VZCZCXRO3865
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #0724/01 0721222
ZNR UUUUU ZZH
R 131222Z MAR 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3825
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0400
RUEHBY/AMEMBASSY CANBERRA 0524
RUEHBJ/AMEMBASSY BEIJING 3984

UNCLAS SECTION 01 OF 03 JAKARTA 000724 
 
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 4430/BERLINGUETTE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PREL ID
SUBJECT: ENERGY AND MINING HIGHLIGHTS - February 2007 
 
¶1. Summary.  Pertamina delayed naming the tender winners for partial 
equity in its stake of 12 oil and gas blocks on February 27. 
Pertamina also announced it will work with foreign companies to 
develop biodiesel technology.  The GOI said 12 of 20 oil and gas 
blocks it offered for the latest tender round attracted bidders. 
State-owned electricity firm PLN said on February 24 that it would 
extend a High Speed Diesel fuel supply tender deadline.  On February 
27, the GOI questioned the capacity of four of five coal suppliers 
for the electricity fast track program.  The fast track program 
chief also announced delays for several power projects.  State gas 
company PGN increased business activity in South Sumatra in 
anticipation of a new pipeline coming online.  On February 27, the 
GOI rebuffed gold mining company Newmont's request to delay its 
required divestment plan.  The GOI approved an export permit for the 
state-owned tin mining company PT Timah on February 23.  The GOI 
said on February 22 it intends to require mining firms to make up 
front compensation payments for any potential enviromental damage. 
Local coal miner PT Bumi Resources said its profits soared 66% 
during 2006.  This report uses an exchange rate of Rp 9125 per US 
dollar. End Summary. 
 
Pertamina Delays Partial Equity Sales 
------------------------------------- 
 
¶2. State petroleum company Pertamina on February 27 announced a 
delay until mid-March in naming the tender winners for partial 
equity in its stake of 12 oil and gas blocks.  Upstream Director 
Sukusen Soemarinda told press that the tender winners would receive 
15% of Pertamina's 40% share for the 12 blocks: Bangkudulis (East 
Kalimantan); Ibul Tenggara (South Sumatra); Tebat Agung (South 
Sumatra); Perlak (South Sumatra); Tanjung Tiga Timur (South 
Sumatra); Sungai Lilin (South Sumatra); Rayu (South Sumatra); 
Sambidoyong (West Java); Wiriagar (Irian Jaya); Kamundan (Papua); 
Kendal (South Sumatra); and Suci (East Java).  He attributed the 
delay to unspecified complications in the tender evaluation 
process. 
 
Pertamina Announces Biofuels Partnership 
---------------------------------------- 
 
¶3.  Pertamina officials told journalists on February 23 that they 
will work with companies from Brazil, the United States, Italy, and 
Germany to develop Indonesia's biodiesel industry.  They said they 
plan to concentrate their cooperation in developing hydrogenation 
technology for refineries in Balikpapan, Dumai and Balongan. 
Pertamina said it will require technological advances in the 
refining process to make biodiesel economically feasible due to the 
current high market price for biodiesel feed stock.  According to 
Pertamina, it has brought in experts from Brazil's Petrobas to 
produce biodiesel on a trial basis. 
 
12 Oil and Gas Blocks Attract Bidders 
------------------------------------- 
 
¶4. On Februrary 16, Director General of Oil and Gas Luluk Sumiarso 
told reporters that 12 of the 20 oil and gas blocks the GOI offered 
for the latest tender round attracted bidders.  The 12 blocks are 
South East Mahakam(Kalimantan); West Air Komering (Sumatra); Karama 
(Makassar Strait); Mandar (Makassar Strait); Sageri (Makassar 
Strait); Ujung Kulon (West Java); Cucut (Natuna); Tuna (Natuna); 
Cakalang (Natuna); Baronang (Natuna); Enrekang (West Sulawesi) and 
Lampung 1 (Lampung).  Companies that participated in bidding 
included long-time players in Indonesia such as France's Total, UK's 
Premier Oil, Malaysia's Petronas, U.S.'s Esso Exploration, Canada's 
Talisman, Pertamina, U.S.'s Anadarko, and Norway's Statoil ASA, in 
addition to possible new entrants.  Sumiarso said the GOI plans to 
offer about 40 blocks for tender during 2007. 
 
PLN Extends Fuel Supply Deadline 
-------------------------------- 
 
¶5.  PLN said on February 24 that it would extend the tender deadline 
for those companies interested in supplying High Speed Diesel (HSD) 
fuel to the state electricity company during 2007.  PLN Vice 
Chairman Widayanto told press that bidders broached the request for 
an extension on February 19.  Widayanto added that Pertamina has 
already passed the pre-qualification phase and is therefore not one 
of the 46 companies to receive more time to prepare its bid.  PLN 
plans to announce the winners of the minimum one-year fuel supply 
contracts by May 2007.  Shell, BP, and Petronas have expressed 
interest in joining the tender competition, according to press 
reports and industry analysts.  PLN spokesmen said the power company 
 
JAKARTA 00000724  002 OF 003 
 
 
needs to source fuel for multiple plants so several of the 46 
competitiors may eventually win contracts.  PLN said it is still 
analyzing its fuel requirements for each of its power plants and was 
therefore unsure of the total size of the tender.  On February 8, 
Pertamina said that the electricity company owes Pertamina Rp 13 
trillion ($1.4 billion) in unpaid fuel bills. 
 
¶6. Separately, stated-owned Bank Mandiri said on February 1 that the 
bank will allocate Rp 3 trillion ($328 million) this year for loans 
to finance construction of PLN power plants and conversion of their 
diesel-fired power plants to coal.  PLN Chief Commissioner Alhilal 
Hamdi added that PLN will also issue bonds to finance its power 
projects. 
 
PLN Coal Supplies Questioned, Fast Track Program Delays 
--------------------------------------------- ---------- 
 
¶7.  On February 27, the Ministry of Energy and Mineral Resources 
(MEMR) raised doubts about the capacity of four of five coal 
producers for the GOI's electricity fast track program.  Director of 
Coal and Mineral Enterprises M.S. Marpaung told reporters that a 
ministry study found that the four consortia lacked clarity on the 
amount of proven reserves, have reserves that are located in 
protected forests or that overlap with the mining areas of other 
companies.  Only PT Arutmin Indonesia has the clear capacity to 
fulfill its commitment, according to Marpaung.  In October 2006 PLN 
signed letters of intent with five consortia to supply 21 million 
tons per annum (MTPA) of low-rank coal to company's existing power 
plants, as well as for proposed power projects scheduled to commence 
operation in 2009 and 2010.  PLN signed agreements with a consortia 
including PT Arutmin Indonesia and Darma Henwa, both of which are 
controlled by the family of Coordinating Minister Aburizal Bakrie, 
to supply 10 MTPA.  Jambi-based coal miner Titan Energi is to supply 
3.5 MTPA.  The consortium of Kasih Industri Indonesia and Senamas 
Energindo will supply 4.5 MTPA.  Baramutiara Prima is contracted to 
supply 2.3 MTPA, while Surya Sakti Darma Kencana will provide 0.52 
MTPA. 
 
¶8.  Separately on February 15, fast-track program chief Yogo Pratomo 
said several of the 600 and 700 MW power plants planned for Java 
would be delayed from their original target of August 2009 to 
February 2010.  He said that several of the smaller 300 and 400 MW 
projects in Java, which had been scheduled to begin operations in 
June 2009, will now come online in August 2009.  Pratomo attributed 
the delays to difficulties in the tendering process and contract 
negotiations for the PLTU Suralaya, PLTU Paiton, PLTU Tanjung Awar, 
PLTU Rembang, PLTU Indramayu and PLTU Labuhan projects. 
 
PGN Seeks New Customers in West Java 
------------------------------------ 
 
¶9.  State gas company PGN President Director Sutikno on February 21 
said that PGN seeks to add 100 West Java companies as new customers 
as it nears completion of the first stage of the South Sumatra-West 
Java (SSWJ) pipeline project.  Sutikno said that 30 million cubic 
feet per day (MMCFD) will begin flowing in March 2007.  PGN will 
raise the volume to 60 MMCFD in May 2007 with a goal of 250 MMCFD by 
2008, he said.  President Susilo Bambang Yudhoyono and Japanese 
Prime Minister Shinzo Abe are scheduled to inaugurate the Bojonegoro 
gas transmission station in April. 
 
¶10. Separately PGN said it signed a memorandum of understanding 
(MOU) on February 1 with the Muara Enim regency administration to 
manage coal-bed methane (CBM) and natural gas in the South Sumatra 
province.  PGN said the close proximity of the SSWJ pipeline now 
under contruction made the regency's CBM potential particularly 
attractive.  A PGN spokesman said South Sumatra potentially has one 
trillion cubic feet of CBM, equivalent to 180 million barrels of 
oil, if they can achieve a 60% recovery rate. 
 
Newmont Divestment Delay Request Rebuffed 
----------------------------------------- 
¶11.  According to press reports on February 27, an MEMR spokesman 
rejected as "premature" a request by PT Newmont Nusa Tenggara (NTT) 
to delay divestment of its 7% stake to the GOI, a move which must be 
completed by March 2008.  An NTT spokesman said the miner made the 
request so that it can first complete the required sale of a 3% 
stake, valued at $109 million, to the Nusa Tenggara provincial 
administration and the West Sumbawa regency.  Current NNT's 
shareholders are Newmont Mining Corp with 45%, local company PT 
Pukuafu Indah with 20%, and a consortium led by Japan's Sumitomo 
holding 35%. 
 
JAKARTA 00000724  003 OF 003 
 
 
Timah Gets Tin Export License 
----------------------------- 
 
¶12.  PT Timah President Director Thobrani Alwi said on February 23 
that the GOI has approved a tin export permit for the state-owned 
tin mining firm under new export rules.  The new rules took effect 
February 23 and include requirements that a GOI-appointed surveyor 
verify the source of ore, as well as purity checks for ingots.  A 
trade ministry official said on February 23 that eight companies 
including PT Timah sought to register as tin exporters.  He added 
that only PT Timah's permit has been approved with the remaining 
ones still under review.  Indonesia's Tin Industry Association, 
which represents 22 smelters, had earlier warned on February 15 that 
its members could lose as much as 60,000 tons of exports if the GOI 
failed to grant permits.  Industry analysts have predicted up to a 
10% decline in global tin production as a result of the slowing of 
supply from illegal smelters and PT Koba Tin.  PT Koba Tin, 
Indonesia's second largest tin miner and smelter, halted all 
production on February 10 after three company directors were held by 
police investigating illegal ore purchases.  Global tin prices 
reached 18-year highs during late 2006 and early 2007, trading well 
above $12,000 per ton. 
 
Miners To Pay Compensation Up Front 
----------------------------------- 
 
¶13. Forestry Minister Kaban said on February 22 the GOI intends to 
require mining firms operating in plantation and protected forests 
to make up front compensation payments for any potential 
enviromental damage their actvities might cause.  He said the GOI 
will also revoke a mining company's lease, which is generally 
renewable every five years, and rehabilitate the work area if the 
GOI decides a firm has abandoned its site.  Kaban said the new 
policy will be put into effect through a ministry regulation issued 
in line with the proposed new mining law, currently under 
consideration in Parliament.  Kaban said the amount of compensation 
the GOI will require will be assessed on a case-by-case basis 
depending on the amount of forest destroyed.  Energy and Mineral 
Resources Minister Purnomo said that an inter-ministerial team 
coordinated by the Vice President will conduct the assessments to 
avoid conflicts of interest. 
 
Bumi Profit Surges on Higher Coal Production 
-------------------------------------------- 
 
¶14.  Local mining firm PT Bumi Resources said on February 27 that 
its net profit increased 66% in 2006 to about $200 million from 
about $123.3 million the previous year.  The company attributed the 
sharp rise to the surging coal production, which rose by 19% to 53.5 
million tons during the year from about 45 million tons in 2005. 
Their coal sale prices reached an average of about $40.80 per ton in 
2006, compared to $40.12 in 2005.  Bumi operates the two major coal 
mining companies: Arutmin Indonesia and Kaltim Prima Coal (KPC), 
both in East Kalimantan. 
 
¶15. Separately, Bumi also said on February 19 said it will announce 
in March the buyers of the 30% stake it has on offer in KPC and 
Arutmin Indonesia. Only 6 of 13 companies passed the initial 
selection process in January. The six will be conducting the final 
stages of due diligence until February 28 before submitting their 
bids.  Press reports suggested on February 14 that the bidders are 
valuing the 30% share at around $1.6 billion. 
 
HEFFERN