VZCZCXRO4082
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #1227/01 2040015
ZNR UUUUU ZZH
R 230015Z JUL 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 2882
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001227 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR EAP/MTS, EEB/IFD/ODF, EEB/TRA 
DEPARTMENT PASS TO EXIM for RMORIN 
COMMERCE FOR NSHALIZEH 
USTR FOR KEHLERS AND BWEISEL 
TREASURY FOR IA-BAUKOL 
 
E.O. 12598: N/A 
TAGS: ELTN ECON EFIN PGOV ID
SUBJECT: GE ON TRACK IN LOCOMOTIVE MARKET 
 
REF: A) Jakarta 1163 
B) 08 Jakarta 1236 
 
¶1. (U) This message is Sensitive-But-Unclassified (SBU) and includes 
business sensitive information.  Please handle accordingly. 
 
¶2. (SBU) Summary: General Electric Transportation (GE) has two 
locomotive agreements and a third in the works, which could total 
sales of several hundred million dollars.  Post and the U.S. Export 
Import Bank's (ExIm) commercial diplomacy have been central to 
facilitating the deals.  According to GE reps, the government of 
Indonesia would likely have already bought Chinese locomotives 
(government-to-government) if ExIm, with Post support, had not 
stepped in and offered a financing package to level the playing 
field for competition.  End Summary. 
 
TWO NEW GE DEALS - UP TO 170 LOCOMOTIVES 
---------------------------------------- 
 
¶3. (SBU) In July, GE successfully ramped up its engagement with PT 
Kereta Api (PTKA), the state-owned railway company, thanks to Post's 
ongoing efforts with ExIm to level the competitive playing field. 
Other important factors contributing to this success story were a 
new, forward-looking president of PTKA who came from Citigroup, GE's 
active high-level engagement, and a recent Ambassadorial lunch which 
brought the stakeholders together.  The deal closest to closure is 
the PTKA purchase of 20 locomotives directly from GE using PTKA's 
annual budgets from 2008 and 2009 (10+10 locomotives).  GE and PTKA 
publically announced this order on July 15.  Assuming the contracts 
are finalized, the locomotives would be delivered in 2010 and 2011. 
 
 
¶4. (SBU) The second deal has much greater potential.  On July 15, GE 
and PTKA announced a Memorandum of Understanding (MOU) to expand 
their partnership and look at the universe of PTKA's needs (not just 
individual procurements).  The MOU lays the foundation for the 
purchase or lease of up to 150 locomotives in the future.  Over half 
the locomotives are planned to transport coal in South Sumatra.  In 
the coming months, GE and PTKA will finalize this deal, tentatively 
valued at USD $300-$450 million, for a possible announcement in 
September/October.  The locomotives would be built over the next 
three to five years.  GE and PTKA will seek the involvement of ExIm 
in financing the deal as appropriate. 
 
LONGSTANDING EXIM LOCOMOTIVE OPPORTUNITY KEEPS GE IN THE GAME 
--------------------------------------------- ----- 
 
¶5. (SBU) The third deal, which also has possible ExIm financial 
backing, is furthest from closure, but has facilitated GE's 
continued access to the Indonesian market.  The Indonesian 
government has planned for over four years to assist PTKA to procure 
30 diesel electric locomotives using export credit financing (Ref 
B), a deal valued at approximately USD $51 million.  Reports 
indicated that China and Korea were interested in the procurement 
and were offering interest rates that could not be matched 
commercially.   In 2007 and 2008, ExIm issued a "Letter of Interest 
with Tied-Aid Willingness to Match Indication" for the export of 
these locomotives by GE.  The Letter of Interest remains in effect 
and would allow the Indonesian government to put together a 
financial package which would match foreign tied aid credit for the 
sale.  While this tender has not yet been released, thanks to Post 
and ExIm efforts it will be competitively bid -- not the Indonesian 
government's initial plan.  By making clear early on in this process 
that ExIm was willing to match the financing terms offered on 
cheaper, lower quality locomotives from China or other countries, 
ExIm and Post were able to keep the market open for GE to advance 
the deals reported in paras 3 and 4. 
 
¶6. (SBU) PTKA is a longtime, satisfied customer of GE and owns over 
175 GE locomotives.  GE locomotives are a favorably known product, 
assembled in Indonesia and include more than 20% local Indonesian 
content.  China and other countries are interested in penetrating 
the market with lower cost locomotives.  (Note: Indonesia is one of 
the few ASEAN countries that does not use Chinese locomotives.  End 
Note.)  At the Ambassador's event, Indonesian government officials 
said they regretted being locked into the purchase of some cheaper 
products and services, most notably the 10,000 MW Chinese power 
plants (Ref A).  The government officials added that clear 
requirements on product quality and performance were necessary in 
the bidding documents because the cheapest option is not always the 
best. 
 
A MODEL FOR COMMERCIAL DIPLOMACY 
-------------------------------- 
 
JAKARTA 00001227  002 OF 002 
 
 
 
¶7. (SBU) Post's model for commercial diplomacy in this case included 
using the Ambassador's office to attract a group of policy-level 
host government officials responsible for financing, procurement, 
and technical details together with relevant private sector 
interlocutors.   The event was focused on a discussion of 
challenges, strategies, and solutions to railway infrastructure 
needs, and not focused on a specific procurement.  The Ambassador's 
railroad infrastructure lunch following this model successfully 
brought the decision makers together with the private sector to 
better understand Indonesian needs and the possible solutions. 
 
HUME