Clean Golkar Caucus? BIG JOKE!

A group of Golkar politicians established what they called "Clean Golkar Caucus" to unseat party chairman Aburizal Bakrie. While they might pointed to the US$220 million tax manipulation allegedly committed by Bakrie-related companies as the rationale for replacing Aburizal, the caucus' name is a problem. "Clean Golkar politicians? What a big joke," a friend commented.

Zaenal Bintang, founding member of the caucus, said Aburizal shall resign temporarily. "He shall resign," Zaenal told the press in the residence of former coordinating minister for the economy Rizal Ramli.

So, who is the "clean" guy to replace Aburizal? Zaenal promoted Agung Laksono (currently the coordinating minister for people's welfare, replacing Aburizal). Agung is also deputy chairman of Golkar Party. Is he clean?

Well, that's not important for them. But they could ride on the recent political dynamics where Golkar, a member of the ruling coalition, is in the frontline on ongoing investigation on Century bailout. 

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Sri Mulyani's father passed away

Professor Satmoko, father of minister of finance Sri Mulyani Indrawati, passed away on Saturday at 79. He survided a wife, Professor Retnoningsih, 10 children and 25 grandchildren.

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Sukanto Journalism School in Spore, why not here?

Investor Daily reported that Indonesia's richest man Sukanto Tanoto donated S$1 million to journalism school at Nan Yang Tech University in Singapore. The money would be used to finance two Indonesian students per year to learn journalism in Singapore. Quite strange, learning journalism in a country without press freedom? Why not in Indonesia?

Donation is an noble act. You could be seen by some as a noble man, while others may keep calling you a 'thief' because you had walked away from liabilities in the past as what Anwar Nasution, chairman of BPK always labelled on Indonesian conglomerates.
As for Sukanto, through his Tanoto Foundation, he is actively involved in what some newspapers called phylantropy. He's not alone. Eka Tjipta, Aburizal Bakrie, Soeharto have similar foundations. Besides, foundation is the perfect way to pay less tax to the state. Well, I should ask MoF Sri Mulyani about tax payments of Indonesia's richests.
With USD2.3 billion wealth (according to Forbes), donating S$1 million is clearly a peanut. But that amount is big enough to build elementary schools in the country, which from my perspective is the weakest of our educational system.

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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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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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Sri Mulyani, The Best Finance Minister in Asia?

Talking about awards, it's about preference. So, when Emerging Markets, a newspaper, named Indonesia Finance Minister Sri Mulyani Indrawati as The Best Finance Minister in Asia, we have to see in that perspective. It's a challenge for Sri Mulyani herself as many might have different view on her performance.

As reported by Tempointeraktif.com, quoting Taimur Ahmad, chief editor of the newspaper, Sri Mulyani is considered as the best finance minister in Asia based on some aspects such as economic growth, investor's confidence, rating, and foreign investors views. Emerging Markets newspaper give the award regularly every IMF-World Bank meeting.
Read: Sri Mulyani: How Cool?

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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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Judgement Day for Cemex-Gresik saga

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

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

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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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Sugiharto send new letter to Cemex

After a cabinet meeting last week and Cemex's rejection to the earlier letter sent on behalf of the government, MSOE Sugiharto sent a new letter on Friday asking Cemex's understanding on the demand to exercise the right of refusal over 25.5% shares divestment in PT Semen Gresik Tbk.

People close to the issue said over the weekend that Sugiharto reiterated government's intention to buyback 25.5% shares through a third party assigned consortium.
"But just like the previous one, Cemex most likely would turn down Sugiharto's proposal," he said.
Earlier in the week, a cabinet meeting was split on the buyback issue as both chief economic minister Boediono and finance minister Sri Mulyani Indrawati backed off the plan and only Sugiharto insisted to do so. After the meeting, Sugiharto was reportedly met VP Jusuf Kalla to convince the leader on the plan.
"It's clear that Sugiharto is not going to let this over soon," he said.

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Garuda & The Ticket to Nowhere

Transportation Minister Hatta Radjasa disclosed government's plan to ask a debt haircut to the creditors of the-loss-making-flag-carrier Garuda Indonesia. The amount of the haircut would be substantial enough to make sure creditors will not approve that. And even if the creditors would be generous enough, such haircut is just a ticket to nowhere. Why?

To be honest, debt haircut is one of the best solutions to keep Garuda flying. The problem is how much haircut would be given. Minister Radjasa said Garuda's sustainable debt is US$270 million. That would translate to a demand of debt haircut up to US$520 million of its outstanding US$794.6 million. European Credit Agency (ECA) is the biggest creditor at US$501.6 million, followed by floating rate note (FRN) holders of US$130.6 million, a mandatory convertible bond (MCB) of US$136.8 million, and some banks.
In March, SOE Minister Sugiharto told parliament members that government need to inject US$250 million (from the state budget) to refinance Garuda's debt and establish a special purpose vehicle to buyback the debts. So it looks like Soeharto administration's bailout of aircraft manufacturer (IPTN) in 1990s. Billions of US dollar invested in IPTN (renamed Dirgantara Indonesia) only to end up as dishes manufacturer and the state still had to takeover its bad debt at IBRA few years ago.
I'm sure MOF Sri Mulyani, a fiscal conservative, would not give the money to Sugiharto. Even Prime Minister Abdullah Ahmad Badawi rejected to bailout Malaysia's flag carrier Malaysia Airlines.
Sugiharto then opened the new option, divestment of up to 49% shares of Garuda. Several big names in the airline business were tipped as parties that had expressed interest to be government's new partner in Garuda. But resistance quickly emerged, as always, in the name of nationalism. Parliament member Drajad Wibowo (a former economist)rejected the divestment to foreign parties, but it's ok through IPO or to local investors. Hatta, meanwhile, asked his colleague in cabinet to give priority to debt restructuring than the divestment.
Nationalism have prolonged the endgame of many flag carriers, including those in Europe. Europe's airlines long were considered extensions of foreign ministries, responsible for flying the flag, not running a business. During the first half of the 1990s, European governments handed out $9 billion to prop up money-losing carriers from Air France to Greece's Olympic Airways. Even private companies have not escaped political complications. BA's attempt to buy KLM Royal Dutch Airlines collapsed partly because of fear that if the Dutch airline came under British ownership, it would lose international treaty rights to fly to places outside of Europe such as Japan and the U.S. And European Union rules prohibited Swiss-air, based outside of the EU, from taking over Belgium's landing rights within the EU if it bought a controlling stake in Sabena. So Swissair settled on a 49.5% stake.
In that sense, nothing particularly wrong on nationalism over Garuda. But VP Jusuf Kalla actually had more liberal views on flag carriers. In December last year, Kalla was quoted by Tempointeraktif.com saying Garuda is no longer the flag carrier and that he welcome investors to buy the airline.
At the time all these leaders bussy to talk about how to save Garuda, for whatever reasons, Garuda defaulted MCB payment to a bank syndication led by Bank Mandiri as Garuda keep mounting losses. The airline booked net loss of Rp672 billion last year, reduced from net loss of Rp811 billion in 2004. Stiff competition pushed down Garuda's occupancy rate to 67% in 2005 with half million less passengers than the previous year. Garuda's market share has dropped from 70% (prior to the liberalization of airline industry) to the recent 30% (some says 25%). Garuda apparently had failed to cope with the changing environment.
I agree with Lin Che Wei (Danareksa's president director) who wrote in Kompas newspaper few months ago that Garuda need to seriously overhaul its operation, streamlining, downsizing etc.
I believe that people support the basic idea of keep the company alive because thousands of jobs are at stake. But people have different views on how to help the company improve. I prefer the company raise equity, either through capital market or private placement (I have no problem with domestic or foreign investors) than using state funds to inject new loans-to-equity type of bailout simply because it's a kind of return ticket to nowhere! Garuda will return to the same place, parliament and government for help, at the expense of ordinary people who deserved more the state funds for better education or healthcare infrastructures.

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Gov't want to buy, Cemex rejects

Indonesia government had decided to exercise its rights to acquire Cemex SA's 25.53% shares in state-owned cement maker PT Semen Gresik Tbk through a consortium of SOEs, but Cemex is most likely reject the offer.


SOE Minister Sugiharto told the press after a meeting with coordinating minister for the economy Dr Boediono that government had sent the letter of intent to Cemex.
"But it's up to Cemex to decide," he said.
Bisnis Indonesia reported that Sugiharto asked Cemex to give two months time to exercise the right.
"The problem, legally according CSPA between government and Cemex in 1998, government can't transfer the right to buy. The legal opinion is that government has no legal basis to assign rights and to seek extension," source at the ministry said.
So, it's a matter of interpretation of the CSPA. Sugiharto (and Vice President Jusuf Kalla) argued that government could buy the shares outside the budget mechanism deploying SOEs.
SOEs like Jamsostek, Taspen, and Danareksa---all fund management companies would act on behalf of the government to buy after government decided to use its first right of refusal. This is not a surprise. Jamsostek led by Iwan Pontjowinoto (Sugiharto's colleague at Sharia Economy Society) claimed financing support for government to rescue the ailing flagship carrier Garuda Indonesia just days after Sugiharto openly said about the option to divest up to 49% shares of Garuda.
Minister of Finance Sri Mulyani Indrawati had turned down Sugiharto's proposal on Cemex arguing no state budget allocated but she said that she could understand if Sugiharto take another options.
But even if these SOEs would be allowed to buy, it's not easy to raise equity or to rely on their own funding. Bisnis Indonesia reported that Sugiharto have approached international lenders such as Macquarie Bank, UOB (Singapore), West LB (Germany), and Presidio Advisors (in partnership with PT Andalas Tuah Sakato, a company owned by West Sumatra administration). These companies claimed US$400 million funding in hands.
Cemex, reportedly, rejects the offer and only want to sell the shares to Indonesian company Rajawali Corporation owned by Peter Sondakh at US$337 million. Cemex and Rajawali had signed the conditional sales and purchase agreement (CSPA)to bring an end to long legal dispute with government.
So, the card is in Cemex's hands now. If the company reject Sugiharto's proposal and go ahead with the deal with Rajawali, I think Rajawali would feel the heat. But definitely it's also depend on how Rajawali deal with the government officers like Kalla and Sugiharto at the national level and local leaders in West Sumatra, East Java, and South Sulawesi---the locations of Semen Gresik's operations.

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The Cabinet with Celeb Complex, Part Two

If you happen to read newspapers in the last few days, you may end up with the very same question: Who is the trully representative of government view on one particular issue? Will cabinet members keep using media merely as popularity booster for their own interests and leave the society at large without clear guideline on what the government will do?

With mounts of homeworks to boost economic growth, ministers allocates so much time to talk in various seminars, workshops, media visits, TV or radio talkshows and give so little time to analyze and make key decisions.
Public debates & discourses are important in a healthy democracy, but when it's just too much, no decisions would be made. Officers can't everytime ask people what they think of an issue or look at the popularity rating and then make decision on it. A lengthy decision making process would consume the government's energy.
"This administration has just no basic management skill i.e. making decisions. You can't score big points if you can only make two decisions in a year," an investment banker told me yesterday.
Look at how ministers talk-too-much-talk---on Cemex SA's deal with Rajawali Group regarding the 25.5% shares in PT Semen Gresik Tbk. Government officers as the representative of the state as the majority shareholder of the company tend to stand above the capital market law with their conflicting statements that put public investors at the sidelines and yet the market authority did nothing to punish government for that. (Guess it's an inferior complex at the stock market authorities)

At odds:
1) Cemex-Rajawali Group
2) MSOE Sugiharto-Presidio/MSOE Sugiharto-Consortium of SOEs/local administration etc

Let's do a little rhetoric analysis on
1) Vice President Jusuf Kalla: The buyer should be a local company or consortium of local companies (even though with foreign investor's funding?). Gave authority to Sugiharto to arrange the details.
2) Sugiharto, minister for the state-owned enterprises (MSOE): The buyer should be a local company plus local administrations/proxy or a consortium of SOEs and local administrations. Ask approval from finance minister Sri Mulyani.
3) Sri Mulyani, finance minister: No way that the state would finance the shares buyback, it's also difficult to deploy non-state funding if SOEs would be involved in the buyback.
4) Paskah Suzetta, national development planning minister

Plus member of parliaments:
1) Didik J. Rachbini, PAN legislator:
2) PKS
3) PPP
4) PKB
5) Democrat Party: Vera Febyanthy

To be continued...

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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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Purnomo turns down Pertamina's proposal, Exxon's victory

ExxonMobil will likely win the year-long battle over state-owned oil and gas company PT Pertamina for the right to operate the giant Cepu oil field.

Energy minister Purnomo Yusgiantoro has turned down Pertamina's proposal to apply rotating system in the operation of Cepu Block, Indonesia's largest oil discovery in decades.

"I've been working in the oil business for almost 20 years and it's impossible to drill rotatingly every five years," he said as quoted by Detik.com today.

While Purnomo didn't directly mention ExxonMobil, he reiterated government's stance that the most prepared company, especially from financial resources perspective, should operate the block.

At the current exchange rate of Rp9,200 per US$, total investment needed for the block is expected at Rp20 trillion to Rp25 trillion. "How we could raise the funding?"

The former OPEC president admits that the cost to operate Cepu block would be expensive. This is another indirect support for Exxon as many times Pertamina warned government of Exxon's high cost that would translate to higher cost that should be recovered by government.

"Exxon promised the costs won't be expensive as we have the benchmark already," Purnomo said.

Technology transfer was considered an important factor as well. If both companies failed to reach agreement on operatorship issue this week, Purnomo said government will takeover the settlement.

"We had asked them, Pertamina said it's ready, Exxon too...but whatever the government will decide, sweet or sour, Exxon and Pertamina should accept. We can't afford to let this situation goes on as too much loses at stake."

Pertamina and ExxonMobil have been locked in a battle over who is entitled to be the operator of the block in which they equally own by 45% and is considered crucial to boost the country's declining oil output in the last eight years. The block could produce up to 200,000 barrel per day during peak production, about 20% increase from the Indonesia's current at slightly below 1 million barrel per day.

The Jakarta Post wrote on Monday Vice President Jusuf Kalla's visit to Cepu on Saturday may indicate a preference for ExxonMobil on operatorship issue.

Kalla was accompanied by coordinating minister for the economy Boediono, finance minister Sri Mulyani Indrawati, state-owned enterprises minister Sugiharto, energy minister Purnomo Yusgiantoro, industry minister Fahmi Idris, chairman of national development planning agency (Bappenas) Paskah Suzetta, Vice President Director of Pertamina Mustiko Saleh, and President of ExxonMobil Oil Indonesia Peter J. Coleman.

Pertamina president director Widya Purnama, surprisingly, wasn't there. Widya repeatedly saying that he would resign if Exxon win the operatorship.

"The Cepu operator should have cutting-edge technology, strong financial resources, and efficient operation. Since the issue of operatorship is not that significant, I hope you can reach a deal sooner than later," Kalla told executives of Pertamina and ExxonMobil.

Pertamina comes up short on these requirements, with less advanced oil exploration technology and lower financial resources than ExxonMobil, who began operations in the late 19th century, The Jakarta Post wrote.

When Pertamina raised the issue of higher costs in an Exxon-run exploration, the US giant quickly rebuff saying it's proposed cost at US$4.5 million per well is similar to Mudi well drilled by PetroChina in East Java.

Expert staff at the coordinating minister for the economy Muhammad Ikhsan responded fiercely saying, "if Pertamina's cost is lower, it should have surpassed Petronas already."

Quoted by Detik.com few minutes ago, Ikhsan said Pertamina simply can't operate Cepu as it has no money. "They still owe the government Rp17 trillion (almost US$1.9 billion), how they would finance the project," he asked.

Worse, Ikhsan said, Pertamina yet to have financial report that would make it difficult to raise funds in international market. Exxon, according to Ikhsan, has the capability to operate the block.

Well, if he deliver his promises to resign, an Exxon operatorship would finally bring an end to Widya's one and half year at the helm of Pertamina, right Pak Widya?

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US Business Heavyweights are in town, the long wish list

Representatives from 20 heavyweight companies under the US-ASEAN Business Council are in town for a week. The delegation met this week a wide range of government officials including President Susilo Bambang Yudhoyono, VP Jusuf Kalla, Coordinating Minister for Economy Boediono, Finance Minister Sri Mulyani Indrawati, Energy Minister Purnomo Yusgiantoro, Trade Minister Mari Pangestu (most of them studied in US, except VP Kalla), and Transportation Minister Hatta Radjasa.
The group's formal statement on the objetive of the mission is its continued commitment to Indonesia and preparing a message for the international investment community that Indonesia is growing in its importance as an international investment destination for major American companies.

Why are they here? What are their expectations? Below is my version of their wish list when they meet government officials.

1) Boeing: Sell more airplanes to beat Airbus. The almost bankrupt carrier Garuda Indonesia had signed a US$ 2 billion agreement which focuses upon the development and modernization its fleet through operations of 10 Boeing 787-8 Dreamliners and 18 Boeing 737 New Generation series. These new airplanes will be part of Garuda's fleet by 2011. By that time, Garuda might not exist anymore, as government is preparing to sell up to 49% shares.

2) BP: We're confused of the partition of Papua into two provinces at the time we're preparing to build the US$3 billion Tangguh LNG plant in Western part of Papua. We also don't want to repeat our neighbor Freeport McMoRan's mistake to pay the military for protection of the project. Please give us advise!

3) ConocoPhillips: We're going to keep our working interest in Malacca Strait gas field (we don't want to sell it to other parties like our partner Exxon which started the divestment last year) as long as the government is willing to give better deal (50%:50% split on gas output, change the current 60% for government and 40% for contractor scheme).

4) McDermott International: We have been appointed as the main contractor of Tangguh LNG Plant. Well, in the past we had a very good relationship with Mohammad 'Bob' Hasan, Soeharto's golf buddy. We had to cut the relationship for few years as he lived behind the bars. But he is a free man now, so...Or we're thinking of a possible cooperation with engineering companies like Bukaka (VP is the founding shareholder).

5) ExxonMobil: We're fed up with endless dispute over 1 billion barrel of oil reserves in Cepu Block. First of all, you signed the MoU in June appointing us as the operator, but now Pertamina insists to operate that for first five years, then our turn, rotating system for 30 years. Besides, you just splitted up the 10% PI into four local administrations (Central Java, East Java, Bojonegoro, and Blora). It means we have to deal with four administrations should we'll be the operator. Please give us good advise.

6) Freeport McMoRan: The recent report on our payments to military officers in the past few years to protect the gold and copper mine had cost our future while we're afraid of fresh attacks to our facilities in Papua. We paid US$1 billion since 2004 in royalties, taxes, and military expenses. Could you please make a new arrangement for the military? We are in big trouble here as now the Corruption Eradication Commission (KPK) constituted our payments to military as graft.

7) Microsoft: Let's cut a deal. We'll give your offices heavy discounts on legal computer software in exchange of a promise to purchase authorised Microsoft merchandise in the future and launch a major crackdown on a pirated software racket that is believed to be one of the world's worst. Your word is your bond. We had discussed the proposal that emerged from a meeting between Indonesian President Susilo Bambang Yudhoyono and our founder Bill Gates in Seattle on May 2005.

8) GlaxoSmithKline: As the largest vaccine producer in the world, we're planning to complete tests for a bird flu vaccine within the next two years. We heard that our competitor Baxter had cut the deal with Indonesia's ministry of health affairs to produce the vaccine locally in a cooperation with Biofarma, the state-owned company. Is there any possibility that we could get the deal?

9) General Electric: We had invested US$300 million in the country and hold 12.5% shares in Paiton Energy. We heard that the government is planning to raise the electricity tariff by 30% this year. It would be great if PLN could afford to buy our power supply at higher tariff as well.

Oops! We have limited time here as we're entering the next meeting with China business delegates. Members of China delegates are CNOOC (competed with Chevron to acquire Unocal, BP's main partner in Tangguh LNG Project), Petrochina (competing with ExxonMobil to control Cepu Block, one of Pertamina's main partner and is working on a refinery project in Tuban, East Java), Lenovo (acquired IBM's PC business), Huadian Group (planning a giant coal-fired power plant in South Sumatra), and Qian Yuan Hao Biological (exporting vaccine flu to Indonesia) among others.

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Indonesia 2006: Bomb, floods, and foolish games

We started the year 2005 with tsunami in Aceh and Nias that killed thousands of people, leaving the whole country in a tragedy that needs years of rehabilitation. The year was ended with a bomb with high explosives went off at a traditional pork market on Jalan Pulau Sulawesi, Maesa village, Central Sulawesi at about 07:00 local time on Saturday, December 31.
A police bomb squad also found another bomb in the same location which had not been detonated. The bomb blast killed seven people and injured 54 others.
We also started the year 2006 with missery. Flash floods swept away houses and schools in Jember, East Java, killing at least 57 people. The death toll would rise.

Villages were inundated when overnight rains triggered a landslide on a hill in Panti, a subdistrict of East Java province, and forced a river to break its banks.Hundreds of people sought shelter from the surging waters in mosques and boarding schools.

Heavy tropical downpours cause dozens of landslides and flash floods each year in Indonesia. Deforestation in the surrounding of Panti is being blamed for the flash floods. Under the influence of Australia Cyclone, rain comes with high speed wind of 80 km per hour.
But Indonesian rupiah is traded in a stronger value against the greenback yesterday, below the 9,830 level, despite analyst prediction of a weaker rupiah this year at 10,750 on average.
The economy is expected to grow below 6.2% as previously predicted, including when the minister of finance Sri Mulyani Indrawati was the chairwoman of The National Development Planning Agency (Bappenas). She retracted her statement though. She said the 6.2% growth target would be difficult to be reached.
House member from National Mandate Party (PAN), Dr Dradjad Wibowo, started the year torpedoing the newly installed coordinating minister for the economy Dr Boediono.
Dradjad told reporters at the House Building here Monday that the government should not sell the state sovereignty by accepting the condition of diplomatic immunity revocation in seeking for foreign debt rescheduling.
Dradjad made the statement responding to the report that Boediono as the Finance Minister sent a letter to the foreign minister on June 30, 2003 informing that he has signed an agreement for debt rescheduling with Paris Club and non-Paris Club countries.
The signing of the debt rescheduling agreement has violated Law No.24 year 2000 on international agreements as the Finance Ministry has never asked the House of Representatives for the ratification of the agreement, according to Dradjad.

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Indonesia finally impose 5% coal export tax

Government finally decided to implement the controversial 5% export tax on coal despite opposition from coal mining companies. The final decision was taken yesterday during a limited cabinet meeting chaired by coordinating minister for the economy Boediono and attended by trade minister Mari Pangestu, finance minister Sri Mulyani Indrawati, industry minister Fahmi Idris, and high-level officer of the energy ministry.

In October, the finance minister decided to impose a 5% export tax on coal. The decision, however, drew strong opposition from coal producers saying that would serve as a disincentive to investment in the industry.

Indonesia has targeted total coal production at 155 million tons for 2005, about 70% of which would go to the export market. High international coal prices accounts for the current rise in Indonesia’s coal output. With export volume well above last year’s 100 million tones, the country’s coal export value could reach US$4 billion this year. A 5% export tax means a potential income of US$200 million to the state budget.

With reserves at 5.9 billion tones, over the next five years, Indonesia intends to double coal production, mainly with the intent to export it. But analysts argues that government should revise onerous regulations on VAT, royalties, and autonomy rift in order to make the country’s coal mining sector more competitive in the long run.

In 2000, the Indonesian government created a regulation that changed coal to a non-taxable commodity. This means that coal producers are unable to charge the end-users VAT despite the fact that they have to pay VAT for imported capital goods and services. This has also lead to a drop in foreign investment.

Older coal companies (first generation companies) have VAT reimbursement rights, and as such have not lost out too much by this regulation. Newer coal companies do not have the same rights and as a result pay an additional 8 to 10% on their production costs.

Key Players

1) PT Bumi Resources Tbk., a company affiliated with Bakrie Family (controlled by Aburizal Bakrie, the coordinating minister for people’s welfare) is the largest producer through two main coal subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia. Bumi Resources committed to sell 43.7 million tones of coal this year, about 27.5 million tones from KPC and 15.7 million tones from Arutmin.

2) PT Adaro Indonesia, a company controlled by Indonesian businessman Edwin Soeryadjaya, GIC Special Investments (a Singapore government agency that manages its long-term foreign reserves), private equity units of Citigroup Inc and Goldman Sachs. The company produces 27 million tones per year.

3) Banpu, Thailand. Over the last decade, the company has developed a significant presence in Indonesia, ranking as the fourth largest Indonesian coal producer with full production capacity of 19.4 million tonnes a year from 4 concessions companies, PT Jorong Barutama Greston, PT Indominco Mandiri, PT Kitadin Coporation, and PT Trubaindo Coal Mining. The company also has another two concessions namely Barasentosa and Bharinto, which are in the exploration stage.

4) Kideco Jaya Agung, owned by Samtan Co Ltd, South Korea (49%), Indika Group (41%), PT Sumber Mitra Jaya (5%), and PT Muji Inti Utama (5%). KIDECO is the third largest coal company in Indonesia in terms of coal production with a substantial reserve base of approximately 1.25 billion tones. KIDECO produced 16.9 million tones of coal in 2004.

5) PT Tambang Batubara Bukit Asam Tbk., a listed company majority owned by Indonesia government. Combined production capacity is 10 million tones per year.

6) PT Berau Coal, owned by Indika Group (controlled by Sudwikatmono family) at 60%, PT Armadian Tritunggal 30%, and Nissho Iwai Corporaton 10%. Berau Coal might surpass Bukit Asam as the fifth largest producer with projected output of 11 million tones per year, a significant increase from 8.5 million tones last year. Indika is rumored in the process to acquire another coal mining company.

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Indonesia immigration mafia embezzled US$20 million per year

Immigration mafia, consisted of brokers, immigration officers, and security guards managed to embezzled at least US$20 million per year of tax payments from Indonesian passengers with overseas destination. Who are the beneficiary owners?
This is how the mafia works. First of all, a broker come after a passenger at the airline check-in counters and offer the service, i.e. pay tax at discount of 20%. By law, people have to pay the tax of Rp1 million per overseas trip. The broker will fill the form, tax-free, but passengers should pay Rp800,000. As a bonus, passengers with such service are excempted form long queue at the immigration check-point.
According to minister of finance Sri Mulyani Indrawati, every year around US$20 million of the tax payments went to the mafia coffers in Jakarta's International Airport alone.
President Susilo Bambang Yudhoyono said that the government is set to fight against irregularities at the immigration offices which have become a very serious problem.
He said that immigration affairs is a fundamental and serious problem that needs serious, fast and accurate handling.
"I have received reports on irregularity practices in the ranks and files of the immigration office at home and abroad," Yudhoyono said.
Police is investigating the mafia. Thouh I'm bit skeptical, I reserved hope that police could uncover and punish The Dons, not just small-time brokers and security guards at the check-point. Police should investigate the flow of the embezzled money down to the beneficiary owners.

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A Cabinet with Celebrities Complex

This is the advice of noted economist Faisal Basri to Dr Sri Mulyani Indrawati, the minister of finance. "Shut your mouth!" Not exactly like that, off course. Basri praised president Susilo Bambang Yudhoyono's decision to appoint Mulyani and Dr Boediono as coordinating minister for economy.
"They would make a good team. They know exactly what to do," Basri said.
But one advice for Sri Mulyani. "Please do not talk too much. Let the chief economic minister as the spokeperson."
Journalist hate that! Dr Boediono was tight-lipped on most questions as minister of finance.
As for Dr Sri Mulyani, that would be a hard call. She emerged as 'noted economist' because of her regular comments and appearance in the glass box, radio, newspapers, magazines, and seminars. She is a kind of celebrity economist. She loves to entertain public, even though she is not a publicity seeker. Media loves to interview her and she enjoy that.
I don't know how she could handle that.
A celebrity tend to has narcissist behaviour, and according to psychology studies, she/he is concerned with the reactions to her fame: people watch her/him, notice her/him, talk about her/him, debate her/his actions--therefore she/he exist.
I am afraid that in the cabinet, so many ministers are acting like celebrities. They care to much on their personal public image. Look at how they become stars in TV or newspaper ads? Education minister paid one full-page of advetorial at Kompas on his performance. Minister of agriculture is the star of a TV ad campaign to prevent bird flu. Minister of domestic affairs paid regular ads on his achievement on local leaders election. Minister of health for dengue fever prevention campaign.
Look at how news outlet full with their statements? All news would start with...government will do this and that...
And, this one is even more complicated. Their bosses, the president and vice president, are celebrities type of leaders too. They entertain almost every questions from journalist and the rumors. Look at how SBY respond the rumor that he announced the cabinet reshuffle in Yogyakarta State Place because of superstitious belief. The Vice President also easy to comment on everything, even though sometimes ridiculous. And our Central Bank Governor is far away from a Greenspan-type of officer.
In the age of media dominance, together with the declining trust on political parties, leaders tend to mobilize policy support via the media. The interest of politics merge with the interest of media. The problem is when policy makers tend to make statements only to create good image and fantasies. Then you get a politic-publicity-complex.
You know the risk when they easily open their mouths? They would easily change their statements along with conflicting indicators and numbers. They would risk the continuing depreciation of statements. So, my advice, this cabinet should take a short course on public communication.

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