How Japan outsmart China in Indonesia's electricity business

"You may think that China swept most of new power generating projects in Indonesia. But don't ever underestimate the Japanese. They managed to block China with the postponement of IPP projects and at the same time ask Mitsui and Sumitomo to expand their existing facilities in Paiton and Tanjung Jati B respectively so there will be no more rooms for new IPPs in Java," one China-backed investor said over the weekend. But how they did it?

"Well, first of all, Japan use ADB to lobby government to conduct a study on IPPs first before proceeding with the bidding. The study would take one year at least. Government agreed to postpone the IPPs and only proceed the 10,000 MW crash program. In the meantime, Japan asked Mitsui & Sumitomo to expand their existing power plants," he explained.

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Mergers & Acquisitions

Malaysia's Tridomain Acres Sdn Bhd acquires 95.4% shares of PT Mitsui Eterindo Chemicals from Mitsui Chemicals Inc (86.9%) and Baylite Company Limited (8.5%) at undisclosed price. Meanwhile PT Schlumberger Geophysics Nusantara (SGN) and PT Reda Pump Indonesia (RPI) will merge with SGN as the surviving company.

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Lapindo suspects: To a higher level

Investigation on hot mudflow disaster from Lapindo Brantas Inc's drilling activities in Sidoarjo, East Java have entered a new level with the naming of three suspects from three related companies.

Media reported today that the three new suspects named by East Java police are vice president drilling of PT Energi Mega Persada Tbk (Nur Rohmat Sawolo), president director of PT Medici Citra Nusa (Yenny Nawawi), and general manager of Lapindo Brantas Inc (Imam Pria Agustino).
Energi Mega is the parent company of Lapindo Brantas, operator with 50% working interest in Brantas PSC. Medici is the sub-contractor assigned by Lapindo for drilling of Banjar Panji-1 well which ended up with unstoppable hot mudflow.
Lapindo's partner in Brantas PSC are PT Medco Energi International Tbk and Australia's Santos with 32% and 18% working interests respectively.
Previously East Java police named six suspects in the case consisted of two Lapindo staffs (drilling supervisor & drilling staff) and four Medici staffs (mainly those involved in drilling activities).
All these suspects are prosecuted for alegedly violating three laws, criminal code, environmental law, and water resources law.
These officials faced five to 15 years in prison if they were found guilty of negligence and 18 years in jail if they were found guilty of violating environment regulations.
Abi Tisnadisastra, the lawyer for PT Lapindo Brantas, told Reuters that
the massive flow of mud that inundated several villages was not a result of human error.
In a related development, companies hit by the mudflow are starting to claim compensation from Lapindo. Hundreds of small medium companies operating in the surrounding area have filed their claims to local authorities and then to Lapindo.
While government officers threatened to review Lapindo's operation in the area, no firm decision made so far. Brantas PSC contributes almost 40% of natural gas revenue for Energi Mega, a company in the merger pipeline with associated company PT Bumi Resources Tbk.
Both Energi and Bumi have postponed their respective extraordinary shareholders meeting to vote on the merger as Bumi has not completed the divestment of two coal mining companies, PT KPC and Arutmin, for US$3.25 billion to Borneo Lumbung Energi.
Both Borneo and Bumi are waiting consent letters from KPC and Arutmin contractor (Thiess) and equipment leasing company (Mitsui).

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No deal yet, Bumi postpone shareholders meeting

PT Bumi Resources Tbk told JSX Monday that extraordinary shareholders meeting which was initially scheduled this Friday (July 28) is postponed to September 19 for undisclosed reason.
The meeting is expected to decide the merger plan with PT Energi Mega Persada Tbk. But the uncertainty over the closing of US$3.2 billion acquisition of two Bumi subsidiaries (KPC & Arutmin Indonesia) by Borneo Lumbung Energi is believed to be the main reason behind the postponement.
Borneo-Bumi deal is pending on consent letters from Thiess as contractor & Mitsui as equipment leasing agent for KPC & Arutmin. Thiess is the main contractor of both coal companies which secured life-of-the mine contract (Aus$1.7 billion). So far, no letter of consent given from Thiess and Mitsui.
Borneo had secured financing for the acquisition, of which US$2.1 billion raised by Credit Suisse.
On the other hand, Energi Mega is facing its own problem on unstoppable hot mudflow disaster from Lapindo Brantas drilling activity in Porong, East Java. Lapindo has 50% working interest in Brantas PSC, one of EMP's key assets which contribute almost 40% of the company's revenue from natural gas operation. Investigations are underway, with civil & criminal charges, and these may lead to the termination of Lapindo's operation.

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Borneo-Bumi deal pending on contractor's consent

The closing of US$3.25 billion deal between PT Borneo Lumbung Energi and PT Bumi Resources Tbk is pending on the consent letter from Thiess, main contractor of PT Kaltim Prima Coal & PT Arutmin Indonesia.

Thiess is the main contractor of both coal companies which secured life-of-the mine contract (Aus$1.7 billion). Why the contractor is so powerful in the deal between Borneo-Bumi?
Besides, Borneo needs consent from Mitsui as the main equipment leasing agent for both KPC and Arutmin. "So far, no letter of consent given from Thiess and Mitsui," he said.

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Feni III shutdown, Antam missed target

PT Aneka Tambang (ANTAM) Tbk is forced to shutdown its newly built FeNi III smelter due to the leak from the metal tap hole late last week. That would cost Antam's ferronickel production target for 2006 a significant cut to 13,000 to 16,000 tonnes from the target of 19,000 tones.

ANTAM wrote to Australia Stock Exchange on Wednesday that it requires three months of FeNi III shutdown. Initially ANTAM planned the new plant's commercial operation by first quarter 2006 but delayed due to all conditions for conducting a final plant test had not been satisfied.
FeNi III is being built by a consortium of Mitsui & Co Ltd and Kawasaki Heavy Industries Ltd, Japan. Both companies are responsible for all work and testing prior to the commercial operation of the plant.
Antam's president director Dedy Aditya Sumanagara said, "We're extremely disappointed by this development as we had been operating FeNi III at capacity for one and a half months and were expecting to begin the final test and declare commercial operations at the beginning of July."
A full investigation is underway. No explanation from both Mitsui and Kawasaki on the accident.
The US$320 million FeNi III project involves the construction of a third smelter and new power plant in order to expand the Pomalaa ferronickel capacity from 11,000 tonnes of nickel contained in ferronickel to 26,000 tonnes. The FeNi III smelter will be built alongside FeNi I and FeNi II smelters in order to benefit from economies of scale.
The FeNi III plant will use nickel ore feed from Antam’s large nickel deposits in Buli, North Maluku and from a deposit adjacent to Pomalaa owned by PT Inco, known as East Pomalaa. The excavation of ore will be conducted by Antam or outsourced. Construction of the third power plant to power Antam’s entire ferronickel operation also began at the end of 2003 and will take 18 months to complete. The 102 megawatt plant includes the installation of six new diesel power generators and at the beginning of 2005 three of the generators will be operational, providing a more stable and efficient power load to the existing facility. Antam’s older plant with a capacity of 50MW, will be used for auxiliary and back up once the new power plant is operational. The new generators can run on fuel oil as well as natural gas. In June 2004, Antam signed an Operation and Maintenance (O&M) agreement with the builder of the new plant, Wärtsilä Corporation of Finland, for the operation and maintenance of Antam’s entire 152MW power facility.

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Feni III shutdown, Antam missed target

PT Aneka Tambang (ANTAM) Tbk is forced to shutdown its newly built FeNi III smelter due to the leak from the metal tap hole late last week. That would cost Antam's ferronickel production target for 2006 a significant cut to 13,000 to 16,000 tonnes from the target of 19,000 tones.

ANTAM wrote to Australia Stock Exchange on Wednesday that it requires three months of FeNi III shutdown. Initially ANTAM planned the new plant's commercial operation by first quarter 2006 but delayed due to all conditions for conducting a final plant test had not been satisfied.
FeNi III is being built by a consortium of Mitsui & Co Ltd and Kawasaki Heavy Industries Ltd, Japan. Both companies are responsible for all work and testing prior to the commercial operation of the plant.
Antam's president director Dedy Aditya Sumanagara said, "We're extremely disappointed by this development as we had been operating FeNi III at capacity for one and a half months and were expecting to begin the final test and declare commercial operations at the beginning of July."
A full investigation is underway. No explanation from both Mitsui and Kawasaki on the accident.

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Mitsubishi Chemical expand Indonesia facility US$260 million

PT Mitsubishi Chemical Indonesia, a wholly owned subsidiary of Japan's Mitsubishi Chemical, will expand its purified therephthalic acid (PTA) plant in Merak, Banten province, Indonesia with additional investment of US$249.75 million.

PTA is the main raw material for polyester staple fiber (for textile manufacturers) and PET resin (plastic raw material). PTA is the preferred raw material used to produce Polyethylene Terephthalate (PET) or polyester. The major applications for polyester are in fiber, bottles, films and molded containers. In the textile industry, polyester, alone or in a blend with cotton, wool or other synthetic fiber, is used in fabrics for clothing and home furnishings. For industrial markets, woven polyester fibers are used in automotive tire cord and seat belt application. Polyester resins are also widely used in molded containers for food, beverages and mineral water. Additionally, polyester films is used as a recording medium for audio and video tapes and as film in medical X-ray equipment.

Mitsubishi currently operates a 650,000 t/y PTA plant in Merak, the largest in Indonesia. The new plant would have installed capacity of 400,000 t/y.

Is this the sign of awakening of Indonesia's chemical industry after years of slowdown? What's happened with other PTA producers such as PT Polysindo Eka Perkasa, PT Amoco Mitsui Indonesia, PT Polyprima Karyareksa, and Pertamina?

Await my special report on Indonesian PTA and chemical industry...my favourite topic.

Mitsubishi Chemical's PTA plants are located in four countries. Japan with 250,000 t/y, South Korea through Sam Nam Petrochemical Co (1.6 million t/y), Indonesia (650,000 t/y) and India (470,000 t/y). Besides the PTA, Mitsubishi also operates a PET film plant in Merak with installed capacity of 20,000 t/y.

Mitsubishi is the largest PTA producer in Indonesia. Other producers are:

- PT Polyprima Karyareksa = 480,000 t/y

- PT Amoco Mitsui Indonesia = 350,000 t/y

- PT Polysindo Eka Perkasa = 350,000 t/y

- PT Pertamina = 225,000 t/y

It brings the country's total PTA capacity at 2.1 million tones per year. With conversion factor of 670 kg of paraxylene to produce 1 ton of PTA, Indonesia needs at least 1.3 million t/y of paraxylene. The problem, Indonesia has only two aromatic centers producing paraxylene with combined capacity of 775,000 t/y leaving almost half the demand from import. So why Mitsubishi wanted to expand PTA plant in Indonesia without enough domestic supply of paraxylene? The new plant would bring Mitsubishi's capacity to 1.05 million t/y which translates to 670,000 t/y paraxylene consumption.

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Titan acquired Indonesian petrochemical company

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

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

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

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

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