VZCZCXRO3676
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #8618/01 1910903
ZNR UUUUU ZZH
R 100903Z JUL 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6996
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 9895
RUEHBY/AMEMBASSY CANBERRA 9704
RUEHBJ/AMEMBASSY BEIJING 3509

UNCLAS SECTION 01 OF 04 JAKARTA 008618 
 
SIPDIS 
 
DEPT FOR EAP/MTS AND EB/ESC/IEC 
DEPT PASS OPIC, EXIM, TDA 
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 
COMMERCE FOR USDOC 4430 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PREL ID
SUBJECT: INDONESIA ENERGY AND MINING HIGHLIGHTS-JUNE 2006 
 
¶1. Summary. On June 2, the Ministry of Energy and Mineral 
Resources' Directorate of Oil and Gas announced four foreign 
companies as winners in the 2005 oil and gas regular tender 
round.  On June 15 the Minister of Energy and Mineral 
Resources issued revised regulations designed to increase 
the transparency and clarity of the oil and gas tender 
processes.  The private Indonesian energy firms Bumi 
Resources and Energi Mega Persada (EMP) officially announced 
their long-rumored merger plan on June 14.  Throughout the 
month of June, EMP subsidiary Lapindo Brantas battled a well- 
head accident that is having significant environmental 
consequences in the communities surrounding the Brantas 
Production Sharing Contract (PSC) near Sidoarjo, East Java. 
On June 26, Britain's Sound Oil announced its acquisition of 
Indonesian oil and gas firm Mitra Energia Limited, an 
interest holder in the Bangkanai and Citarum PSCs.  State 
petroleum company Pertamina raised unsubsidized fuel prices 
in June by an average of 7.7 percent.  On June 12, BP 
resumed supplying gas to Jakarta's Muara Karang and Tanjung 
Priok power plants after pipeline maintenance interrupted 
gas flows.  On June 14, Australia's Amerod Resources Limited 
and Indonesia's Bayan Resources entered into a joint venture 
agreement to develop a coal briquette plant in East 
Kalimantan.  This report uses an exchange rate of Rp 
9,300/USD. End Summary. 
 
-------------------------- 
Oil and Gas Tender Winners 
-------------------------- 
 
¶2. On June 2, the Directorate of Oil and Gas announced four 
winners of the 2005 regular tender round (Table 1).  During 
the first three years of development the four companies said 
they plan to spend up to a collective USD 203 million for 
exploration activities, including geological studies, 
seismic surveys and the drilling of 11 wells.  The winners 
will also pay signature bonuses to the government totaling 
USD 13 million.  Companies entered bids for seven of the 14 
blocks put out for tender, according to the directorate. 
Industry observers noted the results of the round signal a 
positive trend in the upstream investment climate. 
 
Table 1: Oil and Gas Tender Winners 
--------------------------------------- 
Winners    Block Name  Location  Size 
                                 Kms 
--------------------------------------- 
Petronas   Lampung II  South     4,140 
                       Sumatra 
ExxonMobil Surumana    Makassar  5,340 
                       Strait 
Husky      E.Bawean II E. Java   4,255 
Marathon/  Pasangkayu  Makassar  4,708 
Talisman               Strait 
 
Source: Directorate of Oil and Gas 
 
--------------------------- 
Tender Regulation Revisions 
--------------------------- 
 
¶3.  On June 15, Minister of Energy and Mineral Resources 
Purnomo Yusgiantoro issued Ministry Regulation 40/2006 on 
Procedures for Oil and Gas Blocks Allocation and Offering. 
The new regulation effectively replaced the previous 
Ministrial Decree 1480/2004.  It aims to provide increased 
transparency and clarity regarding tender procedures, 
including the selection criteria for tender winners.  The 
regulation also includes provisions aimed at securing 
exploration commitments from tender winners.  Tender 
participants now must provide at least a 20 percent bank 
guarantee of the proposed value of the signature bonus when 
bidding for an oil and gas block under the regular tender 
process or USD 500,000 for a direct offer bid.  A winning 
bidder must also provide an additional bank guarantee equal 
to the value of the budget for three years of seismic 
surveys. 
 
--------------------------------- 
Bumi and EMP Announce Merger Plan 
--------------------------------- 
 
 
JAKARTA 00008618  002 OF 004 
 
 
¶4.  On June 14, the private Indonesian energy firms Bumi 
Resources and Energi Mega Persada (EMP) officially announced 
their long-rumored merger plan. EMP is Indonesia's second 
largest oil and gas producer; Bumi was Indonesia's leading 
coal exporter in 2005.  Bumi is in the process of divesting 
coal subsidiaries Kaltim Prima Coal and Arutmin to Borneo 
Lumbung Energy.  Bumi and EMP are closely affiliated with 
the Bakrie Group, though it does not have a majority stake 
in either firm.  When completed, the merger will create 
Indonesia's largest energy company with more than USD 2 
billion in assets.  The companies said they expect to 
complete the merger by August 2006. 
 
-------------------------------------- 
Mud Flow Continues from East Java Well 
-------------------------------------- 
 
¶5.  EMP subsidiary Lapindo Brantas continued to battle a 
well-head accident that is having significant environmental 
consequences in the communities surrounding the Brantas 
Production Sharing Contract (PSC).  Since May 2006, mud has 
flooded roads and villages near a Lapindo gas well in 
Sidoarjo, East Java, 38 kilometers from Indonesia's second 
largest city, Surabaya.  On June 15, the Ministry of Energy 
and Mineral Resources formed a special team to investigate 
the mud breach.  A preliminary investigation reportedly 
found that a mud breach happened at a depth of 6,000 meters 
below the company's Banjar Panji-1 well.  So far Lapindo has 
built a mud confinement dam in the area and said it plans to 
bring in a mud snubbing unit to try to control the breach. 
Lapindo owns a 50 percent interest in the PSC, while 
Indonesia's Medco Energy and Australia's Santos own 32 and 
18 percent respectively. 
 
------------------ 
Acquisition Update 
------------------ 
 
¶6.  On June 26, UK-based Sound Oil announced the acquisition 
of local energy firm Mitra Energia Limited.  Mitra has 34 
and 20 percent interests respectively in the Bangkanai and 
Citarum PSCs, located in Central Kalimantan and Central 
provinces.  Sound Oil's shareholders must still approve the 
acquisition, reportedly worth 16.2 million pounds sterling 
(USD 28.5 million).  Mitra is currently exploring in both 
PSCs and has drilled six wells. 
 
¶7.  Pertamina subsidiary Elnusa Bangkanai Energy won the 
Bangkanai PSC in 2003.  It contains the undeveloped Karendan 
gas field with estimated gas reserves of up to 400 billion 
cubic feet (BCF).  Elnusa now holds a 51 percent interest in 
the block with Medco Energy owning 15 percent to Mitra's 34 
percent.  The Indonesian-Malaysian joint venture company 
Bumi Parahyangan Ranhill Energy Citarum (BPREC) won the 
Citarum PSC last year through a direct offer tender. 
Malaysia's Ranhill Berhad owns a 60 percent stake in BPREC, 
with Indonesia's Bumi Parahyangan and Mitra each owning 20 
percent. 
 
------------------ 
Fuel Market Update 
------------------ 
 
¶8.  State petroleum company Pertamina raised industry fuel 
prices in June by an average 7.7 percent based on a rise in 
global crude benchmarks.  At the same time, the company 
continued its strategy of selling its premium unleaded 
Pertamax and Pertamax Plus fuels at a lower price in 
selected fuel stations in the greater Jakarta area in 
response to competition from nearby Shell and Petronas 
retail stations.  Pertamina sells Pertamax and Pertamax Plus 
at an average discount of 2.5 percent in these locations 
compared to stations where no competition exists. 
 
¶9.  In a sign that Indonesia's higher domestic fuel prices 
continue to crimp consumption, Pertamina has reduced its 
daily fuel sales target for the summer holiday period to 
175,000 kiloliters (KL) from its initial target of 185,000 
KL.  The company also reported lower than anticipated 
consumption for the June, which currently stands at 144,000 
KL per day. 
 
 
JAKARTA 00008618  003 OF 004 
 
 
Table 2: Unsubsidized Fuel Price Changes in 2006 
--------------------------------------------- ----- 
Fuel Type          April    May     June   Change* 
--------------------------------------------- ----- 
Transport** 
 Pertamax          5,300   5,800   6,150     6.0 
 Pertamax Plus     5,400   6,050   6,250     3.3 
 Pertamina DEX     5,800   6,100   6,400     4.9 
 
Industry*** 
 Premium           5,099   5,469   6,174    12.9 
 Kerosene          5,507   5,664   6,182     9.1 
 Diesel            5,129   5,512   6,288    14.1 
 Diesel Oil        4,983   5,327   5,789     8.7 
 Fuel Oil          3,673   3,662   3,745     2.3 
 
*Percent change between May 2006 and June 2006. 
**Pertamax and Pertamax plus are unleaded gasoline fuel with 
92 and 95 octane level respectively. Pertamina DEX is a Euro 
2 standard diesel fuel. All fuels are available at regular 
retail outlets. Quoted prices are valid for Java Island. 
*** Industry wholesale prices. 
 
Table 3: Pump Price Comparison (USD/gallon) 
----------------------------------------- 
Country         Unleaded       Auto 
                Gasoline      Diesel 
----------------------------------------- 
Indonesia        1.83          1.75 
Philippine       3.07          2.59 
Thailand         2.73          2.84 
Singapore        4.31          3.27 
USA              3.07          2.87 
 
Sources: Pertamina, EPPO, Philippine DOE, EIA 
Prices as of June 30, 2006. 
 
--------------------- 
BP Resumes Gas Supply 
--------------------- 
 
¶10.  On June 12, BP completed maintenance of the underwater 
pipeline from its offshore South East Sumatra (SES) fields 
to West Java, resuming gas supply to Jakarta's Tanjung Priok 
and Muara Karang power plants.  A pipeline leak in May 2006 
cut gas supply to the two power plants to half of the normal 
flow capacity of 260 million standard cubic feet per day 
(mmcfd).  As a result, the electric power reserve margin in 
the Java-Bali grid shrank by almost 300 megawatts during the 
past month.  The resumption of BP's gas in part helped to 
increase the reserve margin to an average of 1,500 megawatt 
(MW) or an 8 percent margin during June. 
 
---------------------------- 
Coal Briquette Joint Venture 
---------------------------- 
 
¶11.  On June 14, Australia's Amerod Resources Limited and 
Indonesia's Bayan Resources signed a joint venture agreement 
to build a coal briquette plant in East Kalimantan.  Bayan 
and White Energy Technology Limited said they intend to 
exploit a patented briquetting process using coal from 
Bayan's Tabang Mine in East Kalimantan.  The two companies 
hope to use the process to convert relatively poor quality 
coal into a higher quality and more environmentally friendly 
coal briquette.  The plant will have an initial capacity of 
1 million tons of coal briquettes per year with a possible 
upgrade up to 3 million tons capacity per year in the 
offing.  The joint venture also includes a 5-year off-take 
agreement by Bayan for USD 100 million of coal briquette. 
Both companies are now completing a feasibility study of the 
project.  Amerod owns 51 percent of the joint venture while 
Bayan holds the remainder. 
 
-------------------------------------------- 
Selected Energy, Mining and Power Statistics 
-------------------------------------------- 
 
                                 Mar    Apr    May 
Mining 
Coal Production (million tons)   11.3   10.3     - 
Coal Export (million tons)        9.3    7.3     - 
 
JAKARTA 00008618  004 OF 004 
 
 
Copper concentrate (`000 dmt)   198.5  191.2  206.8 
Copper (`000 ton)                53.1   50.6   51.3 
 
Oil 
Oil production (mmbpd)           1.04   1.03   1.03 
ICP* Average (USD/barrel)        61.3   70.3   70.0 
 
Power (Java-Bali) 
Peak Load (MW)                  14,285 14,178 14,279 
Average Reserve (MW)             1,488    590    825 
Average Reserve margin (percent)   8.1    3.2    4.4 
 
Note: Preliminary 2006 figures, except for ICP and power. 
* Indonesian Crude Price; dmt (dry metric ton); mmbpd 
(million barrels per day); MW (megawatt) 
Sources: Directorate of Coal Enterprise, MIGAS, PETRAL, PLN 
 
PASCOE