VZCZCXRO0038
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #3446/01 3420916
ZNR UUUUU ZZH
R 080916Z DEC 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 2406
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0147
RUEHBY/AMEMBASSY CANBERRA 0194
RUEHBJ/AMEMBASSY BEIJING 3751

UNCLAS SECTION 01 OF 03 JAKARTA 013446 
 
SIPDIS 
 
DEPT FOR EAP/MTS AND EB/ESC/IEC 
DEPT PASS OPIC, EXIM, TDA 
DOE FOR CUTLER/PI-32 AND GILLESPIE/PI-32 
COMMERCE FOR USDOC 4430 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PREL ID
SUBJECT: ENERGY HIGHLIGHTS-OCTOBER/NOVEMBER 2006 
 
 
¶1. Summary. President Yudhoyono said Indonesia will honor 
its existing LNG contracts during a November 27-29 state 
visit to Japan.  Vice President Jusuf Kalla said on November 
25 that Indonesia will decide next year whether to renew 
those contracts.  On November 25, state gas company PGN 
restored gas supplies in East Java, which were disrupted by 
a November 22 pipeline explosion.  State electricity company 
PLN said the Java-Bali grid was short 560 MW of power during 
November due to mechanical problems.  The French energy firm 
Total said on November 17 that it had boosted capital 
expenditure by 33 percent for its Mahakam block.  On October 
16, the GOI temporarily rescinded import duties on upstream 
oil and gas equipment.  On November 28, local press reported 
that Total plans to build 200 gas stations in Indonesia 
commencing in 2008.  State oil company Pertamina cut 
unsubsidized fuel prices marginally for December.  On 
October 12, PLN sold USD 1 billion of bonds in the nation's 
biggest overseas corporate debt offering since the 1997-98 
financial crisis.  A local company claimed on November 29 
that it had found the world's largest geothermal steam well. 
On November 30, Japan's Sumitomo announced plans to double 
the capacity of its Tanjung Jati B power plant.  PGN said on 
November 17 that it had chosen a new President Director. 
This report uses an exchange rate of Rp 9060/USD. End 
Summary. 
 
SBY Pledges to Honor Japanese Gas Contracts 
------------------------------------------- 
 
¶2. On November 29 during a state visit to Japan, President 
Susilo Bambang Yudhoyono said Indonesia will honor its 
contracts for LNG exports to Japan.  He did not make any 
public commitment to extend the contracts, however.  Six 
Japanese firms are negotiating the renewal of LNG supply 
contracts with state petroleum company Pertamina, which has 
said it would reduce exports to Japan from 2010 to meet 
growing domestic demand.  Indonesia is the biggest LNG 
supplier for Japan at 24 percent of total imports in 2005. 
The Government of Japan continues to press for renewal of 
the supply contracts which expire in 2011.  President 
Yudhoyono told a press conference, "Regarding the sales of 
LNG, I want to stress that I respect contracts with Japan. 
He added, "I want to continue cooperating to increase the 
production of petroleum gas, which of course includes LNG, 
to satisfy domestic demands while supplying resources 
overseas."  Japan also said it will increase technical 
assistance to Indonesia in coal-to-liquid technology, energy 
conservation, and nuclear safety. 
 
LNG Contract Extensions To Be Decided in 2007 
--------------------------------------------- 
 
¶3. On the eve of President Yudhoyono's trip to Japan, Vice 
President Jusuf Kalla told reporters on November 25 that 
Indonesia will decide next year whether to renew contracts 
to sell LNG to Japan.  He said the decision will be based on 
Indonesia's domestic demand and production.  An 8.4 million 
tons per year (TPY) contract with Japan expires in 2010 and 
another contract for 3.6 million TPY ends in 2011.  "We will 
decide next year after we make a review on how much we need, 
say for the next 10 years, and how much we can produce. 
Then we will see whether we will extend or reduce depending 
on our gas balance," Kalla said.  GOI energy officials have 
earlier said Indonesia might halve its Japanese LNG exports 
to six million TPY when the contracts expire. 
 
PGN's East Java Gas Supply Resumes 
---------------------------------- 
 
¶4. On November 25, state gas company PGN said it had 
restored normal gas supplies to its industrial customers in 
East Java, which were disrupted by the explosion of the East 
Java Gas Pipeline (EJGP) in Porong Sidoarjo on November 22. 
The 90 million cubic feet per day (MMCFD) flow resumed late 
in the day but not before costing the company USD 6 million 
in lost revenue, according to a spokesman. 
 
Java-Bali Power Shortages During November 
----------------------------------------- 
 
¶5. State electricity company PLN said that the Java-Bali 
grid suffered power supply shortages of 560 MW due to 
 
JAKARTA 00013446  002 OF 003 
 
 
mechanical problems in several power plants during November. 
Blackouts occurred in Surabaya, East Java due to lowered 
supply from the Gresik combined cycle power plant, which had 
to switch to oil generation following the explosion of gas 
pipeline in Sidoardjo, East Java on November 22.  Rolling 
blackouts occurred in several parts of Java and Bali on 
November 24 and 25 due to mechanical problems which reduced 
power supply from Paiton's coal-fired Unit 8 and Suralaya's 
coal-fired Unit 6.  Paiton has been suffering from 
mechanical downtime since November 7. 
Tanjung Jati B's coal-fired power plant that commenced 
operation last month also failed to operate at full output 
due to a condenser malfunction.  The Java-Bali grid has a 
peak load capacity of 14,000 MW. 
 
Total Indonesie Boosts Investment 
--------------------------------- 
 
¶6. French production sharing contractor Total EP Indonesie 
said on November 17 that it had boosted capital expenditure 
by 33 percent to develop the Mahakam block in East 
Kalimantan.  Total will spend USD 1.6 billion in 2007 up 
from USD 1.2 billion, according to a company official.  The 
company also said that it expects that the Sisi and Nubi 
fields in the block will start production during 2007. 
Total currently produces about 2.5 billion cubic feet per 
day (BCFD) of natural gas.  Total is Indonesia's biggest gas 
producer, exporting it as LNG to Japan, Taiwan, and South 
Korea. 
 
Import Duties Slashed on Upstream Goods 
--------------------------------------- 
 
¶7. The GOI rescinded temporarily import duties for goods 
used in upstream oil and gas activities, according to a 
Ministry of Finance press release on October 16.  The 
ministry said the incentive was designed to boost investment 
in oil and gas industry.  The ministry promulgated the 
regulation in Finance Minister Decree No 97/PMK.010/2006 on 
October 16, 2006 and it took effect retroactively from July 
16, 2006.  It will be in effect until July 15, 2007, 
according to the press statement.  The ministry said the 
list of goods to benefit will include those related to 
drilling and production, plant and machinery, electrical, 
tubing, valves and fittings, building materials, metals and 
hardware. 
 
Total to build 200 gas stations in Indonesia 
-------------------------------------------- 
 
¶8. On November 28 local press reported that French energy 
giant Total plans to build 200 gas stations in Indonesia 
commencing in 2008.  Tubagus Haryono, the head of the 
downstream oil and gas authority BPH Migas, reportedly said 
"They want to build 200 gas stations that sell non- 
subsidized gasoline starting from 2008."  Total will join 
Shell and Petronas in establishing a retail downstream 
presence in Indonesia. 
 
Pertamina Cuts December Industrial Fuel Prices 
--------------------------------------------- - 
 
¶9. On November 29, State oil company Pertamina announced 
cuts in fuel prices for industrial users during the month of 
December.  Pertamina will sell premium gasoline for Rp 
4,749.5 ($0.524) per liter, down marginally from Rp 4,780.55 
($0.527) per liter in November.  The company also cut the 
price of diesel used for transport to Rp 5,293.45 ($0.584) 
per liter from RP 5,480.90 ($0.605). Pertamina lowered the 
price of Kerosene to RP 5,280.2 ($0.583) per liter, from RP 
5,551.70 ($0.613) this month.  The company left unchanged 
the price for all subsidized fuel.  Pertamina said that the 
decision to cut the fuel prices followed the declining price 
trend in international markets. 
 
PLN Scores Billion Dollar Bond Success 
-------------------------------------- 
 
¶10. On October 12, state electricity company PLN sold USD 1 
billion of bonds to international investors making it the 
biggest overseas corporate debt float for Indonesia since 
the 1997-98 financial crisis.  The 10-year debt will yield 
 
JAKARTA 00013446  003 OF 003 
 
 
7.9 percent, 144 basis points more than similar-maturity 
Indonesian government bonds.  PLN will use the proceeds from 
the sale to boost power-generating capacity and alleviate 
shortages in Java, Indonesia's most-populous island. 
Indonesia needs to spend about $27 billion on new plants and 
power lines by 2012 to keep up with demand, according to the 
World Bank.  PLN's loss fell to Rp 2.26 trillion ($246.9 
million) in the first half of 2006 from Rp 4.52 trillion 
($493.8 million) a year earlier, according to the company's 
bond prospectus. It has an installed capacity of 22,725 
megawatts for its 35.2 million customers. 
 
Star Energy Claims World's Largest Geothermal Well 
--------------------------------------------- ----- 
 
¶11. Local company Star Energy announced on November 29 that 
it had found what it claims is the world's largest 
geothermal steam well at its Wayang Windu concession in West 
Java.  The firm said in a statement that its first 
development well in Unit 2 of the Wayang Windu complex had 
tested to be "the largest dry steam well in the world at 
more than 40 MW."  The company said the discovery would 
allow them to expand the Wayang Windu geothermal plant to 
400 MW by 2010.  The Wayang Windu geothermal power plant 
started operation in early 2000. Star plans to bring the 
second unit online in 2008, adding 110 MW to the power 
plant's existing capacity of 110 MW. 
 
Sumitomo to Double Tanjung Jati's Capacity 
------------------------------------------ 
 
¶12. Japanese trader Sumitomo plans to double the capacity of 
its coal-fired power plant Tanjung Jati B in Central Java at 
a cost of $1.3 billion, according to a November 30 press 
statement by PLN.  Sumitomo will make use of the Independent 
Power Producers (IPP) scheme to expand the plant to 2,640 MW 
from the existing 1,320 MW, according to PLN.  The new units 
are expected to be completed in the second half of 2010. 
President Yudhoyono inaugurated the 1,320 MW first phase of 
the power plant on October 4.  PLN and Sumitomo signed a 
preliminary agreement during President Yudhoyono's visit to 
Japan.  The Japan Bank for International Cooperation (JBIC) 
will finance the project.  PLN said it hopes to complete 
negotiations on tariffs by early next year. 
 
New President Director for State Gas Firm 
----------------------------------------- 
 
¶13. State gas company PGN said on November 17 that it had 
chosen Soetikno as its new President Director to replace the 
retiring WMP Simanjuntak, who will become a Commissioner. 
Soetikno, who was previously company Director of General 
Affairs, told reporters that the new management will 
continue developing the South Sumatra-West Java (SSWJ) 
pipeline.  "Our priority is to complete the SSWJ project," 
he stated.  A PGN spokesman also said the company would 
speed up development of a Duri to Medan pipeline in North 
Sumatra and that the company would also continue studying 
the possibility of building an LNG terminal in Situbondo, 
East Java.  PGN said it is currently in talks with East 
Kalimantan gas producers on possible LNG supply to the 
terminal.  PGN also reiterated its plan to develop a coal 
bed methane (CBM) project with the Australian firm Santos in 
South Sumatra.  The two companies are continuing with a 
feasibility study on the project. 
PASCOE