo executives, and workers from Lapindo's subcontractors have been quized by East Java police as witnesses in the case. No one has been named suspect in the fiasco. Appart of police investigation, public pressures mounts on government (especially energy ministry) which easily pointed its fingers to BP Migas, the upstream oil and gas regulatory body.
As the chairman of BP Migas, Kardaya has been under public pressure to be held accountable for the disaster. Mr Kardaya was appointed chairman of BP Migas early last year.
Dr. Kardaya Warnika was born in Cirebon, in 1952. He completed his first degree in petroleum engineering from Bandung Institute of Technology (ITB) in 1978. He worked for state-owned oil and gas company Pertamina from 1978 to 1982. Kardaya received his PhD from Ecole Natur Superior du Petrol de Motors (ENSPM), IFP France in 1987.
He was Assistant to Minister of Energy and Mineral Resources on Economics and Financial Affairs in 2001-2003 and as deputy to the chairman of BP Migas during 2003-2005.He is a confidante of Purnomo Yusgiantoro, energy minister.

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Income tax US$200 million from Borneo-Bumi deal

The US$3.2 billion acquisition of PT Bumi Resources Tbk's subsidiaries---PT Kaltim Prima Coal, PT Arutmin Indonesia, and PT Indocoal---by PT Borneo Lumbung Energi might give tax income of US$200 million to the state.

People at Tax Office said from tax point of view, the transaction give better deal to the state than if Borneo acquired Bumi Resources as the parent company through stock market which could give almost no income to the state.
The deal is expected to close on Friday with cash payment of US$3.25 billion of which Borneo raised US$2.1 billion debts through Credit Suisse and the remaining as equity (including equity financing of US$700 million from Singapore-based UOB).
Earlier this week, Bisnis Indonesia reported that Borneo planned to list its shares in stock market one year after the acquisition. Some investment bankers said Borneo is looking for a Singapore Stock Exchange listing.
How much the net proceeds Bumi would receive is unclear yet. But Bumi said in a letter to JSX yesterday that total cash proceeds would deducted or summed up with working capital reserves on the date of the SPA.
What to do with the cash proceeds?
First, Rp2.3 trillion for shares buyback (maximum 10% of listed shares).
Second, Rp3.8 trillion as cash dividend
Third, the rest for expansion and new projects including coal to liquid (CTL).

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Watchout your credit report!

Indonesia's Central Bank (Bank Indonesia) will officially open the Credit Information Bureau (Biro Informasi Kredit) Thursday, June 29, years after the plan emerged.

While the demand for credit has risen exponentially, especially in the consumer sector---including credit cards, there has been a parallel increase in competition, and credit delinquencies. In such an environment, risk assessment is of critical importance. Not only, in deciding on what business to book and the speed at which a credit grantor does so, but also in determining the appropriate pricing.
The central bank actually has the bureau in place, but with limited access to banks and credit limit of above Rp50 million. According to Bank Indonesia, the demand for credit data doubled in the period of December 2005 to April 2006.
The new bureau will have all the credit data above Rp1, so practially all your credit cards report would be visible to all banks amid reports of increasing bad debts in the credit cards sector.
Soon after the bureau in full operation, other business opportunities might emerge such as credit rating. Anybody?

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Jakarta Governor Candidates: Fauzi Bowo (2)

Deputy governor of Jakarta Fauzi Bowo is considered the strongest candidate for 2007 governor election with support from Partai Golkar, military, PPP (Islamic party), and Partai Demokrat.
As the deputy to governor Sutiyoso, he has the luxury to indirectly campaign earlier than his opponents. He controls Jakarta bureaucracy down to village head levels, important vote getter machinery. His running mate might be a military figure as compensation for the military's support. For decades, military figures hold the Jakarta governorship with minimum rank of lieut general.
Prosperous Justice Party (PKS) which won 2004 parliament election in Jakarta initially endorsed Fauzi, but dropped the support last week for undisclosed reason. It is interesting to watch who will be the candidate from PKS. Even Singapore's senior minister Lee Kuan Yew raised the question in his meeting with senior PKS leaders (Wahid Nur Hidayat and Zulkieflimansyah) early this year in Jakarta.
Anyway, who is Fauzi Bowo?
Born in Jakarta, April 10, 1948, Fauzi earned the PhD in architecture from Fachbereich Architektur/Raum Und Umweltplanung-Baungenieurwesen Universitat Kaiserlautern, Germany.
Married to Sri Hartati, Fauzi has three children. Born from a strong Nahdatul Ulama (the largest Moslem organization) family, Fauzi was tipped by some political parties to challenge Sutiyoso for the governorship in 2002. But he chose to be Sutiyoso's running mate (endorsed by Golkar and PDI-P) instead.
Major business groups, especially those who controls most properties in the city, are reportedly underwriting Fauzi's candidacy. The same question with Faisal Basri, do you think Fauzi will be the best choice and has the capability to lead Jakarta into a more comfortable and safe city?

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Jakarta Governor Candidates: Faisal Basri (1)

I met noted economist Faisal Basri at Le Meriden hotel, Jakarta, two months ago and directly raised the question: Do you really want to run for the governorship? He said: I'm not sure yet. But as reported by The Jakarta Post today, Basri confirmed his candidacy and is lobbying PDI-P (the party led by Megawati Soekarnoputri) to be the party's candidate.

So, Basri is competing with former minister Sarwono Kusumaatmadja and the 2004 vice president candidate Agum Gumelar as governor candidate under PDI-P banner. Banteng Muda Indonesia (BMI), one of PDI-P's youth organizations, told Rakyat Merdeka newspaper yesterday that it rejects Sarwono as PDI-P's candidate. I would say Agum might be rejected by some party members especially with his move to leave Megawati camp in 2004 and supported Hamzah Haz's bid for presidency instead.
I will not do profiling on Basri as you can read that at his personal website at www.faisalbasri.com. But to cut it short, Basri is a nationalist figure, pluralism campaigner, popular among young intellectuals & students, and support free and fair competition in all walks of life.
Who underwrites Basri's candidacy? This is a difficult question I can't answer myself. Anybody knows something about that? Do you think he has the capability to be governor?

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Lapindo case: The Scapegoats!

East Java police have summoned three workers from PT Medici Citra Nusa, a sub-contracting company for Lapindo Brantas Inc's Banjar Pandji-1 drilling in an investigation of ongoing hazardous mudflow in Sidoardjo.

In contrast to the report of PT Energi Mega Persada (EMP) Tbk---parent company of Lapindo---to Jakarta Stock Exchange (JSX) and shareholders late last week that the drilling activities had been in line with standard operating procedure, the workers at Medici, as the witness in the case (no suspect named yet), admitted there was an error in drilling procedure at Banjar Panji-1 precisely as what has been circulated among engineers.
According to the SOP, casing should be installed when the drilling reach 8,500 feet. But even when the drilling had reached 8,750 feet, no casing installed. Unfortunately, the police didn't disclose further on the next question, why no casing? Was it intentional? Was it pure technical ignorance or managerial ones?
Hopefully things would be clearer when police concluded the investigation on Lapindo president director Imam P. Agustino and officers from BP Migas (Upstream Oil and Gas Regulatory Body) and Energy Ministry. Otherwise we could only have scapegoats as suspects in the disaster that had forced more than 5,000 people to vacant their homes. Because we have a strong scapegoating psychology here!

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Judgement Day for Cemex-Gresik saga

The clock is ticking down to final minute of the long dispute over state-owned enterprise PT Semen Gresik Tbk. Rajawali Corporation is expecting the blessing from state-owned enterprises ministry of its plan to acquire Cemex SA's 24.9% shares in the cement manufacturer. What if government don't want to give the blessing?

The worst case scenario is that government will not give the blessing for Rajawali to close the US$330 million deal that potentially put an end to arbitrary suit filed by Cemex SA toward Indonesian government looking for compensation at hundreds of millions of dollar.
Actually, Rajawali could still close the deal. But Rajawali would risk ongoing dispute with government in the future as an unwanted investor-partner. Cemex on the other end would keep playing the arbitrary card that put government at risk of losing the legal battle.
It's like another slap in the face of Sugiharto, the minister of SOEs. Yesterday, in a parliament hearing, minister of finance Sri Mulyani Indrawati knocked Sugiharto down on SOEs planned dividend payment for 2007 budget. Mulyani convincingly downsized Sugiharto's ambitious SOEs dividend payment arguing SOEs needs to use generated profits to expand.
Last year Semen Gresik booked net profit of Rp1 trillion (US$110 million) and projected 40% growth of net profit to Rp1.4 trillion this year.

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East Kalimantan adm try to block Bumi-Borneo deal

Bisnis Indonesia reported today that East Kalimantan province administration has filed a lawsuit to international arbitrary on the divestment of PT Kaltim Prima Coal, a move that might block the US$3.2 billion deal between PT Bumi Resources Tbk and PT Borneo Lumbung Energi.

The newspaper quoted P.D.D.Dermawan, a lawyer from DNC, representing East Kalimantan governor Suwarna (currently detained in a corruption scandal) saying his client filed the arbitrary case to International Center for Settlement of Investment Disputes (ICSID) on April 5, 2006. (Interesting, isn't it? Almost three months ago, and just recently 'leaked' to the press?)
Dermawan said KPC has not implemented the Cabinet's minutes of meeting back in July 2002 which obliged KPC to divest its shares to local administration. Bumi Resources controls 95% shares of KPC which would be sold to Borneo Lumbung as part of the US$3.2 billion deal.
The problem, central government considered the divestment had been done with the acquisition of KPC by PT Sitrade Nusa Globus from Rio Tinto Plc and Beyond Petroleum (BP).
I'm not sure which one is right, as both sides of the isle have convincing arguments. But the fact that East Kalimantan adm 'announced' the arbitrary suit almost when Bumi and Borneo close the deal has to be something strange. What's happened in the last three years after the transaction of KPC between Bumi & Rio Tinto/BP?

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Limited information access for foreigners

There are two important bills currently discussed by legislators. The first on state secrecy and the second on the public access to information. While some considered both bills as contradictory one another, others says both could complement each other. While the second bill would give more freedom to public at large to access information, foreigners will have limited access and that my create new business for locals.

Communication and Information Minister Sofyan Djalil told the press Monday that The Freedom to Get Public Information Bill would differentiate among others what kind of information is accessible and not for all, accessible for Indonesian (people & companies) but optional for foreigners, and completely not accessible for foreigners except they have local partners for research and business purposes.
There are two school of thoughts on both bills. First, those who want the State Secrecy Law to be implemented earlier than The Freedom to get Public Information. Second, those who want the former should be implemented after the latter like in USA.
The latter would boost public's scrutiny over many policies or issues, and some claimed of better governance. At the moment, it's so difficult to get information about owners of a company even though company deeds are classified as public information. People could still get such information but at a price, outrageously high!

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Japanese investors keeps expanding

Despite gloomy face of foreign investment in Indonesia, Japanese investors keeps expanding their manufacturing plants in the country, creating more jobs.

Companies that plans to expand their facilities are PT Shinto Kogyo Indonesia, PT Sanyo Indonesia, PT Hokuriku United Forging Industry, and PT KDS Indonesia with combined investment of around US$30 million.
Apart from these existing investors, Nippon Piston Ring Co. Ltd has established PT NPR Manufacturing Indonesia to build an iron piston ring plant in KIIC, Karawang, West Java with US$8 million investment. The plant will have installed capacity of 12 million pcs of iron piston ring per year and create new jobs for 150 people (mainly locals).
NPR established the company as a joint venture with Mr Dendy Jo, Mr Winsen Halim, and Mr Tsuneaki Fujita.

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Rabobank acquires Indonesian bank for USD85 million

Netherland-based Rabobank is acquiring an Indonesian bank (HB) for USD85 million to be merged with its Indonesian subsidiary PT Rabobank International Indonesia.

"Rabobank is reportedly won the bid to acquire the bank at 3.2 of book value," an investment banker told me this morning.
The Indonesian bank is owned by a group which also own the largest listed private-owned bank in Indonesia. "It seems that the group is anticipating Central Bank's single presence policy as they would not be allowed to own more than one bank," he said.
What is the name of the bank?
Details of the acquisition will follow. Hints: The bank has total assets of Rp3.05 trillion as of December 2005 and booked net profit of Rp36 billion in 2005. The bank has a sister bank with almost the same name, but with one word added behind it. Watchout!

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Telkom management reshuffle

Government as the largest shareholder will likely to reshuffle the management of PT Telkom Tbk, the largest company at Jakarta Stock Exchange by market capitalization, at the meeting scheduled June 30, Antara news agency reported today.

Muhammad Said Didu, secretary of the ministry of state-owned enterprises (MSOEs), said besides the replacement of BOD and BOC, number of directors would also be added three to make it 10.
The reshuffle has also something to do with the prosecution of two members of BOD in a VoIP scandal that led to corruption charges. But others simply on political reasons.
Antara quoted parliament member Syafrin Romas (National Awakening Party/PKB) saying he heard of the plan to oust Arwin Rasyid and Tanri Abeng, both president of BOD and BOC at Telkom. Arwin was appointed Telkom CEO in a shareholders meeting June 2005 along with other BOD members such as Garuda Sugardo (deputy president), Rinaldi Firmansyah (finance), Abdul Haris Matondang (infrastructure & network), Aris Yahya (corporate and wholesale), Guntur Siregar (consumer), and John Welly (human resources and development). Police detained Welly early this year on VoIP scandal. Siregar has been named a suspect in the case as well.
In the last few weeks, some groups have been bussy to launch maneuvers to reshuffle Telkom's management. Some political parties are reportedly not happy with the current officers and working hard to install their guys at the company including to push additional positions at directorship level.
Telkom's Workers Union had warned shareholders not to lift the risk management to director level as that would only add bureaucracy in the company. But political parties love the idea so they could share the directorships between them.
Seminars have been conducted in the last few weeks to pressure government to reshuffle Telkom management, including Arwin, an outsider at the company. (Arwin, a banker, was president director of Bank Danamon and vice president of BNI---the state owned bank).
Appointment of BOD and BOC at SOEs have always been subject to political pressures. During Soeharto years, it's he himself who appoint the BOD/BOC and the appointees only need to loyal to him. But 1998 reform has changed the political landscape in the country with nobody has clear power in hands and as a result they share the positions in SOEs as part of political calculations and games. And to maintain a position in the BOD/BOC, people have to have loyalty to some powerbrokers.
So, who will be the new CEO at Telkom? Some mentioned Garuda Sugardo and Abdul Haris Matondang. "People close to the State Place wanted Garuda to replace Arwin, while Arwin will be appointed Indosat CEO after Hasnul resigned this month," people close to the issue said. Garuda is reportedly close to president SBY's inner circle.
How about BOC?
The current Telkom BOC is consisted of Tanri Abeng (Chairman), Anggito Abimanyu (government economist), Gatot Trihargo, P. Sartono, and Arif Arryman (economist from Econit).
Tanri is a close friend to Vice President Jusuf Kalla and coordinating minister for people's welfare Aburizal Bakrie. Tanri has been named a suspect in a corruption case but managed to maintain his position at the company. No names tipped so far, but we'll know in the next few days.

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Gov't would bear the cost of Lapindo disaster, how generous!

As the number of people forced to leave their homes has reached 5,000 following the mudflow from Lapindo Brantas drilling activities in Sidoarjo, PT Energi Mega Persada (EMP)---Lapindo's parent company claimed that the loses inflicted will be setoff with government's profit sharing from the operation. How generous!


In a letter dated June 22 to Jakarta Stock Exchange, EMP management stated as follows:
First, the company has implemented all standard operating procedures for well control in such drilling activities.
Second, Lapindo has insured the well drilling activities and the cost related to the evacuation of the community so the losses and damages inflicted will be covered by the Insurance Company. In addition, the losses and damages inflicted will also be setoff in the distribution of profits with the government.
Unfortunately, the company didn't elaborate further the second statement. What they really meant with setoff in the distribution of profits with the government.
By law, Lapindo or EMP is just a contractor for the state under a profit sharing mechanism. Normally for oil, the contractor would get 30%, while government 70% and for gas the portion could be 15% and 85% after all the costs deducted. So, there is a possibility that Lapindo will record the losses and damages inflicted as cost component to be recovered by government that would result in a lower profit sharing for the state.
I just can't get it. The company had been secured with insurance coverage for the losses and damages inflicted, but still has to claim the losses to the state?
I was happy when Vice President Jusuf Kalla stated early this week that Lapindo's controlling shareholder (Bakrie Family) should bear all the costs inflicted, including compensations that should be paid to all the victims. Both BP Migas, Energy Minister, and VP Jusuf Kalla have to clarify, once again, that the state would not bear the losses and damages inflicted.
And on EMP's self-proclaimed SOP that has been fully implemented in the drilling, I have to say that's a way too early conclusion and very much in contrast with earlier statements made by Energy Minister Purnomo Yusgiantoro that the disaster is a pure drilling failure. So, if Lapindo had implemented all the SOPs, why the mudflow at the rate of 25 thousands cubic meter keeps on and ruin many companies activities in the region?

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Minister Juwono is blogging: Mind your defense, Sir

Indonesia's blogoshpere has new blogger: Juwono Sudarsono. Yeah, the minister of defense. You can read his postings at www.juwonosudarsono.com. This site is primarily a weblog. It is a personal blog containing Juwono Sudarsono interest, views, opinions and activities. But how do we differentiate his views as a blogger and a minister when it comes to defense issues like the military business?

Well, the blog contains Juwono's personal activities, like being a grandfather. But I can't help to comment on his latest post under the title Military business and the reform process. Juwono wrote...
Most domestic and foreign analysts, particularly NGOs, incessantly find fault with almost anything and everything the TNI (especially the army) did, is doing and will do in the future. The anti-military tone is partly in the nature of most NGOs anywhere, and is deeply rooted in the liberal western lexicon of “civilian supremacy” or “civilian control” and the predictable language of “transparency and accountability.
And then he fired criticism on Human Rights Watch (HRW) latest report as follows:
The HRW June 2006 report is understandably unsympathetic to such realities, given that its framework and paradigm rests on the assumption of standards of “professionalism and transparency” taken for granted in developed countries. HRW Asia was also mindful that in the wake of the TNI’s exemplary role in the rescue and rehabilitation efforts of the post Tsunami in Aceh in 2004-2005 and the recent earthquake in Central Java, the TNI’s image at home and abroad had soared. The lifting of the US restriction of spare parts to the TNI also took the wind of the anti-Indonesian lobby in the US and Western Europe.
Well, it's hard to say this is Juwono's personal view. I bet this is the ministry's or the government's stance.
But I do like his views on non-defense issues, like his post on Debate on Pancasila.
Or his observations on the recent CGI meeting under the title: More Humility in Development Planning. He wrote that...
Everyone at the meeting agreed that governance was the central issue. Somehow, during the presentations I began to muse that beyond the talk about boxes, charts, figures, time lines and target dates, I felt that there was a bit too much of linear technocracy thinking. Discussions about road "maps" and "architecture" of the recovery process need to consider the more fundamental human and cultural factors.
But he seems to mix things up (personal or institutional views) in the US Secretary of Defense post as follows:
I responded that Indonesia understood the US concern about the dangers of prolifertaion of weapons of mass destruction and other hazardous materials related to international terrorism against US interests and US security within continental United States.
Anyway, it's good to have such an important figure in the blogosphere. But again, would be better if Juwono post his views on non-defense issues. Keep blogging, Sir!

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ABN pulled out from Bukopin IPO

Poor international market respond had pushed ABN Amro out from underwriting the IPO of PT Bank Bukopin Tbk. Local investors might be the saviour.

ABN Amro is reportedly had written a letter to Bukopin management yesterday about the pull out decision. None of ABN Amro and Bukopin executives in Jakarta available for comment.
But people close to the bookbuilding process claimed an oversubscription from local investors.
Today is the closing of bookbuilding process (extended from June 16) for Bukopin shares which initially expecting to raise Rp2 trillion. But the fall of stock market in the last few weeks had cost the company's IPO with most likely reduced size on minimum interest of foreign investors.
"This is nothing to do with Bukopin's performance. It's more about the overall market sentiment," an investment banker said.
PT Bank Bukopin Tbk, a bank controlled by Indonesian government and Logistic Agency's Workers Cooperative, launched an IPO of 32% shares last month.
PT ABN Amro Securities, PT Bahana Sekuritas, and PT Indo Premier Securities are the underwriters of the IPO. ABN Amro was assigned to tap international investors, while Bahana and Indo Premier on local investors.
The bank would use the proceeds to boost loans to SMEs, expand its outlets, and improve human resources quality.
As of Dec 2005, Bukopin has total assets of Rp24.69 trillion (almost US$2.8 billion). The company booked net profit of Rp257 billion last year, increased from Rp210 billion in 2004.

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Tunas Baru rights issue vs Minority Shareholders

In the last few days, Indonesian newspapers have published the controversy over PT Tunas Baru Lampung (TBL) rights issue plan to raise Rp365 billion with minority shareholders represented by Moscow-based VR Capital protested heavily.

It seems that the rights issue price offering at Rp155 per share that invited protests as it represent a 75% drop from IPO price at Rp550/share. Since the announcement of the rights issue plan on June 1st, Tunas Baru's share price dropped more than 40%.
The minority shareholders called it an abusive rights issue plan as you can see at the website www.tblashareholders.com. (This is may be the first time minority shareholders establish a website dedicated to protest such move in Jakarta Stock Exchange).
Below is the excerpt of minority shareholders arguments on why they reject Tunas Baru's rights issue:

The pricing of the proposed rights issue is abusive and the issue is massively dilutive: TBLA have priced the rights issue at 125 Rp/share, which is a 55% discount to the trading price at the time of announcement. They have proposed a dilution which could reduce your ownership by 70%. This deep and unjustified discount and massive dilution will wipe out what little remains of shareholder value for TBLA’s public shareholders if they do not subscribe.

Tunas Baru management argued that the rights issue had been approved in an EGM which means, legally, the process has been right. Where all these so-called minority shareholders were? "They should have rejected that early on," an investment banker said.

The respond from JSX to settle the dispute has been slow, I have to say. Today, JSX announced that it had written a letter demanding explanation from Tunas Baru, Tempointeraktif.com reported.
Explanation. That's it?

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Borneo to close Bumi deal next week, tighten your seatbelt!

PT Borneo Lumbung Energi is on the road to close the Deal of The Year, the US$3.2 billion acquisition of two coal mining companies PT Kaltim Prima Coal and PT Arutmin Indonesia, sometimes next week amid concerns of equity part of the deal.

As Credit Suisse is closing the gap for US$2.1 billion syndicated loan to finance the deal at the time of losing appetite on Indonesian offerings due to the increasing Fed rate, Singapore's United Overseas Bank (UOB) might be the ultimate winner of the deal.
According to Reuters (June 22), the term loans raised by Credit Suisse, including a 5-year US$1 billion senior loan, a 6-year US$600 million senior loan and an 8-year US$500 million junior loan. The US$2.1 billion loan marked the biggest overseas borrowing by an Indonesian firm since the 1997/98 Asian financial crisis, Reuters wrote.
Under such structure, Borneo was supposedly raise US$1.1 billion equity. And, again according to Reuters, United Overseas Bank (UOB) would provide up to 70 percent of the total equity through an exchangeable bond. No information available on who provides the remaining 30 percent despite reports of Bakrie Family's support to Borneo of US$200 million.
So, in total, the loans (raised by Credit Suisse + UOB) provide up to 90% of the financing for Borneo. The question is can Borneo serve such a huge debt? Those in the senior loans category and UOB's exchangeable bond would surely be served first whenever Borneo defaulted payments. How about the junior loan? Well, BE A MAN!

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Doubts linger over Lapindo disaster

Last night, I had a chit-chat with a respected geologist, a former executive at multinational oil company and got the sense of almost-one-month hot mudflow from Lapindo Brantas Banjar Pandji-1 drilling well in Porong District, Sidoarjo, East Java.

He simply confirmed earlier statements from both minister of energy Purnomo Yusgiantoro and Police investigation about technical failure in the drilling activities behind the disaster.
"The earthquake that jolted Yogyakarta, 500 km away from Sidoarjo, has unsignificant impact on the earth's layers structure. The main reason was the neglience of installing casing in the drilling well," he said.
"The sad thing, I got information that the casing supplier was too late to deliver and yet they keep push the drilling," he said.
Another source told me that the company which supposedly supply the casing has close relationship with one of executives and shareholders of Lapindo.
Hope police could investigate thoroughly and free from political pressures, considering the big names implicated in the case.
The most important issue we discussed actually on what to do, how to solve the problem. So I asked his view on Lapindo's plan to install snubbing unit.
"Such strategy normally works at earlier stages of the leakages. I'm pretty sure that will not settle the issue as outflows of gas and liquids have been spreaded to too many points," he said.
He admitted snubbing would take months or may be years or ever. Worse, the area would be in a lifetime threat of mudflows. Well intervention and well relief are considered the better solutions. But it may also take months and logistic headache as it affect people's properties adjacent to the drilling activity.
Below are some letters from the readers:
Leter No.1
In these cases ultimate responsibilty falls with the CEO,Managing Director and the Board of the Operating Company.It should not affect production from the operators (Lapindo) assets. Question is did the Operator take undue risks as some comments suggest? If so they should be fined (personally) or locked up.
Who will conduct an inquiry and who will be involved? Independent Oil and Gas experts should be able to get to the truth. Some of the lies that Lapindo were talking about early on (the effect of the earthquake) are not a indication of their honesty.
Letter No.2
This is typical example of our oil and gas contractors who simply don't want to invest in good system of health, safety & environment (HSE). From earlier drilling in East Java, we already noticed gas hazards in the area, but the operator simply want to save cost and ignored safety procedures. This is clearly a production well, so there must be a lot of data available about the drilling activities.
The way they handle the disaster is also a disaster in itself.

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Tomen enter fuel distribution business

Japan's Tomen Corp through its subsidiary PT Tomindomas Bulk Tank Terminal has entered fuel import and distribution with target revenue of Rp660 billion per year.

Four years ago, fire burnt down 13 chemical tanks operated by Tomindomas---a company dealing with chemical storage in Cilegon, Banten province.
Few months ago, government, through Investment Coordinating Board (BKPM) awarded a license to expand the company's facilities in Cilegon with new investment of Rp165.25 billion.
Local company PT AKR Corporindo, also a bulk chemical storage, had entered fuel importing and distribution business earlier than Tomindo since October 2005. AKR is the first company entered the business long controlled by state-owned oil and gas company PT Pertamina.

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Accenture expand IT consulting in Indonesia

As Indonesian companies heavily invest in IT, global consulting firm Accenture is expanding its IT management consulting business in the country with additional investment of US$17.5 million.

I got an information that PT Accenture, a joint venture between PT Asta Catur Undra and Accenture International S arl (Luxembourg) decided to boost IT business in Indonesia with revenue target of US$22.5 million per year.
Sometimes, I just can't understand why Indonesian heavily spend in IT infrastructures with very low utilization rate. Just like in the company I work for, almost everybody has PC with Internet connection, but average usage is very low. Most of these computers are equipped with almost all softwares available in the market while, let say, journalists normally use Word and Adobe acrobat reader. Fortunately (unfortunately for software companies) most softwares in the country could be easily coppied (piracy) at almost zero costs compare to US$300 I have to pay when I bought laptop in Berkeley two years ago.
Today, Bisnis Indonesia reported that the country's IT spending this year could go up to US$850 million. Ah, that's why Accenture expand the IT consulting business. But I do hope IT consulting companies could help Indonesian review their IT spending.

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Undersubscribed on Indonesian offerings

There are two companies struggling to list their shares at Jakarta Stock Exchange (JSX). You may noticed that in the last few years, Indonesian companies were proudly announced oversubscription of their shares or bonds offering. For the first time in years I wrote the above title: Undersubscribed! to mark a new era of investor's decreasing appetite on Indonesian portfolios?

Early this week, I read a story about agriculture company PT CP Prima which cut the size of its IPO (re-listing to be exact) from Rp2 trillion to Rp400 billion. Today, Bisnis Indonesia reported cool respond from overseas investors on PT Bank Bukopin's IPO.
ABN Amro which got 55% allocation in Bukopin's IPO is reportedly want to pull out from the underwriting on poor investor's respond. That would leave local underwriters, Bahana and Indo Premier, with huge responsibility to get local investors' money especially without significant cut in IPO size.
An investment banker said ABN Amro even had offered Rp325 per share, well below the initial target of Rp350 to Rp520 per share. "Still, the demand is not enough," he said.
The closing of bookbuilding was initially scheduled June 16, but no information available on why Bukopin extend the process. Bukopin has few days ahead (till June 23) before the bookbuilding closed and let's see whether the bank would cut the size of its IPO or not.
Another important test will be the closing of the deal of the year (Borneo Lumbung's US$3.2 billion acquisition of two coal mining companies PT Kaltim Prima Coal and PT Arutmin Indonesia) scheduled June 30 with CSFB as the lead arranger of US$2.3 billion syndicated loan.
The raising interest rate in US to curb inflation is to blame, they said. But we may have to blame ourself, why our economy is not sexy enough to attract and bring in more money?

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Lapindo hot mudflow: Bakrie vs Rakyat Merdeka

Today, the controversial newspaper Rakyat Merdeka run a headline story like this...Bakrie: I'm bussy...under the title...Reluctant to comment on Lapindo hot mudflow disaster...It's fun to read that item. But that's a serious issue for the coordinating ministry of people's welfare with Aburizal Bakrie as the minister...

As reported by Detik.com few hours ago, the ministry demanded the newspaper to apologize for the article and classified the article a defamation. The ministry argued the article violates Press Law No. 40/1999.
What's up?
I'm not sure why Rakyat Merdeka raised the question on Lapindo to Bakrie in the first place. Was it because of the newspaper believed that Bakrie supposedly have to say something in his capacity as coordinating minister for people's welfare about how government handle the disaster that forced 3,500 people leave their homes in Porong district, Sidoarjo or as the leader of Bakrie Family who reportedly own PT Energi Mega Persada Tbk---Lapindo's parent company even though the family's spokes person Lalu Mara warned last week that Aburizal Bakrie has nothing to do with Lapindo and asked media not to associate the minister with the disaster?
Whatever the backgrounds, the article had forced Bakrie's office to be bussy handling the defamation. So it seems that I should change the title of this article to be like...Bakrie's Office bussy to respond Rakyat Merdeka article...What do you think? Ooops, the legal notice is coming, this blog gonna die!

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President's New Deal is Unreal

US President Franklin Delano Roosevelt is known for his New Deal program 7 decades ago. Indonesian President Susilo Bambang Yudhoyono (SBY)tipped his own New Deal when addressing economists at ISEI conference yesterday. Both presidents are from Democrat Party. The difference is president SBY's New Deal is Unreal. What?

Some newspapers, including where I work, Bisnis Indonesia, put the today's headline with the sub-title like this...The President offers New Deal...What the president calls as New Deal?
First, create jobs.
Second, improve human resources quality through education and health care system.
That's it. Fortunately, he's not in the campaign trail.
Anyway, below are some of FDR's New Deal:
First, Civil Works Administration (CWA): This public work program gave the unemployed jobs building or repairing roads, parks, airports, etc. The CWA provided a psychological and physical boost to its 4 million workers.
Second, Civilian Conservation Corps (CCC): This environmental program put 2.5 million unmarried men to work maintaining and restoring forests, beaches, and parks. Workers earned only $1 a day but received free board and job training. From 1934 to 1937, this program funded similar programs for 8,500 women. We could try this at Lapindo's mudflow disaster.
Third, National Industrial Recovery Act (NIRA) of June 1933: The decline in the industrial prices in 1930s caused business failures and unemployment. The NIRA was formed in order to boost the declining prices, helping businesses and workers. The NIRA also allowed trade associations in many industries to write codes regulating wages, working conditions, production, and prices. It also set a minimum wage.
Fourth, Works Progress Administration (WPA) 1935-1943: This agency provided work for 8 million Americans. The WPA constructed or repaired schools, hospitals, airfields, etc. We could transform Workforce Department (Depnaker) to be like WPA.

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LG add US$331 million investment in Indonesia

PT LG Eletronics Indonesia (LGEI) to expand its operations in Indonesia with additional investment of US$331 million, the only major investment for the country in manufacturing sector in the last few years.

According to people close to LGEI, a subsidiary of South Korea's electronic giant LG, the new investment will absorb 203 new jobs. Under the major expansion plan, LGEI will boost production capacity of LCD (250,000 units/year), TV (1.2 million units/y), audio/video/car radio cassete (7 million units/y), and refrigerator (1.6 million units/y).
The new plants will be located at Kawasan Industri MM 2000, Bekasi, West Java province.
LG Electronics Indonesia which was named as PT Goldstar Astra (a JV with Astra Group) was established in 1990. In 1998, LG assumed 100% ownership at the company and subsequently change the name to PT LG Eletronic Indonesia.
Currently, the company is a major national force in electronics and information and communication products with more than 2000 employees in all regions in Indonesia.
LGEI is involved in three main businesses. First, Digital Display & Media (Digital TV, PDP, Monitor, CD-ROM Drives, DVD-ROM Drive, Super Multi DVD RW, Combo, Portable Combo, DVD Player, Audio). Second, Digital Appliance (Air Conditioner, Refrigerator, Microwave oven, Washing Machine). Third, Communication Handset both for GSM & CDMA.
LG is among the biggest investors in Indonesia. Besides LGEI, LG has other subsidiaries namely LG Innotek (established in 2000 to produce TV tuner, VCR head and components), LG Phillips (established in 2001 to produce CRT and electro gun), LG Insurance, and LG International Corp.

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Tesco invest another US$12 million

Drilling company PT Tesco Indonesia, a subsidiary of Tesco Corporation, is investing US$12 million in expanding the company's oil and gas supporting services. Tesco Corp is one of the leading company in the design, manufacture and service of technology-based solutions for the upstream energy industry.

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Saipem expand drilling services in Makassar

As more and more new oil and gas projects developed in Sulawesi Island, Saipem Indonesia---a subsidiary of Italy's Saipem SA, is expanding its drilling services to Makassar, South Sulawesi province.

PT Saipem Indonesia had secured investment approval from Investment Coordinating Board in March 2006 to invest US$20 million in Makassar for offshore drilling services.
The new investment would create 64 new jobs for Indonesian with revenue target of US$57 million per year.
Few days ago, ExxonMobil announced it's subsidiary Esso Exploration International Ltd had won exploration contract in Sarumana block, Makassar Strait.

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Bumi-Energy's merger plan, what's weird?

I just got the chance to read through the prospectus of merger plan of Bakrie Family-related energy companies PT Bumi Resources Tbk and PT Energi Mega Persada Tbk. Beside the strange announcement at the time of public scrutiny and poor handling over scandalous gas leakage in East Java committed by PT Lapindo Brantas (Energi's key subsidiary),I found a significant error in the announcement, especially on financial data of the merged company.

All data for Bumi was represented in US dollar, while Energi in Rupiah (as shown in the columns). For example, Bumi's total assets after the divestment of Kaltim Prima Coal and Arutmin Indonesia was US$1.92 billion, while Energi (in rupiah) at Rp837 million, and then the sum (merger) is US$2.761 billion.
The announcement, published in some newspapers on June 14, might have to be fixed especially on Energi's column that should be represented in US$ as well or people could misinterpret that.
Ok, that's easy.
But look at how the merger would be conducted. Both companies use the March 31, 2006 report while the divestment of Bumi's assets (KPC and Arutmin) is underway and no information whatsoever about how much will be the net proceeds from the divestment.
The last column in the post-merger financial data shown total sales would be US$63.47 million and profit before tax of US$2.31 billion. Can we say that the net proceeds of the KPC and Arutmin divestment at US$2.31 billion minus US$63.47 million?
The last, I found no information in the prospectus about the risk factor about the possibility of closing down of Lapindo's operation in East Java over the environmental problem while Lapindo contributes 40% of Energi's natural gas sales. The last time Energi tell shareholders about what's going on at Lapindo's Banjar Panji-1 exploration well (cost at US$7.1 million already) was May 30, just after the first gas leakage at Porong District, Sidoarjo. Financially, as the company claimed, it's secure enough with US$25 million insurance coverage. But that's not explain the future of its operation, including the social and environmental costs of the scandal.
I just don't understand why the company put the merger plan as the more urgent corporate action to announce than its efforts to heal the wounds of the gross neglience as accused by some parties?
It's weird that the company unilaterally claimed the leakage mainly due to the cracks in the drilling well caused by the eartquake that jolted Yogyakarta, 500 km from the drilling well.
For your info:
Bumi Resources shareholders are:
- Long Haul Holdings Ltd 12.91%
- Willow Finance Ltd 22.77%
- CMA Ltd 11.34%
- Jimba Finance Ltd 5.67%
- Public 47.31%

Energi Mega shareholders are:
- Brantas Indonesia 30.53%
- Kondur Indonesia 33%
- Reiner Latief 3.11%
- Julianto Benhayudi 2.18%
- Public 31.18%

The merger will be 1 on 1, means one Bumi share for one Energi share. The shareholder for the new company will be as follows:
- Long Haul 7.41%
- Willow Finance 13.07%
- CMA Pte 6.51%
- Jimba Finance 3.52%
- Julianto 0.93%
- Renier 1.32%
- Brantas 13.01
- Kondur 14.06
- Public 40.44%
PS: Long Haul, Willow Finance, CMA, Brantas & Kondur are companies with direct or indirect ownership of Bakrie Family members. Who do you think get the most out of the merger plan?

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Bumi-Energi merger is on, valuation matters

Those involved in the merger plan of PT Bumi Resources Tbk and PT Energi Mega Persada Tbk claimed they will go ahead with the plan scheduled August 9, 2006 for the listing of the merger company. But valuation matters the most, especially when they use March 31, 2006 financial report for the merger. Why?

As far as I know, until now it's not clear yet on the total proceeds of Bumi Resources divestment of two very important assets, PT Kaltim Prima Coal and PT Arutmin Indonesia.
What we knew actually the total acquisition value of KPC, Arutmin and related assets at US$3.2 billion. But that's not the total proceeds Bumi will get from PT Borneo Lumbung Energi who acquire the assets.
Using March 31 financial position to value Bumi is very much different with the reality it may face when it conclude the divestment transaction. "Most likely the merger will be heavily favorable to the majority shareholders and unfavorable for minority shareholders," an investment banker said.
I wonder how securities exchange authority deal with the issue?

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The Harrods will be in Jakarta, Sir!

I once entered The Harrods, an upmarket department store on Brompton Road in Knightsbridge, London. It was eight years ago when I studied in England. I bought a T-shirt for a price that I will never forget just because that time rupiah value against poundersterling stood at 20,000.

So I said to myself that might be my first and last shopping at The Harrods. But I may have the chance again here in Jakarta as Bisnis Indonesia reported today that Harrods is among European department store giants which will immediately fill the retail space in Jakarta.
I'm not surprised. More and more people here are wealthy enough to buy everything in Harrods like notable England or Royal Family no matter how misserable life have been for most of Indonesian. Surveys shows more than 1 million people in the country with more than US$100,000 deposit, including executives at the state-owned enterprises.
We have at least thousands of executives at SOEs with net income more than US$100,000 per year. And while the salary for our civil servants well below US$5,000 per year, thousands of them could make millions of dollar per year from corruption and nepotism. On top of these we have thousands of legislators (DPR and DPRD) with income more than US$100,000 per year. Multiply that with their wives or kids, a million people could be easily reached. This is Indonesia, Sir!

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SASOL said No, Bumi might go with JCOAL

As no greenlight yet from the world's largest coal-based synthetic diesel SASOL (South Africa), PT Bumi Resources Tbk might work with Japan's JCOAL to build the US$2.4 billion coal to liquid plant in Indonesia, energy ministry officer said yesterday.

In contrast to Bumi's optimism when announcing the divestment of two coal mining subsidiaries PT Kaltim Prima Coal and PT Arutmin Indonesia, Nenny Sri Utami, chairwoman of Research and Development at Energy Ministry said government is asking for cooperation between JCOAL and Bumi to develop CTL in the country.
Bumi initially mentioned SASOL when confronted with the questions about its future after the divestment of KPC and Arutmin. But SASOL denied any cooperation with Bumi saying it is focusing on CTL projects in China, Nigeria, and Qatar instead.
Mrs Utami said the first phase of the CTL project is expected to produce 12,000 barrel per day of synthetic fuels and the location of the plant could be in Berau (East Kalimantan), Bangko (South Sumatra) or Muriah (South Kalimantan).
The project's construction is predicted to start in 2012 with first commercial production in 2015. With investment of US$2.4 billion, the project could produce 55,000 bpd of synthetic oil.
No statement so far from Bumi on this project. But why 2015? Probably because JCOAL (Japan Coal Energy Center) is not a commercially-proven enterprise in the CTL technology such as SASOL. Bumi shareholders deserved explanation on this.

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JSX set the deadline for Bukaka's delisting

Jakarta Stock Exchange (JSX) threatens to delist the shares of engineering company owned by Vice President Jusuf Kalla's family PT Bukaka Teknik Utama Tbk if the company failed to come up with unqualified opinion on its latest audited financial report.

In a letter to Bukaka management today, JSX stated that Bukaka is given another chance till the end of July 2006 to submit an unqualified financial report to keep the shares traded at the exchange.
Auditors gave disclaimer to Bukaka's financial report for six consecutive years since 2000, despite more new projects won in the last few years, mainly due to uncertainty over its debt restructuring.

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Lapindo Brantas spillover Energy-Bumi merger

Minister for environmental affairs Rachmat Witoelar threathened to terminate the operation of Lapindo Brantas in East Java for its failure to apply prudent operating measures that led to massive pollution from an East Java gas well.

Blame games at play, as usual. Lapindo's shareholder PT Medco E & P Brantas, a unit of the listed PT Medco Energi Internasional Tbk, said in a letter to Lapindo that it had reminded the firm on May 18 to set casing at a depth of 8,500 feet, as agreed in the drilling program, The Jakarta Post wrote today.
Lapindo Brantas Inc is a subsidiary of listed PT Energi Mega Persada Tbk (closely linked to Bakrie Family). This company is the designated operator of the Brantas PSC and it owns a 50% participating interest. Other shareholders at Brantas PSC are Medco (32%) and Australian Santos (18%).
Having purchased its participating interest in the mid-1990's, EMP built the Brantas PSC to be the single largest supplier of gas to the East Java PGN distribution network by 2004 from the Wunut Field.
According to Energi's annual report 2005, last year Brantas PSC produced average of 51 MMSCFD of natural gas and 14 barrel oil per day, almost half of Energi's total gas production.
Brantas PSC has up to 7 oil and gas prospects with contingent resources of up to 66 bcf under a contract mature in 2020. With prospective oil reserves of 244 million barrel and 1.35 BCF of natural gas, Brantas PSC is one of EMP's important source of income.
Oil production from the discovery in Tanggulangin field at Brantas PSC is expected to reach over 3,000 bopd by 2007.
With such significance, the question is whether Witoelar is serious enough to close down Lapindo Brantas operation. But as quoted by The Jakarta Post, Witoelar said his ministry has no authority to order Lapindo to halt its operations, asides from giving a recommendation to do so to the Energy and Mineral Resources Ministry and the Oil and Gas Regulatory Body (BP Migas) which issued the exploration license.
Closing down the company's operation may create another problem, gas scarcity for electricity generating company PLN. Punishments should be strong enough to push this company implement stringent measures in its future operation.
Whatever the government decision might be, the catastrophe potentially will influence the planned merger of Energi with PT Bumi Resources Tbk. The rehabilitation might take few months and not to mention potential litigation toward the company.

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State-owned enterprises: From bad to worse

Most newspapers quoted Sugiharto, minister for state-owned enterprises (MSOEs), today on the performance of SOEs in 2005 with different tones. The largest newspaper Kompas, for example, put as the headline about the loss-making SOEs (31) with total losses of Rp6.11 trillion in 2005 against Rp4.84 trillion in 2004 (27 companies). Meanwhile, number of SOEs that booked profit decreased from 113 to 108.

There's always excuse, as usual, that MSOE claimed higher net profit at Rp40.68 trillion against Rp37.79 trillion. In fact, if we look at the details, as available at Kompas, overall performance were decreased. Why? Because three companies, Pertamina, Telkom, and Semen Gresik booked higher profit of Rp7 trillion in 2005. Should other companies recorded the same performance as 2004, total profit from SOEs should have increased by minimum Rp7 trillion, right?
But the problem with Sugiharto's report is the data is not valid yet, especially because no valid data on Pertamina's performance. MSOEs put Pertamina's profit at Rp15.44 trillion as projected data, not actual profit. Even the 2004 profit is still listed as projected profit.
Unfortunately, no newspapers published the data about total assets of SOEs in 2005 against 2004. But some says total SOEs assets were around Rp1,000 trillion and that would translate to around 4% ROA.

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Creditors to control 41.68% Sahid

Creditors under the syndicated group of The Royal Bank of Scotland Plc would control 41.68% shares of PT Hotel Sahid Jaya International Tbk, which owns property at the heart of Sudirman Business District in Jakarta, through conversion of loans to equity.

Sahid in its announcement to shareholders today said the debt to equity conversion is part of the company's effort to restructure the ailing hotel chain owner. With that, Sahid family's ownership would be diluted proportionally from around 93% to around 53% through various entities.
The debt to equity swap is subject to approval from shareholders in a meeting scheduled June 28.

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Titiek Soeharto off the screen tonight! Sugiharto surrendered!

Good news for those who protested to SCTV for having Titiek Soeharto (daughter of former president Soeharto) as the prime-time presenter for World Cup 2006 games. As reported by Detik.com few minutes ago, SCTV confirmed that Titiek will be off the screen tonight amid protest from spectators.

SCTV didn't confirm on a possible permanent off-the-screen of the former wife of general (ret) Prabowo Subianto. Detik.com did survey on dotcommers and the result is 85% football fans want Titiek completely out of the program. They feel annoyed with Titiek's sub-standard performance.
Meanwhile, this is completely nothing to do with Titiek politics and economics, state-owned enterprises minister Sugiharto finally lift his hands up on Cemex's plan to sell its 25.5% shares at PT Semen Gresik Tbk to Rajawali Corporation.
This is a good news for Rajawali and Cemex. I tried to tell football mania and asking their comments and they said: Who cares? Well, but Lin Che Wei (president director of Danareksa) wrote in Kompas today that with the decision of Cemex, one of the bridges to foreign investors is collapsed. "Really?", an annoyed journalist said. "Anyway, can FIFA move forward the Italy vs Ghana to, let say, 8 PM Indonesia Time?," he asked. "No, because it will make SCTV cancel their decision and Titiek will be on screen if FIFA do that."

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Riau vying for Chevron block

Riau Provincial admnistration is establishing a consortium to acquire small oil block currently under Chevron Indonesia's management amid competition between two regencies in the province, Kampar and Rokan Hulu (Rohul), newspapers reported today.

The oil field known as Mountain Front Kuantan (MFK) block is currently operated by Chevron with production capacity of 500 barrels of oil per day. Chevron got the block in January 1975 for 20 years contract mature January 2005 but extended twice until January 2007.
While the oil field may be small, the block has been in dispute between Central Government and Regional administrations, and among the local administrations in Riau. Riau claimed that it could takeover the block, while Central Govt want an open bidding.
The original working area was 6,865 square km but Chevron had relinquished more than half the area to 3,000 sq km at the moment. State-owned Pertamina has 10% participating interest in the block. With 500 boepd, total revenue from the block could be US$12.77 million per year at US$70/barrel. It's so small for Chevron, but not that small for local companies.

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PGN directors get Rp7bn bonus

This is the time to calculate the bonuses for the management of our state-owned companies. Let me start with PT Perusahaan Gas Negara (PGN) Tbk, the third largest company at Jakarta Stock Exchange (JSX) by market capitalization (Rp46 trillion or around US$5 billion), the second biggest listed SOE behind PT Telkom Tbk.

The shareholders meeting last week agreed to give Rp7 billion bonus to the management. Here's the breakdown:
President director WMP Simandjuntak: Rp999 million (US$108,500);
Directors: 90% of the president
President commissioner: 40% of the president director
Commissioners: 36% of the president director
How much is the salary? PGN's president director net salary: Rp55 million (US$6,000) per month. Others follow the formula for bonus payment. But don't ask how much these guys really make each month...it's totally different issue. We have to add the benefits, including Golf memberships, and hopefully no more under-the-table payments from suppliers or business partners...But if they still make money from such practices...the amount could be multiplied hundreds times.

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Dorodjatun, commissioner at Hero

Former coordinating minister for the economy Dorodjatun Kuntjoro-Djakti has been appointed as independent commissioner at retail giant PT Hero Supermarket Tbk along with another high profile professional Budi Setiadharma, former president director at PT Astra International Tbk.

Hero Supermarket is one of the largest retailers in Indonesia with market capitalization of Rp1.94 trillion as of June 9, 2006, right behind Matahari (Rp1.97 trillion) and Ramayana Lestari (Rp5.13 trillion).
Last week, media quoted Jakarta Stock Exchange (JSX) director saying the authority would ask Hero why the company never paid dividend to shareholders in nine consequtive years since 1997 while the company booked profit along the way (except in 2003). I think Dorodjatun as the new independent commissioner should address the issue for the sake of public interest.
Hero operates four major retail chains---Hero, Guardian, Starmart, and Giant.

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Football: Soeharto scored the goal

I'm a big fan of football ever since I was a kid. I remember when I was at junior high school far away in Flores Island watching the first World Cup final between Germany and Italy back in 1982. Without TV network, we watch the game months after the event, thanks to a priest who got the record from his colleagues in Europe. It was fun and I still remember sweet moments for Italy when they scored three goals against Germany. As a kid, no idea about the other aspects of the game, politic & economy.


Four years later, when I moved to Bogor, I watched almost all the games during 1986 World Cup from TVRI, the state-owned TV network. Along with the establishment of new channels, people have options to watch the games they really want in different TV stations. But those days are over. Now we have to wacth SCTV---owned by listed company PT Surya Citra Media Tbk (last year the company booked net profit of Rp180 billion) no matter how expensive you're paying for cable networks.
For the first time, this year, I thought things getting better with my new cable network. But I'm dead wrong. I have to shut down the cable and back to the traditional network to watch the games as SCTV, the holder of 2006 World Cup broadcasting right, managed to get the monopoly. I believe many cable subscribers upset with the way cable providers tackling the issue. They should have arranged that well before the event, at least try to serve its subscribers well. For a football fan like me, I pay for nothing to a cable provider during the World Cup as I switched the program to my old-time UHF.
Cable subscribers, luckyly, are not alone as viewers fired criticism toward SCTV for its failure to air the opening ceremony. SCTV argued the opening ceremony has been in different package of the contract. Well, money talks. I just can't imagine if the holder of the right is not a traditional network like SCTV, but a cable TV operator. With less than 1 million cable subscribers, their homes could be targetted by angry football fans around the country.
What's interesting is SCTV hired Titiek Soeharto (yeah, Soeharto's daughter) as presenter for the games. As you may noticed, she called herself as Titiek Soeharto, not Titiek Prabowo (he was retired general Prabowo's wife). Why SCTV appointed her and not the other gals? Well, she owns some shares through PT Abhitama Mediatama (a company that controls majority shares in SCTV).
But is it something to do with her political moves recently to rehabilitate his father's name? Whatever, that's a bold move.
Imagine that most football spectators are watching her every night on the screen and she could be perceived as a totally different personality, a big fan like us. A good PR for Soeharto indirectly. It's just like she's telling people that...my father is OK, he's watching the games at home like us, I'm here at your (viewers) disposal and forget about my father's trial, let's rock, and GOAL!!!!!!!

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The Fight for License to Squeeze

In early 1990s, Indonesia's investment coordinating board (BKPM) offered a program called One Stop Service to shorten lengthy bureaucrazy in processing business licenses. The idea was to make everything easy for investor when they want to start business here.

Bold idea actually. Imagine that as an investor you have to deal with hundreds of government institutions right from the cabinet to a village chief (kepala desa) before you could really put in the money. And along the way, most of the time, you have to spend huge amount of money to get these licenses. Land and building construction license, license to employ expatriates, to tap underground water, electricity, telephone line, noise license, etc. The One Stop Service was a mere dream. None of these various institutions want to give away their authority to give licenses because that's the main source of income for the low-paid state officers.
People thougt political reform could change that. In fact, after the downfall of Soeharto, the idea of One Stop Service for investors at BPKM have been repeatedly discussed. But Big Zero!
That's also the case with the management of state-owned enterprises (SOEs). Soeharto gave authority to different ministries depend on what business the SOE involved in. So all the state-owned plantation companies were under the ministry of agriculture, telcos under the transportation and telecommunication ministry, and so forth.
But then Habibie established a new ministry of SOE to manage all these SOEs.
To be continued...

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Economic Problems, Solutions & Actions

A lot of people know what's wrong with our economy. Everybody could answer that. Many people could also give suggestions on what should be done. But we need someone who dare to make decisions.

Most speakers in seminars eloquently explain what's wrong with the system, consumed most of the time available, but spending only few minutes to discuss the best solutions. Tons of paper have been written on the country's economic problem, but very few explain in details on what to do with risk factors. Worse, our experts have drafted solutions and action plans, but no decision is made.
In the last few weeks, rupiah lost significantly its value. Jakarta's composite index (IHSG) has dropped 17% since May 22 at 1,507 to this hour of 1,252. Fed's signal to keep raising interest rate to curb inflation is considered the main reason behind this.
According to trading data available at JSX, foreign investors mainly on sell position since the second week of May. Out of 17 trading days since then, for example, net sell of Indonesian stocks by foreign investors totalled Rp803 billion. Foreign investors on net buy only in five trading days since then. With thin trading, this so-called hot money could change things for good and bad. Easy come, easy go!
We know that we need more cool money flowing into the economy either domestic-source or foreign direct investment. We have drafted action plans to make that happen, create more jobs, boost export, domestic demand, improve salaries, and so forth. What we need is leadership. Leaders should make decisions, not just quantity-wise but more quality decisions. As a leader, you can't ask approval from your constituents all the time before making decisions. People will make their judgement on election day, that's why we changed our political system. Even the best decisions will never make everybody satisfied.
We don't need our leader's daily comment about the ups and downs of stock market or rupiah. We need decisions to pull in more cool money.

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Rig Tenders to buy 27 ships

PT Rig Tenders Tbk will acquire 27 ships at US$54.8 million. The company had signed master agreement with CH Logistics Pte Ltd, Goldship Pte Ltd, PT Batuah Abadi Lines, and International Marine Services Pte Ltd in May 28, 2006. The transaction is pending condition precendents, among others, the collateral agreement with OCBC and shareholders approval.

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Bumi US$3,2 billion deal on the verge of collapse?

The deal of the year between PT Bumi Resources Tbk and PT Borneo Lumbung Energi worth US$3.2 billion is on the verge of collapse, people close to deal said. Why?

Well, the main reason is Borneo's difficulty in raising enough funds to finance the deal in both equity and loans. Under the initial plan, Borneo supposedly should raise US$1 billion from prospective investors and the rest from new loans arranged by Credit Suisse. The respond from investors has been well below expectation.
Even so, PT Bumi Resources Tbk will likely only get net proceeds of US$1.8 billion out of US$3.2 billion divestment of two coal mining subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia due to heavy debts and payables.
An investment banker close to the deal said out of the US$3.2 billion deal, US$800 million would be to pay Bumi's debt and US$600 million to pay contractors and suppliers of KPC and Arutmin.
On top of this, yesterday Simon Sembiring, director general of mineral and coal at the ministry of energy disclosed six coal mining producers payables to government of US$450 million of which KPC at around US$110 million and Arutmin at US$70 million. The payables are payments that should have been made by coal mining companies in the period of 2001-2005 as coal production proceeds (dana hasil produksi batubara, DHPB). Simon said government had sent notification letter to six companies mentioned (KPC, Arutmin, Kideco, Adaro, Berau, and BHP Kendilo Coal) to immediately settle the payment in 14 days or government will declare default on all of them. But Simon admitted coal miners rejected to pay the DHPB since 2001 because tax office impose added value tax which was not dictated in the first generation of coal working contracts. So, this is a pending legal problem and it's depend on how the ministry of energy and finance settle the royalty and tax issues.
PT Borneo Lumbung Energi has been struggled to get US$3.2 billion funding for the acquisition of Bumi's assets in which CSFB would raise US$2.2 billion loans and Borneo's equity of US$1 billion. So far, Nirwan Bakrie is reportedly had subscribed US$200 million equity for the transaction, while other parties have not committed yet.
"The question is how much equity Renaissance/Borneo could raise to pay Bumi. If they fail, most likely will only get promissory notes," the banker said.
Several names, such as Marubeni and Leighton Contractors, were expected to participate in the acquisition. But Marubeni is reportedly don't want to put equity. Leighton was participated in the US$404 million financing of the acquisition by PT Bumi Resources of PT Kaltim Prima Coal few years ago.

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Playboy keep testing the water: Second Edition

Few minutes ago I just saw the second edition of Playboy Indonesian version displayed by a street vendor in Central Jakarta. Moslem organization Hizbut Thahrir Indonesia immediately released a fresh demand asking government to stop the distribution. Legislators also responded with statements, as usual. Others would follow suit, and it's a very good promotion for the magazine. The price might goes above US$10 per copy.

This is the first edition from Playboy's new office in Denpasar, Bali Island after it moved its office from Jakarta aftermath of serious attacks by angry protesters following the distribution of first edition.
Most people believed the second edition would unlikely hit newsstands. But, they're dead wrong. Check out yourself. Hopefully this time the contents are really hot!

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Korindo to produce wind mill tower

Sport shoes manufacturer PT Kostra Mas Jaya, a joint venture between Panwell Industrial Ltd (BVI) and PT Garuda Indawa, is expanding its business to produce wind mill tower with investment up to US$20 million. What a leap!

Kostra Mas--a member of Korindo (South Korea-Indonesia) Group---is known as contract manufacturer for famous sports shoes brands like Nike, Adidas, Puma and its own brand Eagle.
Late last year, Kostra Mas received approval from Investment Coordinating Board to enter the wind mill tower business. The plant is located in Cilegon, Banten province with estimated investment of US$20 million and open new jobs for 262 people. The plant will produce 300 units of wind mill tower per year.

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Single presence policy delayed further

Indonesia's central bank decided to postpone the implementation of single presence policy to as early as 2008-2010, behind its initial schedule of second half 2006.

Under the single presence policy, someone or a company will not be allowed to own shares in two or more banks. Should the central bank implement the policy, companies like Singapore's Temasek Holdings, UOB, OCBC, Malaysia's Khazanah, Standard Chartered, and some local business groups should merge the banks or divest and exit.
Koran Tempo quoted Burhanuddin Abdullah, central bank governor saying there are three options available. First, the central bank will 'politely' ask bank owners to merge. Second, bank central will give direction to bank owners on what to do. Third, bank central will instruct bank owners to merge within two years starting 2008.
So, the central bank barks louder than its bite, as usual.

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Just outsmart Berkeley Mafia!

A group of economists appeared in a seminar titled 40 Years of Mafia Berkeley vs Alternative Ideas of Indonesia's economic development, yesterday. They're former chief economic minister Rizal Ramli (under Abdurrahman Wahid administration), Kwik Kian Gie (former chief economic minister under Wahid, replaced by Ramli), Ichsanuddin Noorsy, Revrisond Baswir, and Sri Edi Swasono (son-in-law of first Vice President Mohammad Hatta). Guest speaker was Jeffrey Winters (Northwestern University).

It was an unbalanced seminar as none of what they called Mafia Berkeley delivered arguments, no exchange of arguments actually, it's a kind of monologue of ideas, it's like bad idea vs good idea. That was not an academic exercise of thoughts. The speakers believe the alternative ideas they delivered are the only public goods. So that's a seminar with so many personal issues at stakes.
The speakers even failed to explain or acknowledged what they did and didn't while they have power in their hands to drive the economic policies into what they believe the right way and change the course of the nation.
Nor did they explain what's wrong or right during BJ Habibie's strong influence in the economy of the early 1990s. So don't expect them explaining what's right and wrong during the early years of Berkeley Mafia.
How we explain the massive debt settlement of 1998-2001 during which the government's domestic debt jumped to Rp700 trillion (US$80 billion) to bailout corporate debts of the like Texmaco Group's Rp30 trillion, Salim's Rp60 trillion, Sjamsul Nursalim's Rp28 trillion, or Sinar Mas's Rp14 trillion?
It were Soeharto's last year, Habibie, Wahid and Megawati administration's economic team who endorsed the debt settlement through agreements like the Master of Settlement and Acquisition Agreement (MSAA), MRNIA, or Debt Acknowledgement Acts (APU). How we explain the problems at state-owned enterprises like Habibie's aircraft company PT IPTN (now Dirgantara Indonesia), Garuda Indonesia, PLN, Pertamina and so forth?
I believe the Mafia Berkeley had committed some wrongdoings, just like the other mafias of Habibie's, Ginandjar's, Rizal Ramli's or Kwik Kian Gie's.
Look at this. Rizal Ramli and Kwik Kian Gie as the coordinating minister for the economy during Wahid administration had the chance to fix the lousy debt settlements with Salim, Nursalim, or even Sinivasan's Texmaco. But they were hopeless, not because of the Berkeley Mafia, but simply because of the complicated and fluid political situation aftermath of the 1998 reform.
I believe in one thing...when it comes to liberalization, globalization, privatization...they're all political decisions, not just economic models. There are a lot of aspects of the society at play. Simply blaming the mafi is just like you had a headache in the morning and keep blaming the traffic jam on your way to office for your bad day.
What's amazing is the acknowledgement of this alternative group of how powerful the Berkeley Mafia so it could survive almost 40 years and still in the driving seat of the economy even though none of them hold official position in the cabinet. I must say this Mafia Berkeley is so smart to control this big country four decades so far and may be more.
Other mafia groups might have to learn of how Mafia Berkeley keep its power. An old advise, if you really want to beat the members of this mafia, outsmart them all! All you have to do is to convince all the stakeholders of this nation to get their full attention on your alternative ideas. People are smart enough to make decision, they could analyze what's wrong and right with Berkeley Mafia and what's wrong or right with your ideas! Don't get mad, get even!

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Mafia Barkeley vs Berkeley Mafia

A political scientist from the University of Indonesia named Syamsul Hadi Phd (not PhD) wrote an op-ed published in the front page of Investor Daily today under the title, Setelah Kegagalan 'Mafia Barkeley' which literally means After the Failure of 'Mafia Barkeley'. I'm not going to discuss the content of the article which is just too easy to guess. I'm more inclined to do some words interpretations.

Dr Syamsul Hadi wrote in the article about the definition of Mafia Barkeley as technocrates graduated from the University of California, Barkeley. I'm not sure where is the university's location, as the one I know, simply because I studied there, is the University of California, Berkeley located in Berkeley, just few miles away from the romantic city of San Francisco.
I'm not sure whether it's just a gramatical error on Hadi's side or the editors at Investor Daily. Or Hadi really mean Barkeley, a different university and location of UC Berkeley. But if he want to say UC Berkeley, Hadi should be ashamed of. How come a PhD can't even spell Berkeley? Without that we have two terms, Mafia Barkeley and Berkeley Mafia. The first term is for those economists or political scientists who don't know where and what is UC Berkeley and the Berkeley city. The second is for those UC Berkeley alumni who led the economic team of early years of Soeharto regime.
There are few things that deserved comments though.
In the article Hadi mentioned professor Mohammad Sadli as a member of Mafia Barkeley. As an alumni, it's an honor to have Sadli, graduated from Massachusetts Institute of Technology (MIT) as a member of the Mafia Barkeley, not Berkeley. Even if Berkeley is what Hadi wanted to say, it's sad for MIT guys to have one of their alumni as a member of Berkeley Mafia, right?
Hadi also stated that economists who had been brain-washed at Barkeley (not Berkeley) with neo-liberal school of thoughts are still holding key positions in economic decision making. I'm sure he is right. None of UC Berkeley alumni in the cabinet, except the minister of defense Juwono Sudarsono (he earned master degree from UC Berkeley). Dr Boediono, the captain of the economic team is Wharton School alumni, Dr Mari Elka Pangestu (trade minister, UC Davis), Dr Sri Mulyani Indrawati(finance, Illinois), Purnomo Yusgiantoro (energy, Colorado School of Mining), Sofyan Djalil (Info-comm, Tufts), etc. We have also Dr Sjahrir as the president's economic advisor (Harvard Alumni).
So, Hadi is right, Mafia Barkeley is currently at play, not Berkeley Mafia anymore.
I bet the Mafia Barkeley is a brand new group of technocrats, including Hadi himself, for their misunderstanding of the right word, Berkeley!

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Kutai Administration to buyback coal producer, why?

The rich Kutai Regency Administration in East Kalimantan province want to buyback 13% shares of PT Kaltim Prima Coal (KPC), the giant coal mining company which just divested by PT Bumi Resources Tbk to PT Borneo Lumbung Energi, at market price. Why? Is it worthy?

Kutai Regent Awang Faroek Ishak told Tempointeraktif.com that he would meet the management of KPC to discuss the plan. "We're ready to buyback the shares at market price," he said.
Three years ago, Kutai Regency got 18% from the divestment of 51% shares of KPC but then sold the 13% shares to Bumi Resources. Kutai is the richest among local administrations in Indonesia thanks to its huge deposit of coal.
The regency's officers and councillors are often dubbed as six-to-one officers who spend 6 days in a week in Jakarta and only one day in Kutai.
Bumi just recently divested all its ownership (95%) in KPC to Borneo Lumbung, an investment company established by Renaissance Capital (fund management company led by Samin Tan and Suryadinata Sumantri---both were DTT executives) along with another coal subsidiary PT Arutmin Indonesia at US$3.2 billion.
As of Dec 2005, Kaltim Prima Coal has total assets of US$1.2 billion with total sales of US$1.07 billion and net profit of US$59.85 million. KPC produced 28.17 million tones of coal in 2005 with total reserves of 616 million tones.
If the value of Bumi-Borneo transaction is considered a fair value, KPC could be worth US$2 billion, and 13% shares could translate to US$250 million. Wow, imagine a regency administration in Indonesia could spend so much for KPC shares. Hope that the administration had secured all people's necessary infrastructure such as schools, hospitals, roads, etc!
Why now, at the time of Borneo and Credit Suisse's plan to raise US$2.1 billion debts to finance the acquisition of KPC and Arutmin from Bumi? Is it because nobody want to put money in the transaction or the US$3.2 billion is overpriced? Even the beneficial owner behind Borneo (Nirwan Bakrie) is reportedly only put US$200 million in the US$3.2 billion transaction. So far commitment from the equity side of the acquisition is way below the target.
Looks a good investment for Kutai Administration, but with 18% in hands, the control of in others hands. The administration should be careful in spending such a huge money on something that is not clear yet!

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PDI-P: The lonely and powerless opposition

The humiliating defeat of anti-ExxonMobil movement in the House of Representatives have obviously confirmed PDI-P, the second largest party led by former president Megawati Soekarnoputri, as the lonely and powerless opposition to government's policies. The party's legislators felt betrayed by other parties, especially the Prosperous and Justice Party (PKS) and National Mandate Party (PAN).

Commenting on the defeat in Tuesday's voting (83 support the anti-Exxon, 257 against it), Taufik Kiemas, senior PDI-P politician and the husband of Megawati, said nothing the party could do except to face the reality that it lost the battle. "We can't win forever," he said. The problem, PDI-P has never won any battle since Megawati lost the presidential race in 2004 and proclaimed as an opposition party. In fact, the party lost almost all battles, including on fuel price hike late last year and rice import policy early this year.
Worse, the party, over and over, has been 'used' by other parties to leverage public image. The latest move to investigate government's policy awarding ExxonMobil the right to operate the giant Cepu oil and gas field was initially supported by PKS and PAN. Even some Golkar legislators (the largest party in the House) and from other parties such as PKB and PPP were among the supporters of the initiative.
But when it comes to final decision, the voting, it's clear that PDI-P was left alone. The party was the only solid force to endorse the investigation. PKS zero, PPP zero, PDS zero, Golkar zero,and PKB zero. PDI did get additional votes from PAN. But with 9 support and 20 against the initiative, it's a sad reality for PAN itself because Amien Rais (former chairman of PAN and former Assembly Speaker) is the key figure outside the parliament building who campaigned the anti-ExxonMobil movement. Besides PAN legislators such as Drajad Wibowo and Tjatur Sapto Edi were the most quoted spokespersons of the anti-ExxonMobil movement. These guys, including Amien, even failed to convince their colleagues in the party. How could they expect to convince people outside the party?
Compared to the voting on rice import policy where PDI-P got full support from PKS, in the anti-ExxonMovement PDI-P is lonely and powerless.
In such a situation, government should have been decisive enough in implementing policies. The problem, the current administration scored only few important decisions and pending most just because it care too much about the public image. That's the difference. A rubber-stamp legislative, just like during Soeharto years, is not a guarantee that we have a strong and decisive executive. It's depend on who's the man behind the gun!

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