President 2009 Hypothetical Election (2)

Tommy, the political journalist, wasn't iritated when I tell him that someone called him an idiot (I guess the guy is president SBY's inner circle). "The fact, so far, SBY missed almost all his targets. The economy grew far below 7% as he promised during the campaign. Investment is stagnant, more unemployment. He is apparently not an effective leader. So, his chance would be slim to win the second term," Tommy argued.

Well, the economy indeed grew for only 5.5% annually on average in the last two years. Foreign direct investment is staggering. "But the stock market improved impressively in the last two years. Jakarta composite index grew more than 100%," I asked.
"Well, it is a bubble era and that's particularly good for portfolio investors. But you can't create enough new jobs from that," Tommy said.

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Foreign banks, performance so far

HSBC reported significant net profit drop in the first nine months of 2006 and slightly reduced asset. Meanwhile, Stanchart recorded double digit net profit growth but significant asset drop in the same period.

HSBC posted net profit of Rp259 billion until Sept, dropped a third from its Rp368 billion booked in the same period last year. Why? The bank's interest income actually grew impressively resulting in almost 100% growth in net interest margin. But the bank's operation expenses increased sharply, mainly the asset write-off provision and labor costs. The bank's total asset reached Rp27.11 trillion (around US$3 billion) as of Sept, slightly reduced from Rp27.73 trillion in Sept 2005.
As for Stanchart, the bank's net interest margin grew slower than HSBC, but managed to cut operation expenses significantly. The result, Stancart booked net profit of Rp429 billion, even though the bank's total asset dropped quite significant to Rp22.38 trillion (US$2.5 billion).

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Nursalim raises GHG bid to A$350 million

Sjamsul Nursalim's Tuan Sing Holdings has raised its offer to acquire Grand Hotel Group (GHG) to Aus$350 million. Meanwhile Sidney Morning Herald reported Morgan Stanley's property arm has joined forces with Tuan Sing in the offer.

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Deutsche backs off, Energi failed to raise USD600 million

PT Energi Mega Persada (EMP) is reportedly failed to raise USD600 million as Deutsche Bank backs off from the refinancing deal.

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Lapindo-Freehold deal is off

PT Energi Mega Persada Tbk announced the cancellation of the divestment of subsidiary Lapindo Brantas Inc to Freehold Group. Energi wrote to JSX this morning that Freehold Group cancelled the deal due to controversy over the issue.

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Counting the losses

As thousands of displaced people (due to hot mudflow from gas field operated by Lapindo Brantas Inc) went on protest yesterday for months of gross neglience over the promised compensation and 12 people killed in a gas pipeline burst in the area covered by Lapindo mud, we're increasingly bussy in counting the losses and yet we have no idea who will pay. Why don't establish an escrow account, funded by Bakrie (if that's the commitment) with tight independent supervision to underwrite the costs?

Some was cynical when Greenomics claimed the cost incurred of hot mudflow could be billions of US dollars calling the NGO of exagerating. Government then put the estimated cost of US$150 million till March 2007. This magic number is being used by Lapindo-related parties as the total liabilities in their hands over the disaster.
But look at the claims so far. PT Jasa Marga, the state-owned turnpike operator, stated today that the cost to build a new toll road in the area would be Rp1.5 trillion and no way the company would finance that. "Lapindo should bear the cost," said Frans Sutikno, CEO of Jasa Marga.
I'm afraid the state-owned railway operator PT Kereta Api Indonesia would spend billions of rupiah to re-route the track. And the residents who lost their land claimed compensation of Rp1 million/square meter. Millions of toll road users have been suffered huge mental problems and economic losses due to the closure of the turnpike.
Millions of cubic metres of hot mud has spewed from the site, flooding over 400 hectares, swallowing eight entire villages, hectares of rice paddy fields and numerous factories in East Java, and displacing more than 10,000 people.
The gas pipeline burst is apparently the worst so far, killing 12 innocent people and injured 16 others.
As reported by Tempointeraktif.com, state-owned gas distribution company PT PGN Tbk recorded billions of rupiah of losses in the last few days. At least 244 companies, 74 hotels, and 1,090 households got no gas supply due to the explosion.
Paper manufacturer PT Kertas Leces, a state-owned company, reported Rp500 million losses in two days only. Industrial gases producer PT Samator had to stop its hydrogen, hydrogen peroxide, and carbondioxide facilities with billions of rupiah of losses. Who will pay all of these? Can we just separate the pipeline burst from the mudflow? When would all of these going to end or an endless mess? Is it possible that the worst is yet to come?
On the other end, PT Energi Mega Persada (the parent company of Lapindo Brantas Inc) filed bad and good news late last week. The first, bad one, due to the pipeline burst, Energi had shutdown gas production in Kangean Block. The second, the same day of the explosion, EMP Kangean which operates the block, had successfully started oil production in Sepanjang Islands at the volume of 9,000 barrel per day (generating cash of USD450,000/day). These evenly announcements have resulted in stable price of Energi shares at Rp500. What an odd world we livin! When many people could only count losses, small number of people still manage to calculate the benefits!

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Banking outlook 2007

Below is an excerpt of my discussion with the director/chief financial officer (CFO) of one of the largest banks in Indonesia.


Q: Central Bank had reduced significantly benchmark rates, how you see 2007?
A: Lending rates would be cut significantly from 14% to 10%-11% next year if Central Bank could cut its benchmark rate to 8.5%. But bear in mind that wouldn't automatically boost the economy.
Q: Why?
A: Well, this year my bank had signed Rp10 trillion of new loans, but disbursement had only reached Rp4 trillion till October. The purchasing power is not recovered yet. Look at the significant drop in retail, consumers, and automotive sector.
Q: But hasn't the bottom been reached and the recovery has been started in the last few months?
A: It's true. But as people expect lower interest rate, they're waiting few more months to take new loans. So, it's a wait & see situation. Besides, we need government to be more aggresive in spending next year.
Q: I think the budget has been quite aggresive in spending, but absorption level is apparently the problem with less than 50% in 10 months?
A: Somehow, government should balance the stick and carrot so the project leaders would be brave enough to move on.
Q: What do you mean?
A: Well, anti-corruption campaign has created psychological effect for project leaders, especially the state-funded ones. It's good, right on track. But you gotta give people more carrots, incentives to take risks.
Q: OK, sector wise, which ones have performed well this year?
A: Agriculture, especially plantations, mining, and project finance performed quite well. We're targeting Rp15 trillion of new loans signed next year with disbursement expectation at Rp10 trillion. I think consumer sector would revive next year, but slowly.
Q: Your concern?
A: Job creation. We have too high unemployment rate. Somehow, government should mediate the conflicting interests between businessmen & workers union. A more friendly environment for business would create not only new jobs but better protection for existing workers.

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Banten gubernatorial race updates

Prosperous Justice Party (PKS) accused the ballots counting in Lebak regency, Banten province has been cheated with significant mark-up for particular governor candidate. Preliminary result shown Atut-Masduki (Golkar-PDI-P) won the regency by significant margin. This is gonna be serious!

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Debt & equity market highlights

ING NV provided US$100 million bridging loan to PT Perusahaan Gas Negara (PGN) Tbk to finance the Sumatra-West Java pipeline project. The 5-month loan is part of US$225 million loan committed by ADB Consortium (including ING).

PT Kalbe Farma Tbk is expanding its factories in Bekasi, West Java with additional investment of Rp70 billion. The new plant will produce 4.73 billion tablets, 670 million capsules, etc.
PT Multibreeder Adirama Indonesia Tbk, meanwhile, is also expanding its facilities with Rp36 billion investment.
Paper manufacturer PT Suparma Tbk is building a new tissue paper plant with installed capacity of 15,000 tones/year in Surabaya, East Java with Rp65 billion investment.
Textile producer PT Karwell Indonesia Tbk is expanding facilities in Bekasi, West Java with Rp26 billion investment.

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Banten gubernatorial race: The winner is...

Today is one of the most important political events in the country after 2004 election, which is the first direct election for governor in Java island ever. It's in Banten, the newest province in the island's western most tip. Four pairs in contest, Atut, Zulkieflimansyah, Tryana, and Djuwaeli.

Quick count from LSI-JIP (led by political entrepreneur Dr Denny JA, wonder whether one of the contenders use his service, some says in other areas at Rp2 billion for guaranteed win or the money returned), as reported by Detik.com few minutes ago, claimed Atut-Masduki (Golkar-PDI-P) had won the election with 39% votes, followed by Zulkieflimansyah (PKS) 32%. Meanwhile quick count by JPPR found Atut got 39% votes, but on razor thin margin with Zulkieflimansyah (37.7%). A tight race indeed! Zulkieflimansyah won in Tangerang, the nearest city to Jakarta, by 45%. At 9.30PM, Detik.com quoted PKS Banten chapter claiming 41% votes for Zulkieflimansyah and 34% for Atut. Tryana (PAN-PPP) in the third spot with quite significant votes (21%) and Irsyad Djuwaeli (Partai Demokrat-PKB) at the bottom end with 3.4% only.
Surprisingly, Banten's Election Committee (this is the formal organization with the authority to decide the winner) recorded Atut got 37% out of 157,000 ballots counted, followed by Zulkieflimansyah 32%.

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Indonesia in 2007

12 months ago I chaired a seminar discussing economic outlook for 2006 with several respected talking heads. The conclusion was Indonesia would grow faster in third quarter 2006 as the full impact of fuel price hike in October 2005 faded out after six months or so. Unfortunately, as shown by Central Burea of Statistic (BPS), the economic growth in Q3 has been the weakest at 5.5% only.

Part of the problems is low absorption of 2006 state budget in which spending for capital and goods for in Jan-Oct well below 50%.
The Central Bank's interest rate actually matched the prediction in Q3, but that's not the case with lending rates which remains too high to boost the economy. NPL, especially in state-owned banks, is high still.
Stock market is bullish though, and increasingly attractive for debt issuance. Foreign direct investment has been insignificant. Infrastructure projects are in slow-motion. Manufacturing industry's competitiveness dropped significantly. But export grew impressively? Well, thanks to huge increase in commodity price. Domestic consumption slowed down. Automotive is the worst.
Last week, I attended the same seminar discussing outlook for 2007. The speakers, Miranda Gultom (Deputy Governor of Central Bank), Sri Mulyani Indrawati (Minister of Finance, represented by economist Chatib Basri who is currently special staff for Mulyani), Mari Elka Pangestu (minister of trade affairs). The conclusion, Indonesia in 2007 would be better off. That simple? What kind of Indonesia we have next year?
Political & Security: Stable! (Important political event will be Jakarta gubernatorial election)
Fiscal Sustainability: Cautiously optimistic! (take into account the shortage in tax collection in 2006, slow progress of privatization of SOEs through stock market, slow absorption of budget)
Monetary: Stable! (Low inflation, Central Bank's target for key inflation is 7%). Central Bank's focus will be encouraging banks to improve the intermediation role. But how?
FDI: Remains low! Some wait the deliberation of Investment Law (in the discussion with parliament). Government promised to pass the law before the end of 2006. The new law is expected to give more protections to foreign direct investment and create level playing field for domestic and foreign investment which are currently regulated with different laws.
Energy: Volatile! (in supply & price)
Job market: Slow growth!
Consumer spending: Rebound, slow growth! (the planned increase in civil servants salary, minimum wage hike. Car market is expected to grow from 310,000 unit to 370,000 unit next year, still far below 2005 level at 520,000 unit. Motorycle sales dropped 18% this year and would grow 10% next year, but still below 2005 level. But consumption would still the country's strength supported by what economist Chatib Basri called Indonesia's hidden economy.)
Banking: More consolidation (merger/acquisition), lower NPL, lower interest rates, higher lending! In 2006, despite lower interest rate, lending has been hampered with low absorption. BCA, for example, signed Rp10 trillion new loans in 2006 but only Rp4 trillion that had been absorbed in 10 months (till October). Only plantations and mining performed well.
Property market: Oversupply, falling price! (Property market dropped 10%-20% in 2006 due to lower purchasing power & high lending rates. Lower lending rates could improve the market, but oversupply lingers)
Manufacturing: Stagnant! No significant investment! Main driver would be expansion projects of existing investors.
Infrastructure: Remains slow! Land acquisition & financing issues are still major problems.

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Lapindo disaster politics

VP Jusuf Kalla indirectly endorsed the idea of state bailout on Lapindo disaster costs. State Minister for National Development Planning Paskah Suzetta said the state budget 2007 could cover part of the costs. Ministry of Finance rejected the idea arguing the President Decree No.13/2006 clearly stated the costs incurred from the mudflow disaster should be the sole responsibility of Lapindo Brantas Inc. But East Java governor Imam Utomo generously lend a hand saying, after a meeting with President Yudhoyono, that the local administration budget could share the costs Lapindo can't take. See, when it comes to state or local administration budget, it's all about politics.

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President 2009 Hypothetical Election

My friend Tommy, a prominent political journalist, believes the presidential election in 2009 will be the race of four candidates: SBY, JK (Jusuf Kalla), AR (Amien Rais), and MS (Megawati). How about Wiranto & Sutiyoso who are establishing new political parties, inspired by SBY's Partai Demokrat in 2004?

"If a hypothetical election was held today, SBY would lost the battle. I don't think he has enough energy for 2009. He looks happy to have the chance to be the president and that's it. But if he runs, which I'm sure he will, SBY could still get enough votes to pass the first round," he concluded.
Wait a minute! Isn't SBY considered successful in eradicating corruption?
"On the surface, yes! But people at the grass root level won't buy that anymore. Besides, he must have created a lot more enemies in the last few years. They'll strike back at SBY. He also failed to impress Islamic groups. Look at his statement about Iraq," Tommy said.
But the the prosecution of some high-level officers have created psychological fears and it's good?
"So far, from PR point of view, it's partially true. But you can't be considered success when you stop at prosecutions and you only prosecute your foes or what popularly known as selective cutting."
How about SBY's Partai Demokrat?
"The party has been torn apart. At the central board, the split has been obvious. Even the party's founding member Sys NS proclaimed a new party. The party is bussy with local election projects," he added.
"It's quite clear now that JK will run for presidency. But he wouldn't pass the first round," Martin, another prominent journalist said.
"But JK is considered strong enough to grab most of the votes outside Java," I asked.
"Well, look at the result of direct gubernatorial elections outside Java. PDI-P won in North Sulawesi, Central Kalimantan, and two provinces in Papua. In that case, JK & Megawati could share outside Java," Abraham, a political observer answered.
Abraham also mentioned about two major win for PDI-P, North Sumatra & Lampung. In the later, PDI-P's Sjahroedin Pagaralam-Syamsurya Ryacudu (younger brother of former Army Chief of Staff Gen Ryamizard Ryacudu---Megawati's key ally) had just won almost three-year battle against Golkar's Thabrani.
"And if Megawati could get Akbar Tanjung as her running mate, they could easily take Sumatra. Tanjung is also acceptable for Moslem voters. Those who supported SBY in 2004 will easily move to support Akbar," Abraham added.
But why do you think that JK won't pass the first round?
"Because Golkar already splitted and Tanjung loyalists are working hard to block JK, especially because JK's recent statement that insulting Tanjung's camp. Look at Tanjung's statement on SBY's newly established team. He said it's the president's sole right to establish such team. The statement actually an attack to JK who opposed the team," Abraham said.
So, how do you explain Gamawan Fauzi's win in West Sumatra? Gamawan was promoted by PDI-P. Can we assume that Megawati could win West Sumatra while JK's wife is a native West Sumatra (from Tanah Datar regency) and SBY has been named Datuk with Irman Gusman (DPD member) as the promoter (in fact JK's son has also been named Datuk)?
"Well, West Sumatra is different game. Gamawan won not because of PDI-P, but his personality as clean figure. It's just a coincidence. If Amien run, he might still win there as shown in 2004," Abraham argued.
"But Tommy, don't you think that Amien Rais is already the past. He failed in the first round in 2004," I asked.
"Well, Amien is playing Evo Morales personality at the moment. I think he's quite smart to use the nationalism sentiment to attract 'nationalist' voters," Tommy argued.
"But do you think that voters would buy the radical nationalistic campaign?"
"I'm not saying Amien would win the election. But looking at his movement in the last few months, it's quite clear that he still has the ambition to run for 2009," Tommy said.
Martin, long-time observer of local politics, jump in the discussion. "We have to see the more interesting local elections in Banten and Jakarta. Then we could get better picture about voters in densely populated areas in Java," he said.
Who do you think will win in Banten?
"I think Atut from Golkar-PDI-P will win," Martin said.
And who do you thin will win Jakarta?
"I think if PDI-P endorse Agum Gumelar, he could win. But Fauzi Bowo is the strongest contender."
But how about PKS candidate Mr Adang Darajatun?
"He has money. But for God sake I don't understand why PKS endorse him? If PKS believes it has the largest supporters in the city, why don't promote Tifatul or Hidayat Nur Wahid?"
Well, you can't say Banten & Jakarta represent the whole Java because we have West Java, Central Java, and East Java with different voters character.
"I think SBY & Megawati could still get the bigger slice of voters in those most populous areas," Martin said.
Rahmon, an international politic analyst, entered the discussion. "You have to look at the possible turn around in US politics as well. You know from the history that US plays important role in Indonesia's leadership changes," he said.
So, in that case, US will lean to SBY?
"At the moment, yes. But if Democrat win the 2008 election, things will change accordingly," he said.
The discussion stopped because I had diarhea. We promised to continue the discussion next week!

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Gas: Export vs domestic pressures

President SBY should make an important decision early next week which may divide further the cabinet. He should decide whether to extend LNG export of 12 million tones/year to Japan or downsize it.

Japan is the largest LNG buyer which absorbs almost 68% of Indonesia's total LNG export. There are contracts to supply 12 million tones/year to Japan that expires 2010. The cabinet is clearly divided on this. Industry Minister Fahmi Idris echoed VP Jusuf Kalla asking for significant reduction in LNG export for the sake of domestic customers. Mr Idris even called a drastic cut of 50%.
Energy Minister Purnomo Yusgiantoro, as usual, is showing unclear position. One time he said that government will cut LNG export for the sake of domestic customers, but then he would say, we could still export LNG as long as we push the development of other gas fields in other areas.
Indonesian Chamber of Commerce & Trade had also urged government to ask more concessions from Japan should the LNG export maintained at the current level.
Pertamina president Ari Soemarno stated this week that based on existing proven reserves in East Kalimantan, Indonesia could only extend LNG export contract to Japan at 4 million t/y the most.

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Exedy Corp enters Indonesia

Automotive component producer Exedy Corporation, Japan, enters Indonesia with its plan to invest USD13 million to build motorcycle component manufacturing facility in Pulogadung, Jakarta.

Exedy Corporation (Japan) and Exedy Globalparts Corporation (USA) have established PT Exedy Motorcycle Indonesia for that purpose. The plant will have the capability to produce 1.4 million pcs of multiplate clutch, 1.4 million pcs of carrier clutch assy, and 700,000 pcs one way clutch per year. The factory would create new job for 376 Indonesian and 8 expatriates. Welcome & Arigato!

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Indofood ownership at Salim Invomas further diluted

Ownership of PT Indofood Sukses Makmur Tbk in plantation subsidiary PT Salim Ivomas Pratama would decrease from 83.84% to 60.45% as a result of reverse takeover transaction through an exchange by Indofood Singapore Holdings Pte (ISHPL) on all shares in Indofood Oil & Fats Pte Ltd which owns 90% shares of Salim Ivomas, with approximately 98.67% shares of Cityaxis Holdings (to be changed to Indoagri) by placement of new Indoagri shares owned by ISHPL.

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Lonsum in US$91 million expansion

PT PP London Sumatra Tbk is expanding its plantation business with additional investment of USD91.29 million. The new invesment would be used to boost palm oil, coconut, chocolate etc in various areas in Sumatra, Sulawesi, & Kalimantan island.

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Giant pulp project in W Kalimantan

A company named PT Garuda Kalimantan Lestari had secured license to build a 1.2 million t/y pulp plant in Ketapang, West Kalimantan with Rp15 trillion (around US$1.7 billion) investment. Who own the company? Well, the address is apparently the same with a company which just restructured its US$1.4 billion debt.

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CP Prima: Box office image, jockeys!

I got a very interesting letter this morning from an investor who came to Semanggi Expo, Jakarta yesterday to buy CP Prima's shares. He was surprised with the arrival of some 'mobilized buyers' using Metromini (Jakarta's dirty but famous buss service).

He politely asked whether his conclusion was right especially when he read my previous article about jockeys paid to create a long queue for TAME shares offering few weeks ago. In fact I got the same conclusion when I saw the picture in Investor Daily today.
Both TAME and CP Prima use the same underwriter for their offerings, PT Danatama Makmur, and the same strategy too. It gives wrong impression. For some, it's a business, especially for the jockeys. It's difficult to get even one single dollar here. But if they use that to keep misleading public, like in the case of EMP or BUMI with conflicting/confusing statements/impressions, the cost for the nation would be too big.

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Liquidity is the answer

People wonder why hot money still flowing into the economy, as reflected by high demand on debt instrument issued by Indonesian companies, amid fears of default (as shown by Sulfindo case) or legal issue (recent verdict from Supreme Court on Indah Kiat bond). The answer is high liquidity, not necessarily because they have oustanding performances. Liquidity in the banking system is so high as the banks are unwilling to lend. How long the economy could live in this situation?

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Lapindo to Freehold, hold on!

I bet the following information would add more confusions. Today PT Energi Mega Persada (EMP) Tbk disclosed the selling price of Lapindo Brantas Inc to Freehold Group is US$1 million. Compare that with USD2 when it plans to sell to Bakrie Oil. No explanation why now USD1 million. But the following might answer that.

Under the sales & purchase agreement with Freehold (BVI), EMP has no right over-riding-royalty interest, no exclusive right to buyback the shares of KEL and PAN which control Lapindo Brantas Inc, no option to buyback KEL & PAN, and no obligation to provide technical assistance to buyer.
The SPA with Freehold, controlled by Singapore-registered Alsace Pte Ltd, set EMP free from any claim or charges, including those related to Banjarpanji mudflow in Sidoarjo, East Java. Nice!
When asked by JSX what is the relationship between Minarak Labuan Co (L) Ltd, a vehicle company owned by Bakrie, and the divestment of KEL & PAN to Freehold, EMP didn't clearly answer that. JSX asked that because Minarak stated last week that it had committed to provide funds needed by Lapindo Brantas to serve its obligation under Presidential Decree No. 13/2006.
If we should believe in EMP's statements that no relationship between Freehold and Bakrie, we must say that Minarak Labuan is a generous company. It's strange as well to understand why would someone want to invest USD1 million only to take other people's responsibility which could cost hundreds of million USD?
Asked about who will take the responsibility over the mudflow, EMP said it should be shared by three companies (Lapindo, Medco, and Santos) based on operating agreement signed in 1992. Lapindo owns 50% working interest in the Brantas PSC, with Medco and Santos hold 32% and 18% respectively. Medco declined to take the responsibility and filed Lapindo to International Arbitration Body in New York instead.

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Indonesians in Singapore

Singapore-listed KS Energy Services Ltd, a company controlled by Indonesian businessman Kris Wiluan, has established a new JV in BVI called Blue Ocean Explorer Limited with Pacific Exploration Pte Ltd to own a refurbished seismic exploration vessel. KS Energy & Pacific own 50% shares respectively.

Meanwhile, Wilmar International---partly owned by Indonesian-born Martua Sitorus, has increased its ownership at Sheringham International Limited to 38.1% and acquired 70% shares in KemOleo Pte Ltd (the remaining 30% shares are held by Mr Rahul Kahe, who is the head of Bio-Fuels).

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GAZA has new meaning

Indonesians are masters in abbreviation. Even GAZA, used to be with the Strip---Gaza Strip, the famous area in Palestine, is currently an abbreviation of Gerakan Anti Zionis dan Amerika or Anti-Zionist & American Movement, thanks to the scheduled visit of US President George Bush on Monday. At least 500 members of GAZA staged a protest in front ot US Embassy in Jakarta to reject Bush's visit.

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Bukit Asam board replaced

Shareholders of state-owned coal mining compant PT Tambang Batubara Bukit Asam (TBBA) Tbk agree to conduct a meeting to appoint new member of the board of directors after the meeting on November 15 accepted the end of tenure of the previous board. Board of commissioner is handling day-to-day operation of TBBA.

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Debt & equity market highlights

PT Bank Lippo Tbk finally listed the US$200 million bond arranged by UBS in Singapore Stock Exchange. The proceeds would be used to finance the bank's commercial and consumer lending, and strengthen its capital.

Meanwhile, PT Bank Negara Indonesia Tbk had secured US$150 million syndicated loan from 12 banks & financial institutions to refinance debts. ABN Amro, Bano of Tokyo Mitsubishi UFJ, State Bank of India, Burgan Bank- Kuwait, The Arab Investment Company, Bank Muscat, National Bank of Dubai, Shanghai & Commercial Savings Bank, Mizuho & Standard Chartered are members of the syndication.
Pakuwon Jati Finance BV, a wholly-owned subsidiary of property company PT Pakuwon Jati Tbk registered in Amsterdam, Netherland, had issued US$110 million bond (12%, maturity 2011). The bond, listed in Singapore Stock Exchange, would be used to refinance debts and finance the acquisition of PT Artisan Wahyu.

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Sutikno, new PGN CEO

Sutikno has been appointed chief executive officer (CEO) of state-owned gas transmission & distribution company PT Perusahaan Gas Negara (PGN) Tbk replacing WMP Simanjuntak.

Sutikno was director for administration & general affairs at PGN. He earned master degree in social science from University of Indonesia. Prior to his promotion as director of general affairs in 2001, Sutikno was head of budget division at PGN.
Shareholders meeting also appointed Simanjuntak as commissioner of the company. Djoko Pramono maintained his position as finance director, while Nursubagjo Prijono (director of operations) entered the mandatory retirement.

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Bush is greeted with Black Magic

Last night, the famous Ki Gendeng Pamungkas has tried to do black magic (santet in Indonesian) on US President George Bush who will be in the country for few hours on Monday, Nov 20. Former president Abdurrahman Wahid believes the effort wouldn't work. But Gendeng (means insane or crazy) said his intention was not to kill Bush, only to make him not comfortable while he'll be here (Bogor, West Java to be precise). Gendeng's ritual was started with sheep, snake, and magpie as offerings. Police said if something wrong with Bush, Gendeng could be prosecuted. Gendeng is noted city transportation (angkot) businessman in Bogor.

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Golkar recommends cabinet reshuffle

Golkar Party's national leadership meeting recommends a cabinet reshuffle, Koran Tempo quoted party executive Theo L. Sambuaga. That's considered the price of the party's continuing support for SBY's leadership. But wait a minute! SBY was directly elected by people, not political parties. So, he is not obliged to follow the party's recommendation. But I do agree to unseat those cabinet members who really do nothing to support SBY's programs and busy to secure their seats.

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People behind Free Hold

"They must be kidding with the name. I thought they should have shown at least sensitivity to public over the mudflow disaster," an analyst wrote to me commenting the announcement from PT Energi Mega Persada (EMP) Tbk to sell Lapindo Brantas Inc to Free Hold Group Ltd, a BVI company. Who are the people behind Free Hold?

Well, don't expect a straight answer. Even Bapepam (SEC) is just about to summon EMP management over the plan and hopes to get the answer which they might never get.
"You could pay to get the information from BVI. But I think they could only provide proxy names or law firms who represent the ultimate shareholders. That's the common practice for such vehicles," another analyst said.
Googling? Zero. Asking people at EMP, they would be tight-lipped. How about Bakrie family? The same. The National Team to Handle Lapindo Mud Flow (Timnas Penanggulangan Lumpur Lapindo)? Don't expect! Even though from my opinion organizations like that (plus Bapepam) must know who will be the new ultimate shareholders of Lapindo considering the social & economic responsibilities of the mudflow that already forced more than 10,000 people to leave their homes.
While Vice President Jusuf Kalla once declared that Bakrie Family had promised to take the responsibility, so far we don't know exactly whether the commitment is written or just oral commitment. Since we have so much at stake with the Lapindo issue, we need the written commitment.
I hope that Kalla will comment on the recent development of Lapindo divestment to non-Bakrie family as stated by EMP management.
Without clear legal relationship between Lapindo and Bakrie family (suppose that Free Hold will be confirmed as the new owner), I'm not sure if the nation could ask Bakrie family to stand up with their commitment unless it's stated.
That's probably why VP Jusuf Kalla didn't mention Bakrie family when he said on Friday that whoever own Lapindo, the company should take the responsibility.
To add confusion over the matter, Minarak Labuan Ltd (a company owned by Bakrie family) claimed that it will lend money to Lapindo.
"But I'm afraid President Decree No.13/2006 could secure Lapindo's interest," a respected journalist warned me yesterday.

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Announcement! New Service!

Dear readers,
Starting next month, this blog will have very limited free content. If you want to get high quality news updates, exclusives, analysis & database searching, you need to subscribe the new service to be announced very soon.

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Another confusing statement from Energi on Lapindo

Once again, actions do speak louder than words. While people expects something substantial on how the hot mudflow in Sidoarjo could be stopped, PT Energi Mega Persada (EMP) Tbk is busy with efforts to walk away from the disaster.

This time, as reported by Bisnis Indonesia today, EMP said that Lapindo will be divested to a new company, controlled by non Bakrie family, after Bapepam (Indonesia's SEC) refused the plan to sell Lapindo for US$2 to Lyte (a vehicle controlled by Bakrie family). I got information today that the name of the new buyer is Freehold Group Ltd, a BVI company. No details available on who owns the company which may lead to the question of who will take the burdens of the environmental disaster?
It's just strange the way EMP respond Bapepam's rejection to sell as a rejection to sell Lapindo to Bakrie Family. I think the issue is not to whom EMP sell Lapindo, but the divestment itself is the real problem.
In the last few months, EMP bombarded public with tons of statements, which some investors consider as misleading information. Under the capital market law, misleading information is a crime. But so far, it seems that Bapepam is not serious enough to deal with the information issue.

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The Reform & The Coffee Shops

What is the connection between reform movement in 1998 and the flourishing coffee shop business? The hypothesis is that reform has created a healthy environment for the coffee shop business because people have more freedom to talk almost everything in open spaces.

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Just Bush It!

Indonesians love to use the word bete or BT if they hate something or feel bored. Actualy BT is an abbreviation (we love them) of bullshit. But using the same word you could end up with another abbreviation, Bush and Sulit (Difficult, tough). Expecting Bush to renegotiate contracts between US companies and Indonesia government must be sulit if not BT.
Chairman of Muhammadiyah (the second largest Moslem organization in Indonesia) said the meeting between president SBY & Bush will be of No Use, Detik.com reported.
While the ABGs (Anak Baru Gede) in Bogor rallied with flowers in their hands today to welcome Mr Bush, Detik.com also reported. Hundreds meters away, another group have a completely different wishes. The group, mainly students, hopes God will 'punish' Bush with heavy rains and thunder welcoming him. From the media coverage perspective, I think the opposition movements win. But I'm not sure if that represents the whole population. We call the situation Just Bush It!

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KPC & Arutmin divestment

Bisnis Indonesia reported today that five investors are competing to acquire 30% shares of PT Bumi Resources Tbk coal mining subsidiaries of PT Kaltim Prima Coal and PT Arutmin Indonesia. Who are they?

Bumi management declined to disclose the names, only that they are from Japan & Australia. Credit Suisse is the coordinator for the divestment.
The price? The management didn't clearly disclose how much proceed they expect from the divestment. But the paper quoted an analyst that the price assumption is somewhat similar with the US$3.2 billion collapsed deal between Bumi and Renaissance Capital which translates to US$1 billion for 30% shares of KPC & Arutmin.
What to do with the money? To pay the debts (Bumi?) plus dividend (if any?).
The major problem with Bumi's corporate actions is the huge gap between the announced plan and reality. They simply forget the general belief that actions speak louder than words!

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Golkar starts 2009 campaign for Kalla?

I saw some big-size posters of Vice President Jusuf Kalla in Jakarta major streets since last week in his capacity as chairman of Golkar Party. One of them is located near the Sultan Hotel (previously Hilton Hotel) owned by corruption suspect Pontjo Sutowo (brother-in-law of Aksa Mahmud, Kalla's brother-in-law).

Today, I saw one-full page of advertisement in Kompas newspaper filled with big-size photograph of Kalla. Well, Golkar may argue that all of these are related to the party's national leadership meeting held in Jakarta this week. But others may see them as the signs of Golkar's 2009 campaign.
Well, it's too premature to conclude that Golkar will eventually name Kalla as a president candidate for 2009. But the party has just reaffirmed its commitment to support SBY's leadership? Hm...I think the party was trying to be polite by declaring that, especially after the party leadership's open opposition to the team established by SBY.

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Indosiar is for sale

To confirm my earlier reports, media published several statements from Indosiar management in the last few days about the possibility of other companies to acquire the ailing TV station previously controlled by Salim Group.

Indosiar is currently controlled by PT Indosiar Karya Media (IDKM) Tbk, listed at JSX. IDKM itself is owned by PT TDM Aset Manajemen (28.02%), PT Prima Visualindo SA C/F Credit Suisse Singapore (27.3%). Trimegah & Windsor also hold IDKM warrants 9% respectively.
In a report to JSX late last week, IDKM confirmed media reports that the company want to pay bonds due 2008 with bank loans (refinancing), rights issue, or the combination of both methods.
TransTV, controlled by Salim's business partner Chairul Tandjung, is said to acquire Indosiar. TransTV had previously acquired 50% shares in another ailing TV station, TV7, with the remains controlled by Jacob Oetama (Kompas Gramedia Group)

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Holding vs merger of state-owned banks

Responding the Central Bank's Single Presence Policy (SPP), government has launched an initiative to establish a holding company for state-owned banks (Mandiri, BNI, BRI, BTN & BEI). But some prefer merger of these banks. Which one is better?

Legislator Drajad Wibowo (former commisssioner at BNI) told Koran Tempo today that merger would be better to create a stronger bank. His view is completely different with his stance few months ago when he agreed on a BNI-BTN merger plan but rejected a Mandiri-BNI merger arguing the latter would create an overlap functions.
State-owned enterprises minister Sugiharto said earlier that government is reviewing the plan to respond Central Bank's policy. Establish a holding bank, either vertical or horizontal structure, is among the options available besides the merger. Kompas quoted Sugiharto last week saying out of so many options available, the holding company is the option left for further review. The review would be to decide whether to pick one bank as the operating holding or establish a new non-operating holding.
So far, there is no clear guideline from government about its policies on state-owned banks. VP Jusuf Kalla prefers a merger of Mandiri-BNI because of their similar functions, but keep BRI and BTN as independent banks with speficic tasks (BRI for SMEs, and BTN for housing). Guess why?
Previously some politicians argued against the merger saying that would be politically too sensitive. But Drajad told Tempo that a merger would be more sensible politically. Drajad's colleague, Dr Aviliani, who is also member of board of commissioners at BRI, prefers holding than merger. I'm not sure whether her view represents the BRI board or not. Drajad & Aviliani were economists at INDEF (think tank).
After the fuss over SBY's newly established team, it's interesting to watch the competition between the two camps (SBY & JK) over the holding vs merger issue.
Early this year, government scrapped a BNI-BTN merger plan on strong opposition from legislators and the management/workers of BTN. So, I just can't imagine the scale of political opposition on the merger of 5 state-owned banks.
Merger is also considered a violation of Govt Regulation No. 28/1999 about the merger, consolidation, and acquisition of banks which stated the bank emerged of the merger should not have assets more than 20% of the total national bank assets. The merger of 5 state banks would create a bank with 38% of national bank assets, Kompas reported.

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Asahimas cold repair

PT Asahimas Flat Glass Tbk, South East Asia's largest flat glass producer, will repair one of its furnices to improve the productivity with US$9.5 million investment.

Asahi Glass Co, the owner of 43.85% shares in Asahimas, will handle the cold repair project that would boost the furnice (unit 4, located in Jakarta) utilization to 95% of installed capacity (150,000 t/y).
In the last five years, the plant's average output was only 70.8% of its installed capacity. The repair project would cost Asahimas a 90-days of shutdown at Furnice-4 to be started in April 2007.
Indonesian Rodamas Group is the second largest shareholder of Asahimas at 40.65% and the remaining shares held by public investors (15.5%).
Asahimas operates four furnices in Sidoarjo, East Java (two) and Jakarta (two) with combined capacity of 570,000 t/y. Asahimas performed similar cold repair on Sidoarjo furnice three years ago.

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Cepu-like scenario in Natuna D-Alpha?

Regional administrations in Central & East Java secured 10% participating interest in Cepu oil and gas project. Today, some newspapers quoted Riau Islands governor Ismeth Abdullah saying his administration would ask the same in the Natuna D-Alpha project to be renegotiated between Indonesia government & ExxonMobil/Pertamina. That would make the process even more interesting to watch.

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De Soto gave lectures to President SBY on Capitalism 2.0

I never heard of president Megawati Soekarnoputri's meeting with celebrity-economist Hernando de Soto. But I remember when de Soto met president Abdurrahman Wahid few years ago. The author of The Mistery of Capital met the incumbent president Susilo Bambang Yudhoyono for a breakfast yesterday.

Accompanying the president were coordinating minister for the economy Dr Boediono, coordinating minister of people's welfare affairs Aburizal Bakrie, and other cabinet members. The reporters were not allowed to listen the discussion and they wondered why. But I think the president and his cabinet members were not prepared to the news like this...SBY learns capitalism from de Soto or de Soto told the president how capitalism would be the best weapon to fight terrorism (Capitalism 2.0).
Two weeks from now, US president George Bush will be in town for 10-hour visit...So, it's an introduction session.

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Bumi-Energi merger is off

PT Bumi Resources Tbk said it has cancelled the merger plan with PT Energi Mega Persada Tbk, Bisnis Indonesia reported. The paper quoted Nirwan Bakrie, a member of the Bakrie family that controls both companies, saying the merger with Energi surely would not go ahead because there are problems involving Energi that remain unsolved.

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SBY & JK: Together, we crash

It's too early to change the 2004 election magic words for SBY-JK, Together, we could to Together, we crash...But that would be the likely outcome if both leaders wage openly the war for 2009 election right now with the recent dispute on a newly super-team established by SBY to accelerate the reform but JK oppose it.

The Post put it right in its headline today that the rift between SBY & JK used to be left under the rug, but this time it's open. JK's statement after a Golkar Party meeting yesterday might well represent that.
I could understand Golkar's dissapointment, especially because none of the figures in the new team is the party's cadre. But look at how Muhammadyah Chairman Din Syamsuddin, former research and development hea of Golkar Party, reacted. He urged the president to simply dismiss the team arguing it would potentially breakup the cabinet. He also regrets how difficult for Muhammadyah and Indonesia Ulemma Council (MUI) to meet the president. "I have to wait eight months and it's after three letters asking for the meeting. It's lot easier to meet God," Syamsuddin grumbled.
Noted ulemma Yusuf Hasyim (former president Wahid's uncle) also suggests the president to revoke the team. "There is also a win-win solution that the team may exist but the chairman should be other guy that Marsilam Simanjuntak because he is a controversial figure," Hasyim said.
Meanwhile, Hasyim Muzadi, chairman of Nahdatul Ulama (NU), said based on his discussion with JK at his resident, the team had been dissolved. But JK told the press differently afterwards. "We discussed Poso conflict, and we discussed nothing important issues than that. Regarding the team, it's up to the president," Kalla said.
I had also expressed my views against the team, but for different reasons. I'm not questioning the professionalism of the team members because I believe our very problem is many times not about personal issues but rather their capabilities to make collective decisions and implement them.
The team's core executives are Marsilam (chairman, former minister under Wahid administration, happened to be a Catholic), Agus Wijoyo (deputy chairman, former military top brass, SBY's long-time friend, Islam), and Edwin Gerungan (deputy chairman, former chairman of Indonesia Bank Restructuring Agency/IBRA, Christian). I hope you don't come up with conclussion that both Syamsuddin and Hasyim tend to oppose SBY on the team because of its religious-sensitive issue. This is more a political issue.
Deputy chairman of PPP (Islamic party) Lukman Haki Saifuddin, for example, said he couldn't accept Golkar Party's rejection on SBY's new team. "Especially if the reason is too personal and subjective, i.e. Marsilam once opposing Golkar," he was quoted by Kompas on Saturday.
People's Consultative Assembly speaker Hidayat Nur Wahid (from PKS, Islamic Party) simply warned the team could be accommodated if the main goal is to strengthen cross-institutions relationship and as long as that has nothing to do with 2009 election.
Well, I still believe in my previous stance that what the country needs actually not a new team that supercedes the cabinet because we already have two leaders anyway (SBY & JK). We need both SBY and JK to make up their minds in making strong collective decisions in implementing reform policies (down-to-earth) to develop the country. Except that they agreed to throw away the 2004 election slogan!

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Cost recovery claims & US$2.5bn state loss

The Supreme Audit Agency (BPK) found potential loss to the state of US$2.5 billion of cost recovery claimed by five oil and gas contractors, Tempointeraktif.com reported.

BPK has just audited five of the contractors. They are Chevron Pacific Indonesia, ConocoPhilips Grissik, PetroChina Jabung, Medco Rimau and Pertamina-BSP. BPK blamed on Upstream Oil and Gas Regulatory Body (BPMigas) for the potential losses as the agency is seen non decisive enough. BPK also asked government to review the production sharing contracts (PSCs) to have them clearly state what costs could be recovered.

Details are as follows:
Charges on interest recovery:
- Chevron: USD4.95 million
- Conoco: USD170.4 million
- PetroChina: USD23.98 million
Third party contracts:
- GSEA contract between Conoco & Chevron: USD5.46 million
- Electricity supply contract between BOB Pertamina & Chevron: USD20.04 million
- Electricity supply contract between Chevron & MCTN: USD210 million & USD1.23 billion
- Duri oil-gas exchange between Chevron & Conoco: USD4.2 million

OTHERS:
- Collection station modification at Chevron: USD33.979 million
- Investment credit charges for gas operation at Conoco: USD379.5 million (no legal grounds)
- First Tranche Petroleum at Conoco: USD442.19 million during 1997-99 & 2000-2004 (no legal grounds)

Unfortunately none of the companies audited clarified the findings so far. Considering the amount that big, if they're true, so much at stake for these oil giants, especially Chevron & Conoco, both listed in the world's stock exchanges. The scope of audit, I think, has been limited to certain operation of these giants and that would potentially lead to another major findings. It's interesting to see what will be their responds.
BPMigas, as reported by Tempointeraktif.com, simply said it would follow-up the findings and cross-check them with the contracts.
To my surprise, even BPMigas admitted, donations from these oil/gas contractors made to tsunami victims could be charged as cost recovery item as long as it's stated in the contract. Such donation could be considered the company's corporate responsibility & community development program and it's reimbursed.
To me, it isn't fair at all. These companies got so much publication when they gave the donation, perceived as good citizens, and have led people to think how generous they are while actually it's the state/people who pay for it through cost recovery scheme.

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Bapepam on Lapindo spin-off: NO, NO, and...

A friend journalist told me this afternoon that Bapepam Chairman Fuad Rahmany rejects to give approval for PT Energi Mega Persada Tbk's plan to spin-off the troubled subsidiary Lapindo Brantas Inc to Bakrie Family at USD2. Oh, in fact Detik.com had published Fuad statements, about the same though. Well, it's a NOT YET, and not a final NO!

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10,000 MW Transmission headache for PLN

The ambitious and looks-good 10,000 MW power generating project would likely worsen further state-owned electricity PT PLN's long-term financial capability as the company is yet to anticipate the transmission and distribution parts.

It took 15 years for PLN to build transmission & distribution network for 10,000 MW. Even for the best case scenario, it would take a decade or so to absorb the additional 10,000 MW. The problem, if all of these projects would be accomplished as scheduled (before 2010), PLN is tied to pay no matter PLN actually takes the power produced or not.
Even a three-year time-lag would cost PLN a lot. For power investors, as long as they have the take-or-pay clause with PLN, they would be secured. "That's gonna be a mess for PLN," one internal source at the company said.
By law, only PLN is allowed to operate transmission and distribution of electricity in the country. "I just can't understand why nobody cares about transmission. This is a huge challenge, more difficult to implement than build up 10,000 MW of power generating units. Sometimes you need more than two years only to accomplish land acquisitions. Not to mention the environmental and social struggles along the way," said one observer.
Even at PLN, there are several projects heavily delayed even though the funding is available already
He sensed massive rent-seeking in the 10,000 MW for political purpose, especially the 2009 presidential election. "The fees could go up to hundreds of million dollars," he said.

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Investment Forum: Here, There, and Everywhere

Yesterday, president SBY gave speech to prospective investors/creditors at Infrastructure Summit II, Jakarta Convention Center. One mile away, at Shangri-La Hotel, SBY gave another speech this morning, practically with the same messages (to lure investors in) to prospective investors attending Regional Investment Forum (RIF). Other cabinet members also deliver speeches in both events, with copy-paste here and there.

Indonesia Forum had just organized in Shanghai, China, with SBY as the keynote speaker and some ministers too. By the end of the week, in Makassar, South Sulawesi (hometown of VP Jusuf Kalla), The Bugis-Makassar Traders Network would convene, part two. I bet Kalla will be the key figure there. The first was organized by a company owned by member of the family. Good business for the conference organizers!
Results?
Well, we've recorded so many investment commitments. US$4.5 billion in Shanghai (even though no new commitment, reaffirming only), billions from Middle East, US, Europe state visits, another US$2.1 billion in the first day of The Summit II from US-Japan consortium, Texas Pacific Group committed to establish an Indonesian fund (US$100 million), and so on...But don't ask whether all these guys really put their money into the economy...we have to wait few more years!

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Infrastructure Summit (Too)

Infrastructure Summit II has entered the second day with foreign creditors flocked to the arena to extend their credit lines. With them, are insurers like OPIC or state-sponsored export credit agencies like China EXIM and brokers/investors. Wish I could be there. But I have some blogger fanatics there to report what's going on.

"I hardly found people with white-hair, white people (bules). I'm afraid most attendees are Indonesian brokers/proxy-investors," said head of US investment bank in Jakarta.
"Well, the fact that most attendees are black-hair (excluded bules with black hair), few bule, shows the emergence of China as the new global power in investment. I met some real investors from China, including guys from EXIM Bank of China. I guess the US investment banker discounted too much other-than-bule investors..he3," another banker clarified.
"Besides, most global investors have their representatives in Indonesia and increasingly headed by Indonesian, black-hair," a head of local investment bank argued.
"You're dead wrong when you wrote that Indonesia government rejected US investor's plan to build US$2 billion coal-fired power plant in South Sumatra. The fact, your newspaper printed the story as headline today," one reader complained in an email this morning.
"You're just too cynical about the Summit and its impact. No investor would jump-in just like that, pouring hundreds of million dollars on something. Government deserved second chance with The Summit," another reader wrote.
How good the cabinet's performance there?
SBY: OK
JK: Like usual, sharp (sometimes scared investor off), plain business language (English so...)
Boediono: Good
Sri Mulyani: Good
Sugiharto: So...
Poernomo: So...
Hatta Radjasa: Good
On average, good...(These guys are good in drafting presentations, hopefully better in drafting & implementing what they've written)
Well, deep down my heart, I always hope the best for the nation, and thanks for those who come to town from thousand miles away and flocked to the conference. I'm sure the organizer also get very good return from its investment. I could only echoe the wishes of many people: Government and other parts of the society should make up their minds, get things done, move fast, don't spend too much time in conferences/seminars but rather behind the desk, making decisions, checking the implementation of programs in the field, and reviewing what's left behind or cynicism prevails.

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Telcos social responsibility: Lower tariff please!

Three major telecommunications players, PT Telkom Tbk, PT Excelcomindo Pratama Tbk, and PT Bakrie Telecom Tbk reported sharp rises in profit in the first nine months, The Jakarta Post reported. Good news for shareholders and investors. But significantly lower telecommunication tariff would be a better news to read!

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