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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Flip Flop on Natuna D-Alpha

In less than one month, government officers made flip-flop and conflicting statements on the status of ExxonMobil & Pertamina's contract to develop the massive gas reserves called Natuna D-Alpha project.

Today, both energy minister Purnomo Yusgiantoro and BPMigas chairman Kardaya Warnika stated that the Natuna PSC had been automatically terminated in January 2005. Few weeks ago, both officers stated that give time to Exxon & Pertamina until January 2007. In between, both guys also stated that Exxon may still operate the gas block but with brand new contract.
On the other hand, ExxonMobil which controls 76% shares in Natuna D-Alpha (Pertamina 24%) insisted that the contract is valid until 2009. (FYI, Pertamina initially owned 50% shares in Natuna D-Alpha. But somehow Pertamina divested 26% few years ago, and nobody raised the question, why? I could understand if the divestment is considered a big mistake, especially with the sky-high energy price in recent years)
Anyway, back to the Natuna legal battle, it's clear that both parties have different interpretation of the contract itself. Article II.2.2 of Natuna PSC amended in 1995 stated that if contractors (Exxon & Natuna) failed to come up with clear commitment before January 2005, the contract shall automatically terminated. Exxon claimed that it's letter dated December 2004 to BPMigas confirming the commitment to develop Natuna has been enough to secure the first two year extension, which means until January 2007. Article II.2.3 also stated that if one of the parties (BPMigas or contractor) asking for extension after the first two year of extension to further confirm the project, it's deemed obliged to approve additional second two-year extension (until 2009).
Government claimed that the contract has not been terminated unilaterally, but automatically. It means, government should provide proofs that contractor (Exxon & Pertamina) failed to meet the requirements in the contract. So far, no such proofs available that legally convincing. But Kardaya seems to believe that government is in strong position even if Exxon challenge that in international arbitrary. People that familiar to oil & gas business doubt though. "It's gonna be the next Karaha Bodas," he said.
What if government think that Indonesia managed to postpone hundreds of million dollar fine of Karaha Bodas case? Well, let's read brand new flip-flop statements in the newspaper in the coming weeks or so.
But the first statements, maturity of contract in 2007, has completely different legal consequences, i.e. government acknowledging Exxon's commitment made in December 2004 and the 2-year extension accordingly. Meanwhile if government claim the contract had been terminated automatically in Jan 2005, it has to come up with proofs to support that and probably a stupid question: Why government said before that the contract would mature in Jan 07? Or another stupid question: What's happened in the last two years? Where are all these guys?
I try to take positive leasons out of this. Suppose that gas price stays the same like 5 years ago, nobody would care about Natuna D-Alpha, because it's just too costly to develop. Now that government want to renegotiate for better terms, that's good. But we have to do it right. Some people try to blame Soeharto or BJ Habibie for the contract given to Exxon. Partly true because we always forget to protect ourselves from future ups-and-downs in contracts with smarter guys. Meaning, we have to learn to be smart in negotiations, articles by articles, paragraph by paragraph, and word by word.

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30 Pro bono paranormals failed to stop the mudflow!

100 Days passed since the first mudflow at Banjar Panji-1 well, Sidoarjo, East Java. President Susilo Bambang Yudhoyono just issued the decree to establish a team to tackle the environmental disaster. In a related development, a team of 30-plus paranormals have performed rituals to stop the mudflow but failed. They perform the superstitious rituals on pro bono basis, separated from 40-plus paranormals who competes for a US$9,000 grand prize provided by local village chief.


"The team has a duty to take integrated operational steps to overcome the blowout, including to shut the blowout, to handle mud flow and to handle social issues," the decree said as reported by Reuters on Tuesday.
Energy Minister Purnomo Yusgiantoro will head the team that will include the public work, maritime and environment ministers, as well as top local government officials in the province.
I though the cabinet is a team so there is no need to establish a new team like that after 100 days people living dangerously. All we need is decision, to do something!
"Maybe the new team would manage the competition of paranormals as well. The team would likely provide more attractive prizes to assemble the best paranormals in the country," a friend commenting the too-late-team. (Have you notied that Indonesian ambullance cars have the sirene sounds like too-late, too-late, too-late?)
As reported by Antara today, apart from 40-plus paranormals who came from various ethnic groups in the country to perform supranatural mights to stop the mudflow for a US$9,000 grand prize, there were 30 paranormals who came to Sidoarjo and performed their supranatural gifts on pro-bono basis, but formally announced their failures today.
At competition arena, about 25 paranormals failed to pass qualification stage leaving another 20 yet to perform. Registration for the first phase had been closed on Sunday. If none of them managed to stop the mudflow, the organizer would open the second phase registration after the fasting month.

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The President turns 57, no party!

President Susilo Bambang Yudhoyono is 57 today. The birthday party might have been organized by air crew as he is in the flight to Finland. As reported by Detik.com, State Palace reporters presented him the red roses. "Keep criticize, but constructive," SBY said when he received the birthday present at Halim Perdanakusuma airport before the take-off.

The President is scheduled to visit three countries, Finland, Norway, and Cuba. Accompanying the president are chief economic minister Boediono, coordinating minister for politic/security affairs Widodo AS, energy minister Purnomo Yusgiantoro, trade minister Mari Elka Pangestu, cabinet secretary Sudi Silalahi, and justice/human rights affairs minister Hamid Awaluddin.
In Norway, the president would attend the signing ceremony of cooperation agreement between state-owned oil company PT Pertamina and Norway's Statoil.

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Ministers, The Most Photographed & Quoted

Indonesian ministers are among the most photographed personalities in the newspapers simply because they regularly appear in public events like seminars, workshops, groundbreaking ceremonies, inaugurations, companies' birthdays, hearings with parliament members etc.

I just don't understand what is the benefit for readers to see their faces every day? Don't we have more beautiful sights and sceneries to show how beautiful this country is? Don't we have more dreadful sights and hardships to share with than these same-old faces?
In the last few days, I saw the picture of SOE Minister Sugiharto in various newspapers several times. One newspaper even published two of his photographs. Finance Minister Sri Mulyani is also among the most photographed (not for good looking, I guess). Aburizal Bakrie, the coordinating minister for people's welfare and Energy Minister Purnomo Yusgiantoro are also in the list.
These ministers are also the most quoted officers. We have their statements every day just like the information on stock price movements or rupiah value against US dollar. It's constantly changed, mechanistic, nothing new, just statements, empty words, no meanings, no decisions made. Altogether, we see newspapers increasingly become ministries' newsletters.
Below these ministers, we also see regularly pictures or headshots of SOE CEOs like, among others, Agus Martowardojo (Bank Mandiri), Sigit Pramono (BNI), or Ari Sumarno (Pertamina), while performance of these SOEs are not as good as their photographs.

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Govt to review Lapindo Brantas future

Energy minister Purnomo Yusgiantoro said his staffs are reviewing whether to let Lapindo Brantas Inc operate the oil and gas block after the humiliating disaster of mud flow from the company's drilling activity. Lapindo is a subsidiary of PT Energi Mega Persada Tbk where PT Medco Energi Internasional Tbk has 30% shares and Australia's Santos has 20% shares in the Brantas production sharing contract (PSC).

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Lapindo disaster, quo vadis?

Few days ago, energy minister Purnomo Yusgiantoro said government is considering stern sanction on Lapindo Brantas Inc for the environmental disaster in Sidoardjo, East Java. The maximum penalty will be revoking the company's license.

Lapindo's parent company, the listed PT Energi Mega Persada Tbk, responded quickly with a letter to Jakarta Stock Exchange (JSX) yesterday saying the revoking of such license should be based on production sharing contract (PSC) signed by the company and government.
It's interesting to see where the government will take the case. Revoking the license might seems perfect, but real politic is unlikely to support that. Worse, under the PSC terms, government should share the burden through cost recovery scheme. Lapindo reiterated in the letter to JSX yesterday that the drilled well which caused the unstoppable hot mudflow falls into production well category, so the cost incurred is recoverable.
But environmentalists or the victims of the disaster, who might be upset, could file a class action lawsuit in US court since Lapindo Brantas Inc is a US-registered company.

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Biofuel politiconomics

Indonesia is in the mood of everything related to biofuel, biodiesel, or bioenergy. And it's not just a respond to sky-high fossil fuel price. It's about politics for 2009 election.

Energy Minister Purnomo Yusgiantoro told the press today that a limited cabinet meeting chaired by president Susilo Bambang Yudhoyono in Malang, East Java over the weekend set the target of 2010 for a mass consumption of biofuel in the country that has been struggling to keep up fossil oil production with increasing demand.
As reported by Detik.com in Sunday, Purnomo said by 2010 biofuel could save 10% the consumption of traditional diesel oil and gasoline, plus 50% of the country's electricity. Ambitious plan. Late last year, research ministry announced that by 2015, up to 10% of the nation's oil consumption could be met with biofuel.
Biofuel, according to the cabinet meeting, supports three basic policies: Pro-Growth, Pro-Poor, and Pro-Jobs. Pro-Growth means biofuel would support a higher economic growth, pro-poor means significant cut in fossil fuel subsidy, and pro-jobs means creating new jobs in the biofuel industry right from its upstream (plantation and the such) to downstreams (biodiesel plants and distribution).
President's spokesperson Andi Malarangeng claimed the program would create jobs for 3.5 million people.
Several raw materials were mentioned in the roadmap to biofuel. They're palm oil, molasses, casava, jatropha etc. Industry Minister Fahmi Idris came quickly with government's plan to build eight biofuel plants with jatropha as the raw materials.
In fact, companies have jumped into the business in a frenzy way in the last few months. Life science company DuPont, for example, announced its innitiative to produce biofuel based on corn in Indonesia in a cooperation with Beyond Petroleum (BP). Some state-owned and local private companies have also announced innitiatives to produce biodiesel based on palm oil. Big palm oil companies like Astra Agro, Bakrie Sumatra Plantations, for example, have announced their respective plans to build biodiesel plants. Wilmar Trading, the largest CPO trader in Asia, is reportedly drops a plan to build biodiesel plant in Singapore and relocate that to Indonesia. Others plans to build ethanol plants based on molasses in various parts of the country.
But the country, just like others, is facing the dilemma. Excessive land usage, for example, could raise the environmental problem in itself. Government claimed there are 50 million hectares of land in Indonesia that suitable for jatropha plantation.
To be continued........

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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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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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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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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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Eramet reaffirms Weda Bay project

Weda Bay, Halmahera in Molluca Islands will be Indonesia's next Soroako (giant nickel production facility run by International Nickel/Inco). France-based Eramet president Jacques Bacardats is in Jakarta this week to reaffirm the company's future plan for Weda Bay mineral project that may cost US$1.5 billion.

Early this month Eramet acquired controlling stakes of Weda Bay Minerals Ltd, an exploration and development company that
controls the Halmahera Nickel Cobalt Project at Weda Bay, Halmahera in Eastern
Indonesia. Halmahera is one of the largest undeveloped nickel projects
globally. State-owned mining company PT Aneka Tambang Tbk hold 10% shares in the project.
Simon Sembiring, director general for mining at the Energy and Mineral Resources Ministry told the press after the meeting between Energy Minister Purnomo Yusgiantoro and Bacardats that Eramet plans to produce nickel consentrates in Weda Bay. "But they might also produce nickel there, depend on the feasibility study," he said.
The plant in Weda Bay could produce up to 60,000 tones per year of nickel.
Eramet is an integrated mining and metallurgy group that produces non-
ferrous metals and their chemical derivatives, high-performance special
steels, nickel alloys and superalloys and high-performance parts for industry.
So far, Inco is the largest nickel producer in Indonesia through its Soroako, Sulawesi Island operation. Inco's installed capacity is around 70,000 tones of nickel consentrates per year and is working on US$250 million expansion project to boost the capacity by 30% to 90,000 tones/year.

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Indonesia to get more Freeport shares

Energy Minister Purnomo Yusgiantoro said it's almost likely that Indonesia will get another 15% shares of the mining giant Freeport Indonesia.

While it's not clear yet whether the 15% shares would be for free or at a price. But Investor Daily reported on Saturday that the short term target is to get 9.36% shares once offered to government but then 'captured' buy local conglomerates. The government apparently has to buy those shares, not for free.
Currently Indonesia government owns 9.36% shares in Freeport. The company once divested 10% shares to Indonesian groups (initially Bakrie Group, then transfered to Bob Hasan during Soeharto years) but Freeport bought back the shares due to Hasan's default on payments to loans from Freeport.
State-owned mining company PT Aneka Tambang Tbk once proposed to acquire Freeport's 9.36% share through share swap with government shares in the company. But government turned down the offer and Aneka Tambang pulled out accordingly.
Freeport spokesperson Siddharta Moersjid said the 9.36% shares currently hold by PT Indocopper Investama may has the value of US$1 billion.
Director general of mining Felix Sembiring indicated that the buyer of 9.36% would not necessarily government of Indonesia, but could be Indonesian private-owned companies. Rumors said that Bumi Resources, a company linked to Bakrie Family, might enter the transaction after it divested two coal mining giants for US$3.2 billion.
Whoever, the move to get more shares could be considered a compromy amid pressures from nationalist groups to close down Freeport's operation. No Morales Way here!

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Morales Effect in Indonesia

Bolivia President Evo Morales stunned world's oil, gas, and mining establishments with his May Day decree. Under the decree, foreign companies in oil, gas, and mining must accept much tougher contract terms within six months or leave the country. Morales' nationalization does not entail a complete state takeover, as has occured in other countries. So far none of the big players, Petrobras, Repsol YPF, BG Group, or Total SA has pulled out. But as soon as they find the terms unprofitable, they will leave the country.

Morales Effect hit the neighboring countries, especially Brazil and Argentine, which rely their gas supply from Bolivia. As reported by The Wall Street Journal today, Morales decree drives metal prices even higher as he stated clearly that oil and gas nationalization is just the beginning and to be followed by other sectors including forestry.

Tanzania immediately follows Morales step with the announcement of the country's Chambers of Miners that government had set up a task force to review foreign mining contracts because the current terms benefit foreigners at the expense of locals.

The Latin American anti-establishment storm would even stronger if the nationalist presidential hopeful Ollanta Humala win the second-round runoff vote later this month. The controversial Venezuela president Hugo Chavez has threatened to nationalize mining industry as well.
Like his ideological soul mate and friend, President Hugo Chavez of Venezuela, Mr Morales is keen to diversify Bolivia's relations away from a dependence on the US. Historically, Bolivia's weak economy - the poorest in South America - has made it very vulnerable to US influence.
China, the energy hungry nation, is considered to play a role in developing Bolivia's oil and gas sector, as it is already doing in Venezuela.

How about Indonesia?

Actually the nationalist movement had mounted pressure to review the gold mining contract of PT Freeport Indonesia, the largest gold mining in the world, since late last year. President Susilo Bambang Yudhoyono had asked minister Purnomo Yusgiantoro to review the contract. The nationalist is also targetting ExxonMobil's contract with Pertamina regarding the development of Cepu oil and gas project.

Some legislators then proposed to use the rights to investigate government over its decision to give ExxonMobil the operation right in Cepu Block. But when it comes to formal politics, only one party (PDI-P) which endorsed it. Legislator from PKS and PAN failed to convince its party leadership to support the move. Recently media also reported the breakup in PDI-P over the issue. So the movement in parliament has been weakened in the last few months.

But outside the parliament building, former Assembly Speaker Amien Rais keep the fight. He gathered support from senior politicians such as Try Sutrisno (former VP) and retired general Wiranto. This group failed to get spare time of president SBY to deliver their 'messages' and planned a major rally on May 20 instead.

But yesterday Amien trumpetted Morales Effect saying, "Our leader (President SBY) should act like Morales."

I'm sure he has good intention, to get better deal with big corporations like Freeport McMoRan and ExxonMobil which book unbelievable profit in the last few years. I support every efforts to renegotiate better terms for the people. What we need now is how to outsmart them.

It is true that Freeport, Exxon, or Caltex booked huge profit from their Indonesian operation. But we have to remember that local groups such as those who own PT Bumi Resources Tbk also recorded US$3.2 billion out of its divestment of coal mining companies. Look at how much money Bumi made last year? Rp1.2 trillion profit. That's also the case with Adaro Indonesia, Energi Mega Persada, or Medco Energi---all owned by local business groups.

We can't simply copy paste Morales decree because we have to analyze its full impact to the society. One's misery could be other's fortune. Kicking out the Spanish or UK companies, would open the door for China. The same could happen here. Kicking out US companies would be followed with huge fortune for some Indonesian business groups, but not necessarily means Indonesian people. We managed to kick out Rio Tinto and BP from Kaltim Prima Coal, but then we have Bumi Resources control it and got US$3.2 billion out of it. So, what we need is an overall arrangement of the level of playing field, not partial ones.

Great philosopher Jeremy Bentham said the best public policy is that which produces greatest happiness. We can't change a public policy that would bring miseries. It is our job, including the leaders of opposition movement, to find out the best policy. We're not in a rush anyway!

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Rio Tinto to invest US$1bn in Sulawesi nickel mining

Energy Minister Purnomo Yusgiantoro confirmed Rio Tinto Group's plan to invest US$1 billion in a nickel mining project in Sulawesi Island.
Rio Tinto is operating gold and silver mines in East Kalimantan through its subsidiary company PT Kelian Equatorial Mining (KEM). Rio owns 90% shares in KEM which produces 500,000 ounces of gold per year. But due to depleted resources, Kelian mining will no longer in operation by next year.
The World's no.3 mining company had been exploring Central Sulawesi through its another subsidiary PT Citra Palu Mineral for its rich resource of gold, coal, nickel, oil, gas and chromium. Citra Palu obtained a work contract from government in 1997 to engage in mining on a 561,050 hectare area.
Citra Palu's exploration activities were subject to protests from the community of Poboya who rejects the company's plan to turn a protected forest park into an open-cut mine. Indonesian environment and human rights NGOs have formed a coalition to oppose mining in protected forest areas, but somehow the government relaxing the regulation and pave the way for resumming such activities in the name of economic growth.
Rio Tinto is studying a laterite deposit containing nickel on Sulawesi Island, Purnomo said. Rio Tinto and central government officials are in Sulawesi to discuss the plan with regional authorities.
Rio Tinto is considering the venture after nickel prices almost quadrupled since 2001 on demand from Chinese steelmakers. Indonesia has about 16 percent of the world's nickel in laterite, which is more costly to process than other deposits. A global commodities boom has increased Rio's profit eightfold in five years, and may prompt $9 billion of spending on mines.
Rio Tinto and Freeport Indonesia have a joint venture agreement that entitles Rio Tinto to 40 per cent of ore mined as a result of the expansion of Grasberg, Papua in 1998 which Rio Tinto helped to finance.

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Natuna D-Alpha: Another headache for ExxonMobil

ExxonMobil Oil Indonesia Inc, a subsidiary of US giant ExxonMobil Corporation, is facing another headache over its Natuna D-Alpha working contract as BP Migas (the upstream oil and gas regulatory body) urge the company to immediately submit the feasibility study for the development of Natuna's 173 trillion standard cubic feet (TCF) of natural gas.

ExxonMobil is awaiting the settlement of its years of dispute with Indonesia's PT Pertamina over the giant Cepu oil and gas field in Java Island. Politians mounts pressures on government to appoint Pertamina as the operator of Cepu project.
On September 2005, BP Migas threatened to cancel Exxon's working rights for Natuna D-Alpha amid uncertainty over its future development.
Natuna gas field was estimated to hold total reserves of 140 trillion cubic feet (tcf), though some 72 percent of the reserves contain carbon dioxide. Without the CO2 the gas reserves should be around 45 TCF, which is still huge.
Under such circumstances, the development of Natuna D-Alpha needs investment up to US$40 billion. Such a huge development cost calls for a market capable of generating an adequate return.
That's why, Indonesian government had given the owners of the block the right to retain 40 percent of the block's future gas output, while under standard production sharing contracts, contractors keep 30 percent of gas output, with the remaining 70 percent going to the government.
The D-Alpha block is 74 percent owned by ExxonMobil Oil Indonesia. Pertamina holds the remaining 26 percent of the block. D-Alpha was part of the Natuna gas fields discovered in 1973, located in Natuna Sea, about 225 km off east Natuna Island (600 km northeast of Singapore, and 1,100 km north of Jakarta).
ExxonMobil signed an agreement with the government in 1995 for a 10 year of commercial operation. The fields have never been in production following the failure in the drilling in a number of locations since 1995, but both Exxon and Pertamina still conduct marketing activities and study. Exxon got contract extension for two years that would mature early 2007.
Pertamina has been frustrated by the marketing problem for Natuna D-Alpha and planned to divest 13 percent of its shares to Malaysia's Petronas in exchange of Petronas being the off-taker. In fact, Petronas, Pertamina, and ExxonMobil signed a memorandum of understanding on March 18, 2002 to jointly develop the block.
Three years ago, hopes also emerged as a couple of businessmen brought together by the Asia Pacific Economic Cooperation (APEC) planned to build a pipeline project touted to be the longest undersea gas pipeline in the world linking Natuna D-Alpha, Natuna Island and Shanghai, China. The 4,875-km long pipeline would be routed via Vietnam, Malaysia, and Thailand. However the US$8 billion pipeline project is yet to receive official endorsement from China and Indonesia.
In June 2005, Executive VP Corporate Strategy and Development PTT Public Company Limited (Thailand) Tevin Vongvanich met energy minister Purnomo Yusgiantoro to express the company's interest in developing Natuna D-Alpha.
Purnomo said that time that since there is already a gas pipeline from Natuna (West Natuna fields operated by Conoco), it would make sense if PTT also join the Natuna D-Alpha. But no information since then.
Exxon's partner, Pertamina, decided to postpone the D-Alpha project last year due to huge investment cost. It's a hell of a strain for Exxon.

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Cabinet failed to make decision on Cepu

A cabinet meeting led by president Susilo Bambang Yudhoyono failed to make a final decision on who should operate the giant Cepu oil field amid stronger pressure from DPR to appoint state-owned Pertamina.

The meeting was started 2PM. Vice President Jusuf Kalla, Coordinating minister for the economy Boediono, finance minister Sri Mulyani, energy minister Purnomo Yusgiantoro, state-owned enterprises minister Sugiharto, and cabinet secretary Sudi Silalahi attended the three-hour meeting.

Sugiharto told the press after the meeting that no decision was made pending a final draft of the joint operating agreement (JOA) between Pertamina and ExxonMobi, Detik.com reported.

"No decision yet. But it's almost done. We're fighting for Pertamina as the chairman of the joint operating committee (JOC)," Sugiharto said.

He admits that the committee would consist six members, three from Exxon and three from Pertamina. The committee will govern the operation of Cepu block including plan of development and budget.

While some DPR members leaning toward Pertamina, the House Speaker Agung Laksono said DPR has no problem if government appoints ExxonMobil as the operator.

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SBY don't want JK steal the Cepu show

Cepu debacle has been a domestic politic issue right from the start when Soeharto awarded the technical assistance contract (TAC) to his beloved son Tommy's Humpuss Patra Gas. The internationalization of the issue started when Humpuss signed a farm-in agreement with Australia's Ampolex in 1996 with the approval of both Pertamina (that time Faisal Abdaoe was the president director) and the government.

The discovery of huge oil and gas reserves in Cepu the following years combined with the global merger of Exxon & Mobil Oil (which acquired Ampolex) lifted the issue even higher to a geopolitic diplomacy. The new entity, ExxonMobil, then acquired more shares in Cepu in June 2000 to make it 100%, again with the consent and approval from Pertamina (Baihaki Hakim was the president director) and government (Abdurrahman Wahid's administration in which Kwik Kian Gie was the coordinating minister for the economy and Susilo Bambang Yudhoyono as the energy minister).

Cepu entered global politics when ExxonMobil applied for an extension of the contract. I've wrote about this before in Cepu: A political journey.

After four years of yo-yo negotiation, Susilo Bambang Yudhoyono, this time as president, decided to extend the contract last year and change the TAC into production sharing contract (PSC). Pertamina was clearly unhappy to share the block with ExxonMobil under a 45%:45% arrangement (10% for local administrations of East Java, Central Java, Blora and Bojonegoro).

Pertamina did sign the Cooperation Contract (KKS) with Exxon in October 2005. But in the last six months, both companies unmoved to start the drilling of Cepu wells because they can't decide on who should operate the block. Tiring and boring activities such as lobbying and maneuvering have been the menu of the day. It's seems to be endless dispute and went nowhere until Vice President Jusuf Kalla visits the oil field two weeks ago.

"The President had given me the order to have this dispute settled in one week," he said. But why he mentioned the word president? First to put a weight on the issue. The second, to give credit to the president that he is a decisive leader.

But when Kalla disclosed further the criteria for Cepu operatorship (technology, experience, financial capability, bla bla bla) politians quickly interpret that as a sign of government's leaning toward Exxon. Days after, energy minister Purnomo Yusgiantoro said that Pertamina's proposal to implement rotating system of operatorship simply can't be accepted. Other key minister in the debacle, minister for state-owned enterprises Sugiharto, follow suit.

Pertamina then realized the whole situation that government might finally appoint Exxon. They arranged some pressing statements. All of a sudden, a pressure group established and organized some events to criticize government. Early this week, two DPR commissions (VI & VII) conducted a hearing with some cabinet members with initial agenda of domestic gas policy amid shortage supply to fertilizer companies. But the hearing, attended by Purnomo and Sugiharto among others, quickly shifted its focus to Cepu debacle.

Debate heated up when DPR members split on how to respond politically government's stance on Cepu. Some members wanted DPR to formally suggest government to appoint Pertamina as the operator, but others rejected.

The opposition side urge government to stand up and do not bow to US government's pressure, steer the nationalism sentiment, etc. Ministers simply afraid of such pressures and put the Cepu decision on the back burner.

Kalla comes to defense saying the final decision on Cepu is in the hands of president SBY, scheduled to land here 5 PM this afternoon from Myanmar. For sure, Kalla pretty much involved the decision making process for Cepu, just like his much-criticized initiatives for Aceh Peace Deal last year. Only that this time, SBY don't let Kalla steal the show again. He want to tell public that as the president, he could make tough decisions like when he approved the 180% hike on fuels price.

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Iran to invest US$2 billion in Indonesia refinery project

After years of promises and talks, energy minister Purnomo Yusgiantoro reaffirmed yesterday Iran's plan to seriously build the US$1.5 billion to US$2 billion refinery in East Java.
Purnomo said president Susilo Bambang Yudhoyono had ordered him to go to Iran to discuss the plan. Both countries actually had signed a head agreement on the plan. Purnomo and Iranian Oil minister Bijan Namdar Zanganeh signed the agrement in March last year
But Iran seems to have backed off the plan when state-owned company Pertamina signed an agreement with China's Sinopec to build a refinery in Tuban, East Java. Recently, Pertamina started to doubt Sinopec's seriousness.
Last year, Iranian Oil Minister Bijan Namdar Zanganeh said that establishment of a refinery with design capacity of 300,000 barrel per day in Indonesia would provide further security for Iran's market supply.
Under last year's agreement, Indonesia would receive 300,000 barrel per day heavy crude from Iran and Tehran would have 30% share in the refinery project. The project could cost US$3 billion.
"Iran is ready to invest US$1.5 billion to US$2 billion in the project," Purnomo said yesterday as quoted by Temporinteraktif.com.
National Iranian Oil Company and Pertamina will undertake the project in which Naftiran Intertrade Company will hold 30% stake.

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