VZCZCXRO8589
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #0414/01 0460842
ZNR UUUUU ZZH
R 150842Z FEB 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3297
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0233
RUEHBY/AMEMBASSY CANBERRA 0432
RUEHBJ/AMEMBASSY BEIJING 3827

UNCLAS SECTION 01 OF 05 JAKARTA 000414 
 
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 - JANUARY 2007 
 
 
¶1. Summary.  The Ministry of Finance on December 29 issued 
guidelines for guarantees of power projects under the Government of 
Indonesia's (GOI) "crash program" to develop an additional 10,000 
megawatts (MW) of electricity generation capacity by 2010.  On 
January 16, state power company PLN signed power purchasing 
agreements (PPAs) for the construction of 10 power plants outside 
Java Island under the crash program.  According to press reports, 
irregularities in the selection of several Chinese firms to build 
three power plants under the crash program could affect Chinese 
Government financing support for the projects.  PLN announced on 
January 24 that to save costs it would import some diesel fuel 
directly, rather than purchase it through state-owned oil and gas 
company Pertamina.  Oil and gas regulator BP Migas announced on 
January 22 that Indonesia would aim to increase oil output by 80,000 
(bpd) in 2007 by raising production at 12 existing or new oilfield 
projects.  Minister of Energy and Mineral Resources Purnomo 
Yusgiantoro told the press on on January 31 that ExxonMobil must 
provide the GOI with data that the company has collected on the 
Natuna D - Alpha block gas field.  On January 15, Ministry of Energy 
and Mineral Resources (MEMR) Upstream Director R. Priyono announced 
GOI plans to develop a new production sharing contract that will 
allow extraction companies to forgo drilling if seismic surveys do 
not indicate prospective resources. 
 
¶2. Summary, continued.  In a development that caused analysts to 
question corporate governance practices in Indonesia, the Jakarta 
Stock Exchange (JSX) temporarily suspended trading in shares of 
state-owned gas company Perusahaan Gas Negara (PGN) on January 15 
after the company announced significant delays in a major pipeline 
project.  Minister Purnomo on January 15 announced the GOI would 
begin offering coal bed methane (CBM) development projects to 
investors through regular or direct offer tenders.  Purnomo also 
announced on January 12 that the GOI would divert some Indonesian 
condensate exports for domestic use.  A senior Pertamina official 
told the press on January 12 that it would ask the GOI to delay 
implementation of cuts in diesel fuel sulfur content.  On January 9, 
Pertamina announced plans to double capital expenditures in 2007. 
This report uses an exchange rate of Rp 9,115/US$.   End Summary 
 
GOI Issues Guidelines for PLN Project Guarantees 
--------------------------------------------- --- 
 
¶3.  The Ministry of Finance on December 29 issued regulation 
No.146/PMK.01/2006 providing guidelines on Government guarantees for 
coal fired power projects under the GOI's "crash program" to develop 
10,000 MW of additional power generation capacity in Indonesia by 
¶2010.  Under the guidelines, the GOI will provide guarantees to 
creditors to ameliorate four kinds of risk: a change in GOI 
electricity price policy; a change in GOI electricity subsidy 
policy; a change in GOI coal supply price policy; and a GOI decision 
to delay or cancel power projects.  To qualify for the guarantees, 
creditors must meet loan agreement obligations, including activation 
and disbursement schedules.  They must also complete projects on 
schedule and in accordance with technical specifications. 
 
PLN Signs PPAs for Coal Fired Power Plants 
------------------------------------------ 
 
¶4.  On January 16, PLN signed Power Purchase Agreements (PPAs) for 
the construction of 10 small, coal-fired power plants outside Java 
Island under the GOI's crash program.  The 10 plants, listed in 
Table 1 below, are expected to begin operations in 2009 and 2010. 
All of the plants will likely rely on Chinese coal-fired technology, 
reflecting the GOI's shift from reliance on fuel oil to coal-fired 
power generation. 
 
--------------------------------------------- --------- 
Table 1: PPAs Signed For Coal-Fired Power Plants Under 
         GOI Crash Program 
--------------------------------------------- --------- 
 
Project               Location          Contractor 
--------------------------------------------- --------- 
 
Lakatong (2x45 MW)    South Sulawesi    Kasai Listrindo 
 
Gorontalo (2x6 MW)    South Sulawesi    Gorontalo Energi 
 
Tawaeli (2x13.5 MW)   Central Sulawesi  Pusaka Palu Jaya 
 
Sampit (2x6 MW)       West Kalimantan   Karya Putra Powerin 
 
 
JAKARTA 00000414  002 OF 005 
 
 
Tanah Grogot (2x6 MW) East Kalimantan   Mahajaya Arya Satya 
 
Ketapang (2x6 MW)     West Kalimantan   Ketapang Power 
 
Banjarsari (2x100 MW) South Sumatra     Bukit Pembangkit 
 
Belitung (2x6 MW)     Bangka Belitung   Belitung Arya Power 
 
Tj. Pinang (2x10 MW)  Riau Island      Medco-Menamas-Barata 
 
Jayapura (2x10 MW)    Papua            Menamas-Permata-PLN 
 
Source: Petromindo 
 
 
Irregularities Reported in China-Linked Power Tenders 
--------------------------------------------- ---------- 
 
¶5.  According to press reports, representatives from Bank of China, 
the China Export Import Bank, China's Chamber of Commerce and 
Industry, and Chinese commercial banks informed PLN on January 22 
that the Government of China would not provide support to the 
planned power projects involving three Chinese state-owned firms: 
equipment and technology import and export company China National 
Technical Import and Export Corp (CNTIC), equipment manufacturing 
and engineering group Sinomach, and construction and engineering 
corporation Chengda.  Sinomach or Chengda reportedly unfairly 
blocked rival Chinese bidders from competing for projects, and 
violated China's export guarantee rules.  The decision will likely 
impact the development of three medium sized power plant projects: 
 
-- A 600 MW Suralaya power plant project in Banten Province.  The 
project is a joint venture between CNTIC and PLN, and would supply 
electricity at Rp 378.9(4.2 cents) per kilowatt. 
 
-- A 300 - 400 MW Indramayu coal-fired power plant in West Java, a 
joint project of Sinomach, China National Electric Equipment (CNEEC) 
and PT Penda Adi Samudra.  The project would supply electricity at 
Rp 403.6 (4.4 cents) per kilowatt. 
 
-- A 300-400 MW Labuhan coal-fired power plant in Banten, a joint 
project of Chengda and PT Truba Jurong.  The project would supply 
electricity at Rp 386.2 (4.2 cents) per kilowatt. 
 
PLN to Import Diesel Directly 
----------------------------- 
 
¶6.  PLN Director for Power Generation and Prime Energy Ali Herman 
Ibrahim announced on January 24 that PLN would import one million 
kiloliters of high-speed diesel fuel directly for the first time, 
rather than obtain the fuel through Pertamina.  At present, PLN 
purchases diesel from Pertamina at an average cost of Rp 5,202 (US$ 
0.57) per liter from Pertamina, while the average cost in 
international fuel markets is reportedly Rp 5,190.  By importing the 
diesel directly, PLN claims it could save Rp 117.2 billion ($12.9 
million).  PLN Chief Commissioner Alhilal Hamdi told Parliamentary 
Commission VII on January 29 that 12 local and foreign companies 
have expressed interest in supplying the diesel, including Petronas, 
Shell, and private trading company PT AKR Corporindo.  In addition, 
Hamdi noted that several banks and financial institutions have 
expressed interest in providing financing for the fuel purchase, 
worth some Rp 5 trillion ($548.5 million). 
 
¶7.  Meanwhile, Pertamina Fuel Division Head Djaelani Soetomo told 
the press on January 29 that Pertamina would bid on the PLN tender, 
provided PLN pays its outstanding debts to Pertamina.  (Note: Under 
the GOI fuel and electricity subsidy programs, PLN, Pertamina and 
the Ministry of Finance frequently run arrears to each another that 
are netted out and settled on an annual basis. End Note.)  Djaelani 
also claimed that Pertamina could provide PLN with the best tender 
price.  Pertamina's president Ari H. Soemarno said on January 26 
that the Pertamina was prepared to provide a special discounted 
price to PLN and, if necessary, to sign a special contract. 
 
Indonesia to Increase Oil Output 80,000 Barrels in 2007 
--------------------------------------------- ---------- 
 
¶8.  BP Migas Chairman Kardaya Warnika announced on January 22 that 
Indonesia plans to increase its oil output by 80,000 bpd in 2007 to 
reach the GOI's target output of 1.05 million bpd.  According to 
Warnika, 12 existing and new oil projects will supply the additional 
output, including four existing fields operated by ConocoPhillips, 
 
JAKARTA 00000414  003 OF 005 
 
 
Chevron, Pertamina, and a joint venture.  Warnika said that 
ConocoPhillips would increase its offshore fields' output by 15,000 
bpd; Chevron would add 25,000 bpd to its output from fields in the 
northern Duri Block in Riau; Pertamina would increase output at the 
Pondok Tengah field in Bekasi, West Java by 17,000 bpd; and the Bumi 
Siak Pusako/Pertamina would add 5,000 bpd from the Bene Bekasap 
field in Riau. 
 
¶9.  BP Migas also expects a number of new projects to begin 
producing oil this year: Amerada Hess will produce 7,500 bpd from 
the Ujung Pangkah (Madura) field; Total E&P Indonesia will produce 
4,680 bpd from the Sisi and Nubi fields (East Kalimantan); PT Energi 
Mega Persada will produce 2,229 bpd from the Sepanjang Island field 
(East Java);  Chevron will produce 1,098 bpd from the Telisa 
Kotabatak field (Central Sumatra) and 177 bpd from the Seturian 
field(East Kalimantan); Australian firm Santos will produce 1,027 
bpd from the Oyong field (East Java);  Petrochina Tuban will produce 
281 bpd from the Gondang field (East Java); Petrochina Jabung will 
produce 171 bpd from the West Betara field (Jambi). 
 
¶10.  Separately, Vice President Jusuf Kalla on January 15 instructed 
ministries to remove regulations that hamper oil production so that 
Indonesia can meet its target of 1.3 million bpd of crude oil 
production by 2009. The Ministry of Energy and Mineral Resources has 
not yet released a detailed plan for meeting this production 
target. 
 
Dueling GOI Press Statements on Natuna D-Alpha 
--------------------------------------------- - 
 
¶11.  Minister of Energy and Mineral Resources Purnomo Yusgiantoro on 
January 30 said that ExxonMobil must provide the GOI with data the 
company has collected on the Natuna D - Alpha block gas field.  On 
January 25, Yusgiantoro told the media the GOI's initial contract 
with ExxonMobil had expired and that further development of the 
field would be open to all bidders.  These remarks were in contrast 
to BP MIGAS Chairman Kardaya Warnika's January 22 statement that 
ExxonMobil has until June to submit a new contract proposal for 
further development of the block before the GOI could consider other 
proposals.  ExxonMobil Indonesia Vice President for External 
Relations Maman Budiman said on January 26 that ExxonMobil would not 
bring the matter before international arbitration, even though the 
GOI claims to have terminated early Exxon's existing contract to 
develop the block.  The Natuna D - Alpha block contains an estimated 
222 trillion cubic feet (TCF) of gas high in sulfur dioxide content, 
of which 46 TCF is believed to be commercially recoverable. 
 
¶12.  Pertamina President Director Ari S. Soemarno on January 25 
insisted that Pertamina own at least a 50 percent share in the 
block's further development, since Pertamina had already invested a 
considerable amount in the block to date.  However, Purnomo on 
January 25 noted that Pertamina does not have first right of refusal 
or any other priority right related to the further development of 
the block. 
 
GOI Frees Contractors from Drilling Obligation 
--------------------------------------------- - 
 
¶13. On January 15, MEMR Upstream Director R. Priyono announced GOI 
plans for a new form of production sharing contract (PSC) that would 
allow oil and gas companies to forgo drilling if seismic surveys do 
not indicate prospective resources.  Priyono said the new 
contractual terms should reduce contractors' risks in exploring 
frontier areas.  He added that the GOI would offer these terms to 
contractors interested in 30 new blocks that the MEMR plans to open 
for bids in mid-2007.  Under the existing GOI contracts, oil and gas 
investors have six years to carry out exploration activities (from 
seismic surveys to exploration drillings).  They also must establish 
bank accounts to hold performance deposits that the GOI has the 
right to confiscate should they not meet drilling obligations.  Many 
contractors have voiced complaints about the drilling obligations, 
arguing that they should not have to drill in areas where seismic 
surveys do not indicate the presence of significant hydrocarbon 
resources. 
 
¶14. Under the new PSC, companies will have between two and three 
years to carry out seismic surveys of frontier areas.  If surveys do 
not indicate significant commercially viable resources, then 
companies can return the concessions can be returned to the GOI 
without penalty.  Share splits and signing bonuses in the new 
contracts will remain the same as those in the previous contracts. 
 
 
JAKARTA 00000414  004 OF 005 
 
 
JSX Suspends Trading of PGN Shares 
---------------------------------- 
 
¶15. The Jakarta Stock Exchange (JSX) on January 15 temporarily 
suspended trading in shares of state-owned gas company Perusahaan 
Gas Negara Tbk (PGN).  PGN's shares plunged more than one-fifth on 
January 12, wiping out $1 billion of the firm's market 
capitalization.  This followed a PGN January 11 press release 
announcing significant delays in its development of its South 
Sumatra - West Java pipeline project.  JSX lifted the trading 
suspension on January 16. Since then, PGN shares have rebounded to 
as much as 90 percent of their value in early January. PGN President 
Director Sutikno said that based on PGN's agreement with Pertamina, 
the company should have delivered gas to Pertamina beginning in 
November 2006.  However, due to delays, PGN has delayed scheduled 
deliveries to March 2007.  According to many analysts, the 
announcement of significant project delays at such a late date has 
raised concerns among many international investors about the quality 
of corporate governance in Indonesia. 
 
GOI Offers Alternative Energy Development 
----------------------------------------- 
 
¶16. Minister of Energy and Mineral Resources Purnomo Yusgiantoro 
announced on January 15 that the GOI would begin offering coal bed 
methane (CBM) development projects to investors through regular or 
direct offer tenders.  Purnomo explained that GOI would give first 
priority to develop CBM projects to existing holders of mine 
concessions and work agreements. Estimates indicate that Indonesia's 
CBM potential is as much as 453.3 trillion cubic feet (TFC), with 
most located in South Sumatra, Central Sumatra, Kalimantan, and 
Sulawesi. 
 
¶17. MEMR Director for Upstream Business Development R. Priyono told 
the press he hopes that the GOI could tender CBM working areas in 
Kalimantan and South Sumatra in March 2007 through direct offers. 
He noted CBM and oil and gas projects have different business models 
because CBM projects usually must receive approval from local 
government authorities.  He added that the GOI would refer to CBM 
development in other countries to determine appropriate ownership 
splits. 
 
Government Cuts Condensate Exports 
---------------------------------- 
 
¶18. Minister of Energy and Mineral Resources Purnomo Yusgiantoro 
said on January 12 that the GOI would divert some Indonesian 
condensate exports for domestic use, especially those produced by 
Pertamina refineries and PT Trans Pacific Petrochemical Indonesia 
(TPPI).  Purnomo said that the GOI was still calculating how much 
condensate to divert, but emphasized that any condensates diverted 
for domestic use would be sold at international prices.  According 
to Purnomo, the GOI would not need to provide subsidies to Pertamina 
or TPPI, since they would save on transportation costs by selling 
locally. 
 
Pertamina Asks Delay in New Diesel Sulfur Levels 
--------------------------------------------- --- 
 
¶19. Pertamina Fuel Division Head Djaelani Sutomo said on January 12 
that the company would ask the GOI to delay implementation of cuts 
in diesel sulfur content so that Pertamina had time to prepare its 
refineries to meet the new requirements.  The GOI in March 2006 
informed Pertamina and other companies that they had one year to cut 
diesel sulfur content to 0.35 percent from 0.5 percent to meet EURO 
2 standards, established in the year 2000. Automobile importers have 
expressed concerns about Indonesia's ability to supply diesel and 
other fuels that meet the EURO 2 standard at petrol stations across 
the country. 
 
Pertamina to Double 2007 Capex 
------------------------------ 
 
¶20. The Ministry of State-Owned Enterprise, acting in its role as 
Pertamina's shareholder, agreed on January 9 to Pertamina's plan to 
expand capital expenditures to Rp 14.6 trillion ($1.6 billion) in 
2007, more than doubled the Rp 6.3 trillion ($691.2 million) in 
¶2006.  Pertamina says it has secured $500 million worth of loans 
from a syndication of local and international banks to partly 
finance the new capital expenditures.  Finance Director Frederick 
Siahaan said Pertamina would seek other lending facilities or issue 
bonds to finance the remaining capital expenditures.  He added that 
 
JAKARTA 00000414  005 OF 005 
 
 
the majority of the new capital expenditure would be used to further 
develop the Cepu and Pondok Tengah oil blocks.  Pertamina is 
targeting total revenues of about Rp 300 trillion ($32.9 billion) 
for 2007, down from Rp 355 trillion ($38.9 billion) in 2006. 
Meanwhile, the President Director of upstream subsidiary Pertamina 
EP, Kun Kurnaely, told the press the company would boost drilling 
activities in 2007 to at least 23 exploration wells and 145 
development wells, compared to 6 exploration wells and 96 
development wells in 2006.  Pertamina EP is also aiming to increase 
crude oil production to 118,000 bpd from 102,000 bpd in 2006; and 
gas production to 1,319 million cubic square feet per day (MMSCFD) 
from 944 MMSCFD. 
PASCOE